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, 20162017
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 November 2, 2016October 31, 2017, was 14,644,50714,897,661.
 

GULF ISLAND FABRICATION, INC.
I N D E X
 
      Page
   
PART I
  
FINANCIAL INFORMATION
   
Item 1.
  
Financial Statements
   
   
Consolidated Balance Sheets at September 30, 20162017 (unaudited) and December 31, 20152016
  
3
   
Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 20162017 and 20152016 (unaudited)
  
4
   
Consolidated Statement of Changes in Shareholders’ Equity for the Nine Months Ended September 30, 20162017 (unaudited)
  
5
   
Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 20162017 and 20152016 (unaudited)
  
6
   
Notes to Consolidated Financial Statements (unaudited)
  
7
Item 2.
  
Management’s Discussion and Analysis of Financial Condition and Results of Operations
  
1516
Item 3.
  
Quantitative and Qualitative Disclosures About Market Risk
  
2628
Item 4.
  
Controls and Procedures
  
2628
PART II
  
Other Information
  
26
Item 1.
  
Legal Proceedings
  
2629
Item 1A.
  
Risk Factors
  
2729
Item 6.
  
Exhibits
  
2729
Signatures
  
2830
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		September 30,
2017		 December 31,
2016
(Unaudited) (Note 1)(Unaudited) (Note 1)
ASSETS      
Current assets:      
Cash and cash equivalents$55,642
 $34,828
$17,792
 $51,167
Contracts receivable and retainage, net26,619
 47,060
25,513
 20,169
Costs and estimated earnings in excess of billings on uncompleted contracts18,679
 12,822
Contracts in progress42,810
 26,829
Prepaid expenses and other assets4,034
 3,418
4,158
 3,222
Inventory18,281
 12,936
12,325
 11,973
Assets held for sale—
 4,805
107,010
 —
Total current assets123,255
 115,869
209,608
 113,360
Property, plant and equipment, net211,215
 200,384
90,989
 206,222
Intangible assets, net2,069
 —
Other assets673
 670
2,783
 2,826
Total assets$337,212
 $316,923
$303,380
 $322,408
LIABILITIES AND SHAREHOLDERS’ EQUITY      
Current liabilities:      
Accounts payable$8,654
 $13,604
$21,457
 $9,021
Billings in excess of costs and estimated earnings on uncompleted contracts7,154
 7,081
Advance billings on contracts4,367
 3,977
Deferred revenue, current14,178
 —
4,148
 11,881
Accrued contract losses1,494
 9,495
1,982
 387
Accrued employee costs8,493
 6,831
Accrued expenses and other liabilities3,510
 890
13,685
 10,032
Income tax payable—
 50
Total current liabilities43,483
 37,901
45,639
 35,348
Net deferred tax liabilities12,999
 23,234
Deferred revenue, noncurrent2,029
 —
—
 489
Other long-term liabilities109
 —
Net deferred tax liabilities25,476
 21,825
Other liabilities895
 305
Total liabilities71,097
 59,726
59,533
 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, 14,851,949 issued and outstanding at September 30, 2017, and 14,695,020 at December 31, 2016, respectively10,817
 10,641
Additional paid-in capital98,256
 96,194
100,388
 98,813
Retained earnings157,280
 150,651
132,642
 153,578
Total shareholders’ equity266,115
 257,197
243,847
 263,032
Total liabilities and shareholders’ equity$337,212
 $316,923
$303,380
 $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 
 September 30,		 Nine Months Ended 
 September 30,
2016 2015 2016 2015 2017 2016 2017 2016
Revenue$65,384
 $67,531
 $230,864
 $251,102
 $49,884
 $65,384
 $133,745
 $230,864
Cost of revenue60,125
 75,368
 205,839
 248,686
 50,378
 60,125
 150,755
 205,839
Gross profit (loss)5,259
 (7,837) 25,025
 2,416
 (494) 5,259
 (17,010) 25,025
General and administrative expenses5,086
 3,798
 14,633
 11,817
 4,370
 5,086
 12,940
 14,633
Asset impairment—
 6,600
 —
 6,600
 —
 —
 389
 —
Operating income (loss)173
 (18,235) 10,392
 (16,001) (4,864) 173
 (30,339) 10,392
Other income (expense):               
Interest expense(110) (39) (248) (126) (45) (110) (262) (248)
Interest income12
 8
 20
 21
 —
 12
 12
 20
Other income, net599
 —
 1,039
 20
 
501
 (31) 811
 (85) 
Other income (expense), net38
 599
 (221) 1,039
Total other income (expense)(7) 501
 (471) 811
Net income (loss) before income taxes674
 (18,266) 11,203
 (16,086) (4,871) 674
 (30,810) 11,203
Income taxes133
 (6,129) 4,134
 (5,389) 
Income tax expense (benefit)(1,761) 133
 (10,322) 4,134
Net income (loss)$541
 $(12,137) $7,069
 $(10,697) $(3,110) $541
 $(20,488) $7,069
Per share data:               
Basic and diluted earnings (loss) per share - common shareholders$0.04
 $(0.84) $0.48
 $(0.74) $(0.21) $0.04
 $(1.38) $0.48
Cash dividend declared per common share$0.01
 $0.10
 $0.03
 $0.30
 $0.01
 $0.01
 $0.03
 $0.03
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 (loss)—
 —
 —
 (20,488) (20,488)
 Vesting of restricted stock156,929
 (88) (797) —
 (885)
 Compensation expense - restricted stock—
 264
 2,372
 —
 2,636
 Dividends on common stock—
 —
 —
 (448) (448)
 Balance at September 30, 201714,851,949
 $10,817
 $100,388
 $132,642
 $243,847
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,		Nine Months Ended 
 September 30,
2016 20152017 2016
Cash flows from operating activities:      
Net income (loss)$7,069
 $(10,697)$(20,488) $7,069
Adjustments to reconcile net income (loss) to net cash provided by operating activities:   
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:   
Bad debt expense422
 400
19
 422
Depreciation19,262
 19,674
Depreciation and amortization10,141
 19,262
Amortization of deferred revenue(4,114) —
(2,397) (4,114)
Asset impairment—
 6,600
389
 —
Gain on sale of assets(924) (10)
Loss (gain) on sale of assets224
 (924)
Deferred income taxes3,651
 (5,464)(10,235) 3,651
Compensation expense - restricted stock2,452
 1,863
2,636
 2,452
Changes in operating assets and liabilities:      
Contracts receivable and retainage22,287
 43,501
Costs and estimated earnings in excess of billings on uncompleted contracts(5,834) (237)
Prepaid expenses and other assets915
 2,072
Inventory135
 508
Contracts receivable and retainage, net(5,363) 22,287
Contracts in progress(15,981) (5,834)
Prepaid expenses, inventory, and other current assets(26) 1,050
Accounts payable(13,654) (25,402)12,436
 (13,654)
Billings in excess of costs and estimated earnings on uncompleted contracts(20) (13,494)
Advance billings on contracts390
 (20)
Deferred revenue(8,928) —
(5,825) (8,928)
Accrued employee costs1,404
 343
Accrued expenses2,733
 (2,369)
Deferred compensation590
 —
Accrued expenses and other liabilities2,336
 4,713
Accrued contract losses(8,001) 1,367
1,595
 (8,001)
Current income taxes413
 —
Net cash provided by operating activities19,268
 18,655
Net cash (used in) provided by operating activities(29,559) 19,431
Cash flows from investing activities:      
Capital expenditures(5,415) (5,052)(4,515) (5,415)
Net cash received in acquisition1,588
 —
—
 1,588
Proceeds from the sale of equipment5,813
 10
2,120
 5,813
Net cash provided by (used in) investing activities1,986
 (5,042)
Net cash (used in) provided by investing activities(2,395) 1,986
Cash flows from financing activities:      
Tax payments made on behalf of employees from withheld, vested shares of common stock(885) (163)
Payment of financing cost(88) —
Payments of dividends on common stock(440) (4,397)(448) (440)
Proceeds received from borrowings under our line of credit2,000
 —
Repayment of borrowings under our line of credit(2,000) —
Net cash used in financing activities(440) (4,397)(1,421) (603)
Net change in cash and cash equivalents20,814
 9,216
(33,375) 20,814
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
$17,792
 $55,642

The accompanying notes are an integral part of these financial statements.

GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 20162017
(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 and two multi-purpose service vessels. We recently fabricated offshore wind turbine foundations 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, 20162017, are not necessarily indicative of the results that may be expected for the year endedending 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 three and nine months ended September 30, 2016, to conform to current period presentation:

We reclassified $163,000 from operating activities to financing activities in the Company’s consolidated statement of cash flows for the nine months ended September 30, 2016, related to tax payments made by the Company to satisfy employee 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 and nine months ended September 30, 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.” Topic 606 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. Revenue from our fixed-price and unit-rate contracts is recognized under the percentage-of-completion method, computed by the significant inputs method which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. Revenue from contracts that are based upon time worked and materials incurred (“T&M”) is recognized at the contracted rates as the work is performed and the costs are incurred. Topic 606 will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.

As part of our implementation of this standard, we have established an implementation team as well as employed the help of outside consultants to assist with the implementation. We have completed our scoping phase of this project and believe that we will continue to be able to recognize revenue for our fixed-price and unit-rate contracts using the percentage-of-completion method, computed by measuring the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. However, there are additional criteria to consider that can impact the timing and inclusion of revenue in our percentage-of-completion calculations. While these additional criteria could potentially impact the timing of revenue recognition, they would not change the timing for the recognition of costs. Additionally, implementation of Topic 606 requires that each performance obligation must be separately identified and the contract price allocated to it. A determination to combine a group of contracts into one performance obligation or segment a single contract into multiple performance obligations could change the amount of revenue and gross profit recorded in a given period.

We expect to finalize a review of our contracts and complete our calculation of a cumulative implementation adjustment, if any, during the fourth quarter of 2017. At this time, we are unable to conclude whether there will be any cumulative implementation adjustments, if any, and whether or not they would be material. The guidance permits companies to either apply the new requirements retrospectively to all prior periods presented through use of the full retrospective method or apply the new requirements in the year of adoption through a cumulative adjustment using the modified retrospective method. 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 each prior period presented orbe recognized is calculated separately as a cumulative-effect adjustmentdiscrete item each reporting period and not as part of the date of adoption. We are evaluating the effect of this new standard on our financial statements.

NOTE 2 - 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.Company’s projected annual effective tax rate. During the quarter ended September 30, 2016, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due from the seller and an adjustment to the initial purchase price accounting values as further discussed below.

Included in our consolidated balance sheet as of September 30, 2016 are assets of $21.4 million and liabilities of $21.1 million from the LEEVAC transaction. The results of LEEVAC are included in our consolidated statements operations for the three and nine months ended September 30, 2016. Revenue2017, we recorded tax expense of $1,000 and net income (loss) included in our results of operations and attributable$215,000, respectively (approximate $0.01 loss per share) related to the assetsadoption of this ASU. We have adopted these provisions on a prospective basis and operations acquiredour prior period presentation has not changed. Future effects to the Company’s income tax expense (benefit) as a result of the adoption of this ASU will depend on the timing, number of shares and the closing price per share of the Company’s common stock on the dates of vesting.


This ASU also clarifies that cash paid by the Company to taxing authorities in order to satisfy employee income tax withholding obligations from vesting shares should be classified as a financing activity in the LEEVAC transaction were $16.8 million and $(471,000)Company’s statement of cash flows. We have reported payments of $885,000 within financing activities within our consolidated statement of cash flows for the threenine months ended September 30, 2016,2017, as a result of adoption of this ASU. We have adopted these provisions retrospectively and $55.9 million and $280,000reclassified $163,000 from cash used in operating activities to cash used in financing activities for the nine months ended September 30, 2016, respectively. Revenue for the three and nine months ended September 30, 2016 included $1.5 million and $4.1 million in non-cash amortization of deferred revenue, respectively, 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
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 corner of the 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 covered fabrication areaproperty, plant and 3,000 feetequipment for these assets was $104.5 million at September 30, 2017. We measure and record assets held for sale at the lower of water frontage with two launch ways. The lease, including exercisable renewal options, extends through January 2045.
their carrying amount or fair value less cost to sell.

Lake Charles - SubleasedOn August 25, 2017, our South Texas facilities fromwere impacted by Hurricane Harvey, which made landfall as a third party forcategory 4 hurricane. As a 10 acre complex 17 miles from the Gulfresult, we suffered damages to our South Texas buildings and equipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and we expect to incur additional future repair costs in excess of Mexicoour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on the Calcasieu River near Lake Charles, Louisiana. The Lake Charles complex includes 1,100 feetthese assets up to a maximum of bulkhead water frontage$25.0 million, subject to a 3.0% deductible with a water depthminimum deductible of 40 feet located one mile$500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the Gulf Intracoastal Waterwaydamages and insurance coverage, management believes that there is located near multiple petrochemical plants. The sublease, including exercisable renewal options (subjectno basis to sublessor renewals), extends through July 2038.
record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs. Our final assessment of the damages incurred to our South Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled and such differences could be material.

Houma - LeasedAs a result of the decision to place our South Texas facilities fromup for sale, we have and will continue to incur costs associated with maintaining these facilities. These costs include insurance, general maintenance of the former ownerproperties in their current state, property taxes and retained employees which will be expensed as incurred. We do not expect the sale of LEEVAC Shipyards, currently the Senior Vice President ofthese assets to impact our Shipyards division,ability to operate our Fabrication division. Our South Texas assets held for sale do not qualify for discontinued operations presentation.

Prospect Shipyard Assets:

We lease a 35 acre35-acre complex 26 miles from the Gulf of Mexico nearin Houma, Louisiana. Payment terms are approximately $67,000 per month. TheWe have entered into an agreement to terminate 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 AugustDecember 31, 2017. Upon expiration, we have2017, with 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 allowner of the property (currently a senior vice president within the Company and the former chief executive officer of LEEVAC employees.

DuringShipyards, LLC) to facilitate an orderly disposal of assets at 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. Our remaining lease payments are not material. 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. Our net book value of property, plant and equipment for these assets was determined$2.5 million at September 30, 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 expect to finalize our purchase price allocationrecorded an impairment of $389,000 during the fourth quarter of 2016. The tables below present the total cash received as reported in our consolidated statements of cash flows, the amount due from seller and the corresponding preliminary fair values assigned to the assets and liabilities acquired from LEEVAC 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 for the three and nine months ended September 30, 2015 assuming that2017. Additionally, we acquired substantially allsold two drydocks from our

Prospect Shipyard for proceeds of $2.0 million and recorded a loss on sale of $259,000 during the nine months ended September 30, 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 as of September 30, 2017, at our South Texas facilities and certain specified liabilities of LEEVAC on January 1, 2015our Prospect Shipyard is as follows (in thousands):
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
AssetsSouth Texas Fabrication Yards Prospect Shipyard Consolidated 
Land$5,492
 $—
 $5,492
 
Buildings and improvements117,582
 —
 117,582
 
Machinery and equipment93,552
 2,719
 96,271
 
Furniture and fixtures867
 82
 949
 
Vehicles610
 —
 610
 
Other—
 —
 —
 
Less: accumulated depreciation(113,596) (298) (113,894) 
Total assets held for sale$104,507
 $2,503
 $107,010
 

NOTE 3 – REVENUE AND CONTRACT COSTS
The Company uses the percentage-of-completion accounting method for fabrication contracts. Revenueto recognize revenue from fixed-price or unit rateand 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 amountpro rata portion of gross profit recognized for that periodthe contract value based upon the labor hours incurred to the total labor hours estimated to complete the contract 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 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%
        
 Three Months Ended September 30, Nine Months Ended September 30,
 2017 2016 2017 2016
Pass-through costs as a percentage of revenues48.4% 33.8% 45.3% 35.0%
        
Costs and estimated earnings
Contracts in excess of billings on uncompleted contractsprogress at September 30, 2016 was $18.72017, were $42.8 million with $10.2$31.7 million relating to two major customers. Billings in excess of costs and estimated earningsAdvance billings on contracts at September 30, 20162017, was $7.2$4.4 million and included advances of $5.9$3.2 million from fourtwo major customers. Accrued contract losses were $2.0 million and $387,000 as of September 30, 2017 and December 31, 2016 , respectively. Our accrued contract losses as of September 30, 2017, are a result of changes in estimates totaling $12.7 million identified during the nine months ended September 30, 2017, due to cost overruns and re-work related to two vessels we are constructing for a major customer in our Shipyards division.
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, 2016,2017, 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 nine months ended September 30, 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. recovered.

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, $12.12017, $16.3 million, or 45.6%64.0%, iswas with three customers. The significant projects for these three customers consist of:
offshore services projectsOne large petroleum supply vessel for two oil and gas customersa customer in our 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);
Offshore installation and hook-up work related to a customer within our Services segment;division; and
theThe fabrication and repair toof four modules associated with a deepwater structure for oneU.S. ethane cracker project.

As of our oil and gas customers in our Fabrication segment.
At September 30, 2016,2017, we included an allowance for bad debt of $623,425$2.1 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 and a customer in our Shipyards division for storage and holding costs for a vessel that we completed and tendered for delivery on February 6, 2017, but was rejected by the customer alleging certain technical deficiencies. See Note 9.
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-inputs1 - inputs are based upon quoted prices for identical instruments traded in active markets.
Level 2-inputs2 - 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-inputs3 - 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 transaction - We recorded the assets and liabilities acquired from LEEVAC at their estimated fair values. See Note 2. The preliminary values assigned 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, we have determined that the fair values assigned to the assets and liabilities acquired in the LEEVAC transaction fall within Level 3 of the fair value hierarchy.

Impairment of Assets 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 September 30, 2017. We had no assets held for sale at December 31, 2016.

On August 25, 2017, our South Texas facilities were impacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and equipment. See Note 2. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs.

During the third quarter of 2015,nine months ended September 30, 2017, we recorded an impairment onof $389,000 related to the 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.Prospect shipyard. See Note 2.



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 September 30, Nine Months Ended September 30,Three Months Ended September 30, Nine Months Ended September 30,
2016 2015 2016 20152017 2016 2017 2016
Basic and diluted:              
Numerator:              
Net Income (loss)$541
 $(12,137) $7,069
 $(10,697)
Less: Distributed and undistributed income (unvested restricted stock)2
 24
 70
 71
Net income (loss)$(3,110) $541
 $(20,488) $7,069
Less: Distributed and undistributed income (loss) (unvested restricted stock)(14) 2
 (100) 70
Net income attributable to common shareholders$539
 $(12,161) $6,999
 $(10,768)$(3,096) $539
 $(20,388) $6,999
Denominator:              
Weighted-average shares (1)
14,633
 14,543
 14,621
 14,541
14,852
 14,633
 14,821
 14,621
Basic and diluted earnings (loss) per share - common shareholders$0.04
 $(0.84) $0.48
 $(0.74)$(0.21) $0.04
 $(1.38) $0.48
______________
(1) We have no dilutive securities.



NOTE 7 – LINE OF CREDIT
We haveOn June 9, 2017, we entered into a $40.0 million credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019, and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsInterest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement.

The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion 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%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest on undrawn stated amounts under letters of credit issued by the lenders; and (iv) limitslenders is 2.0% per annum. The credit facility is secured by substantially all of our assets (other than the maximum amountassets of loans outstanding at any timeGulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for general corporate purposes to $20.0 million. Amounts borrowed under oursale).

We must comply with 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, ourfollowing financial covenants beginning witheach quarter during the quarter ending March 31, 2016 are as follows:term of the facility:

(i)i.minimumRatio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of not less than $250.0 million plus:at least the sum of:
a)50% of net income earned in each quarter beginning March 31, 2016, and$230.0 million, plus
b)100%An amount equal to 50% of proceeds fromconsolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any issuancesuch fiscal quarter except for any gain or loss in connection with the sale of common stock;assets by Gulf Marine Fabricators, L.P.), plus
(ii)c)debt to EBITDA ratio not greater than 3.0 to 1.0;100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
(iii)iii.interest coverage ratioRatio of funded debt to tangible net worth of not lessmore than 2.0 to 1.0.0.50:1.00.

Concurrent with our execution of the credit facility, we terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the time of the termination, there was approximately $4.6 million of letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries.

At September 30, 2016,2017, no amounts were outstanding under the credit facility, and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million.facility. As of September 30, 2016,2017, we were in compliance with all covenants. We are in current negotiations withof our lenders and intend to renew our credit facility during the fourth quarter of 2016.financial covenants.

NOTE 8 - SEGMENT DISCLOSURES

In connectionWe have structured our operations with the LEEVAC transaction (See Note 2),three operating divisions and a corporate non-operating division. Beginning in 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 segmentdivision 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 docksdrydocks 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 being a publicly traded company and its overall governance.

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, 20162017 and 20152016, is as follows (in thousands):
Three Months Ended September 30, 2016Three Months Ended September 30, 2017
Fabrication
Shipyards (1), (2)
ServicesCorp. & EliminationsConsolidatedFabrication
Shipyards (1)
ServicesCorporateEliminationsConsolidated
Revenue$22,311
$23,060
$20,928
$(915)$65,384
$18,318
$15,074
$17,651
$—
$(1,159)$49,884
Gross profit532
1,877
2,850
—
5,259
Gross profit (loss)1,250
(3,504)1,912
(152)—
(494)
Operating income (loss)(949)(188)1,310
—
173
472
(4,392)1,217
(2,161)—
(4,864)
Total assets205,463
96,614
100,820
364,016
(463,533)303,380
Depreciation and amortization expense1,133
1,030
413
95
—
2,671
Capital expenditures1,479
1,054
94
25
—
2,652
  
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 September 30, 2016
Fabrication
Shipyards (1)
ServicesCorp. & EliminationsConsolidatedFabrication
Shipyards (1)
ServicesCorporateEliminationsConsolidated
Revenue$32,133
$12,936
$23,487
$(1,025)$67,531
$22,311
$23,060
$20,928
$—
$(915)$65,384
Gross profit (loss)(14,009)1,937
4,235
—
(7,837)601
1,945
2,918
(205)—
5,259
Operating income (loss)(22,747)1,545
3,241
(274)(18,235)(284)477
1,975
(1,995)—
173
Total assets285,320
75,779
100,781
332,617
(457,285)337,212
Depreciation and amortization expense4,637
1,183
443
123
—
6,386
Capital expenditures1,228
318
565
14
—
2,125
  
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
 
 Nine Months Ended September 30, 2017
 Fabrication
Shipyards (1)
ServicesCorporateEliminationsConsolidated
Revenue$42,517
$51,798
$43,758
$—
$(4,328)$133,745
Gross profit (loss)216
(19,061)2,335
(500)—
(17,010)
Operating income (loss)(2,216)(22,285)327
(6,165)—
(30,339)
Total assets205,463
96,614
100,820
364,016
(463,533)303,380
Depreciation and amortization expense5,420
3,034
1,266
421
—
10,141
Capital expenditures2,327
1,872
199
117
—
4,515
       

 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, 2015Nine Months Ended September 30, 2016
Fabrication
Shipyards (1)
ServicesCorp. & EliminationsConsolidatedFabrication
Shipyards (1)
ServicesCorporateEliminationsConsolidated
Revenue$137,431
$47,177
$70,987
$(4,493)$251,102
$70,436
$86,553
$76,179
$—
$(2,304)$230,864
Gross profit (loss)(14,055)6,022
10,449
—
2,416
4,564
9,742
11,158
(439)—
25,025
Operating income (loss)(27,681)4,779
7,441
(540)(16,001)1,743
5,524
8,696
(5,571)—
10,392
Total assets285,320
75,779
100,781
332,617
(457,285)337,212
Depreciation and amortization expense14,081
3,507
1,342
332
—
19,262
Capital expenditures2,539
534
1,612
730
—
5,415
  
Total assets363,710
54,726
90,567
(171,967)337,036
Depreciation expense16,554
1,438
1,297
385
19,674
CAPEX2,737
998
1,243
74
5,052
 
____________
(1)Included in our results of operations for our Shipyards segment were revenue and net income (loss) of $16.8 million and $(471,000), for the three months ended September 30, 2016, and $55.9 million and $280,000 for the nine months ended September 30, 2016, respectively, attributable to the assets and operations acquired in the LEEVAC transaction. No amounts were included in the comparable 2015 periods as the LEEVAC transaction was effective January 1, 2016. See also Note 2.
(2)Revenue for the three and nine months ended September 30, 2016 includes $1.5 million and $4.1 million of non-cash amortization of deferred revenue respectively, related to the values assigned to contracts acquired in the LEEVAC transaction.transaction of $510,000 and $1.5 million for the three months ended September 30, 2017 and 2016 and $2.4 million and $4.1 million for the nine months ended September 30, 2017 and 2016, respectively.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

Litigation and Arbitration:

During the third and fourth quarters of 2015, we recorded contract losses totaling $24.5 million related to a large deepwater project we delivered 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, 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 and stated that, while it had received limited waivers from its lenders, its debt agreements would require further negotiation and amendment. This same customer rejected delivery of the first vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is included in our arbitration proceedings. We disagree with our customer concerning these alleged technical deficiencies and have put the customer in default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the United States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

Customer Contract:

Included in our results of operations for the nine months ended September 30, 2017, are $12.7 million of contract losses incurred by our Shipyards division related to cost overruns and re-work identified on two newbuild vessel construction contracts from a customer. We and our customer are in discussions to pause construction of the vessels as we resolve electrical and engineering and design issues causing a significant portion of the re-work and cost overruns. Our estimates to complete these vessels contemplate this pause to resolve issues as well as the related delivery schedule. Actual costs to complete and agreed to delivery dates could be different than our estimates. Each vessel contract contains penalties from $0 to a maximum of $5.6 million per vessel for late delivery. We believe, but can provide no assurance, that we will be successful in mutually resolving these issues with our customer in accordance with our estimates. Management has not accrued for any penalties as of September 30, 2017, as we believe penalties are not deemed probable, nor are they estimable at this time.



Hurricane Harvey:

See Note 2 for a discussion of damages incurred from Hurricane Harvey at our South Texas facilities.

NOTE 910 – SUBSEQUENT EVENTS

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.

On October 21, 2016, a customer of our Shipyards’ segment announced it had received limited waivers from its lenders and noteholders through November 11, 2016 with respect to noncompliance with certain financial covenants included in the customer’s debt agreements. The customer also announced its debt agreements will require further negotiation and amendment. In the event our customer is unsuccessful in these efforts, the customer will consider other options including a possible reorganization under Chapter 11 of the Federal bankruptcy laws. At September 30, 2016, no contracts receivable were outstanding and deferred revenue exceeded our costs and estimated earnings in excess of billings on this contract. We continue to monitor our work performed in relation to our customer’s status and its ability to pay under the terms of its contract. Based on our evaluation to date, we do not believe that any loss on this contract is probable or estimable at this time.2017.

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 gas price volatility has created significant uncertaintymarine vessels used in global equity pricesenergy extraction and overall market fundamentals withinproduction, 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 and two multi-purpose service vessels. We recently fabricated offshore wind turbine foundations 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 industry. The continued downturn inproducers, petrochemical, industrial, power and marine operators.

Our industry environment continues to be challenged as low oil and gas prices presents continued challenges in the near-term. Reductions in capital spending by ourremain. 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 service 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 not expected to increase drilling activity in the near term. As a result, we do not anticipate any real movement in the near term as it relates to offshore investment and related project activity as producers focus on land-based oil and gas production through newly discovered shale finds.

Accordingly, we have increased our focus on projects outside of the upstream oil and gas sector, and we have seen improved bidding opportunities through the third quarter of 2017 primarily for our Fabrication and Shipyards divisions.

Within our Fabrication division, we have increased our focus on future 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 commodity prices. We are currently fabricating complex modules for the construction of a new petrochemical plant. We were recently named by SeaOne Holdings, LLC, that we have been selected as the prime contractor for the engineering, procurement, construction, installation, commissioning and start-up, also known as EPCIC/S, for its Caribbean Fuels Supply Project. This project consists of the construction and installation of modules for an export facility in Gulfport, Mississippi, and import facilities in the Caribbean and South America. While SeaOne’s selection of our company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on terms of the engagement, we are working to strengthen our internal project management capabilities through the hiring of additional personnel to service this potential project.  No amounts related to the SeaOne Project have been included in our backlog amounts as of September 30, 2017.

Opportunities for shipyard-related projects remain largely outside of the oil and gas sector including passenger cruise vessels and government contracts. Our Shipyards division has recently been awarded contracts for the construction of eight harbor tugs, one research vessel for Oregon State University with the option for two more research vessels and an ice class, z-drive tug.

Opportunities for our Services division are expected to remain challenging over the next several months as our customers continue to limit their spending; however, we have secured some offshore platform facility expansion work which entails the onshore fabrication of structural and production components as well as offshore installation and hook-up scopes of work. In addition to onshore plant expansions and maintenance programs.

We continue to actively compete for additional bidding opportunities and believe we will be successful in obtaining new, additional backlog awards in 2017 and 2018; however, management believes that even if we are successful in obtaining these awards there is an expected lag of several months before these awards will materialize into work at our facilities. While we have

been successful in obtaining new backlog in recent months, primarily in our Shipyards and Services divisions, these backlog awards were received during a period of competitive pricing with low margins. Revenue from these awards will not be realized until later in 2018.

On June 9, 2017, we successfully negotiated a new $40.0 million credit agreement with Whitney Bank. The credit facility matures June 9, 2019 and may be used for issuing letters of credit and/or general corporate and working capital purposes. We believe the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations. In connection with our entry into this facility, we terminated our prior $40.0 million credit facility with JPMorgan Chase Bank, N.A.

We continue to respond to decreases in capital spending by our customersproject activity by reducing our own discretionary spending. Since the beginning of 2016, we have implemented wage adjustments along with employee benefit reductions and overall cost reductions inwithin 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 have reduced our capital expenditures and continue to evaluate opportunities to dispose ofrationalize assets that are either underperformingunderutilized, under-performing or not expected to provide sufficient long-term value.

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

With no debt and $55.6 million in cash, we will continue to conserve our cash due to the uncertainty of both the severity and duration of the current oil and gas market downturn. We will, however, continue to explore opportunities for mergers or acquisitions that may exist. Our recent acquisition of substantially all of LEEVAC'sSouth Texas assets as further discussed below, has providedbelow.

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 corner of the 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 these assets was $104.5 million at September 30, 2017. We continue to wind down all fabrication activities at these locations and operations that are complementaryhave re-allocated remaining backlog and workforce to our existing marine fabrication business at an attractive value. The transaction provides usHouma Fabrication Yard as necessary. As a 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 maintaining the facility that will not be recoverable until such time as we are able to consummate one or more diversified product offeringssales of these assets. These costs include insurance, general maintenance of the property in its current state, property taxes and added approximately $121.2 millionretained employees which will be expensed as incurred. We have executed a letter of new build construction backlog inclusiveinterest with a proposed buyer for the sale of approximately $9.2 millionour South Yard in Ingleside, Texas. While this letter of purchase price fair value allocatedinterest is non-binding, the proposed buyers will be conducting several surveys on the property during the next few months as part of their due diligence. We do not expect the sale of these assets to four, new build construction projectsimpact our ability to be delivered in 2017 and 2018 for two customers.service our deepwater customers or operate our Fabrication division.

As previously disclosed, Jeff Favret has resigned from his position as Chief Financial Officer forIn the Company. This was dueevent of one or more sales of our South Texas assets, we expect to personal reasons and not relateduse all or a portion of the sales proceeds to any disputes invest in our operating liquidity in order to facilitate anticipated future projects, selected capital improvements to enhance and/or disagreements with the Company. The company has retained his services as Manager of Strategic Alternatives and Initiatives. Kirk Meche,expand 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.existing facilities.

During the thirdOn August 25, 2017, our South Texas facilities were impacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and fourth quartersequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs, and we expect to incur additional future repair costs in excess of 2015, we recorded contract lossesour deductible which management believes are probable of $24.5 million relatedbeing recovered through insurance proceeds. We maintain coverage on these assets up to a decrease in the contract price due to final weight re-measurements and our inability to recover certain costs on disputed change orders relatedmaximum of $25.0 million, subject to a large deepwater project that was delivered3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in November 2015. No amounts with respect to these disputed change orders are includedaccrued expenses and other liabilities on our balance sheet or recognized as revenue in our consolidated statement of operations as of and for the three and nine months endedat September 30, 2016. In2017. Based upon our initial assessment of the second quarterdamages and insurance coverage, management believes that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs. Our final assessment of 2016, we initiated legal actionthe damages incurred to recover our costs from these disputed change orders. We can give no assurance that our actions will be successful or thatSouth Texas assets as well as the amount of insurance proceeds we will recover allreceive could be more or any portion of these contract losses from our customer. less than this amount when the claim is ultimately settled and such differences could be material.


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 toProspect Shipyard Assets - We lease 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 acre35-acre complex 26 miles from the Gulf of Mexico nearin Houma, LA. TheLouisiana. We have entered into an agreement to terminate 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 AugustDecember 31, 2017, with the owner of the property to facilitate an orderly disposal of assets at the facility. Our remaining lease payments are not material. We have classified the machinery and equipment remaining at this shipyard as assets held for sale at February 6, 2017. Upon expiration,Our net book value of property, plant and equipment for these assets was $2.5 million at September 30, 2017. We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to sell. We recorded an impairment of $389,000 during the nine months ended September 30, 2017. Additionally, we will havesold two drydocks from our Prospect Shipyard for proceeds of $2.0 million and recorded a loss on sale of $259,000 during the optionnine months ended September 30, 2017. We do not expect the sale of these assets to extend the lease at market rates.impact our ability to service our

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 1,500Shipyards customers. The future anticipated costs expected to 3,500 tons, and a 200 ton module transporter.
be incurred prior to the termination of this lease are not significant to our consolidated financial statements.

Operating Segments

In connectionOur balance sheet position at September 30, 2017, remains stable with $17.8 million in cash, no debt and working capital of $164.0 million which includes $107.0 million in assets held for sale, primarily related to our South Texas assets. We continue to monitor and maintain a conservative capital structure as we navigate through 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 thecurrent oil and gas industries including jacketsindustry downturn 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 offurther transition 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 outfocus on securing future work outside 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 withupstream 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.sector.

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, 20162017, and MarchDecember 31, 2016, consisted of the following (in thousands, except for percentages):
September 30, 2016 June 30, 2016 March 31, 2016September 30, 2017 December 31, 2016 
Segment
___________
1.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


Shipyards Three Months Ended September 30, Increase or (Decrease) Three Months Ended September 30, Increase or (Decrease)
 2016 2015 Amount Percent 2017 2016 Amount Percent
Revenue (1)
 $23,060
 $12,936
 $10,124
 78.3 % $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (1)
 $1,877
 $1,937
 $(60) (3.1)%
Gross profit percentage 8.1% 15.0%   (6.9)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses $2,065
 $392
 $1,673
 426.8 % 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 $(188) $1,545
     (4,392) 477
   
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

Shipyards Nine Months Ended September 30, Increase or (Decrease) Nine Months Ended September 30, Increase or (Decrease)
 2016 2015 Amount Percent 2017 2016 Amount Percent
Revenue (1)
 $86,553
 $47,177
 $39,376
 83.5 % $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (1)
 $9,595
 $6,022
 $3,573
 59.3 %
Gross profit percentage 11.1% 12.8%   (1.7)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses $5,875
 $1,243
 $4,632
 372.6 % 2,835
 4,218
 (1,383) (32.8)%
Operating income (1)
 $3,720
 $4,779
    
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
   
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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
Division
___________
1.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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
$29,554
254 $65,444
707 
Shipyards78,886
582
 93,912
629
 119,984
843
200,909
1,045 59,771
457 
Services17,386
163
 22,540
209
 28,316
308
21,918
265 7,757
101 
Intersegment eliminations—
—
 (41)—
 (60)—
(649)— —
— 
Total backlog (1)
$181,212
1,586
 $157,537
1,269
 $197,068
1,675
$251,732
1,564 $132,972
1,265 
            
NumberPercentage NumberPercentage NumberPercentageNumberPercentage NumberPercentage 
Major customers (2)
three75.3% two57.4% three70.0%five82.7% two80.5% 
            
___________
1.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of 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%      $40,352
16.0%   
2018 (3)
22,116
12.2%      139,529
55.4%   
2019 (3)
63,451
25.2%   
2020 (3)
8,400
3.4%   
$181,212


 

    $251,732
100.0% 

 
            
___________
1.(1)Backlog as of September 30, 2016 includes commitments received through October 27, 2016. We exclude suspended projects from contract backlog thatwhen they are expected to be suspended more than twelve12 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.(2)At September 30, 2016,2017, projects for our threefive 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)twoTwo large multi-purpose service vessels for one customer inwithin our Shipyards segment,division, which commenced in the first quarter of 2014 and will be completed during the first and second quarter of 2018; and
(iii) the fabrication of four modules associated with a U.S. ethane cracker project.
3.(ii)Newbuild construction of four harbor tugs for one customer within our Shipyards division;
(iii)Newbuild construction of four harbor tugs for one additional customer within our Shipyards division;
(iv)The fabrication of four modules associated with a U.S. ethane cracker project within our Fabrication division; and
(v)Newbuild construction of an offshore research vessel within our Shipyards division.
(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. Additionally, as we continue to add backlog, we will begin adding personnel with critical project management and fabrication skills to ensure we have the resources necessary to execute our projects well and to support our project risk mitigation discipline for all new project work. This may negatively impact near term results.
As of September 30, 2016,2017, we had 1,336989 employees and 163 contract employees inclusive of 380 employees hired in the LEEVAC transaction, compared to 1,255 employees and 71 contract1,178 employees as of December 31, 2015.

2016. Labor hours worked were 2.31.5 million during the nine months ended September 30, 2016,2017, compared to 2.12.3 million for the nine months ended September 30, 2015.2016. The overall increasedecrease in labor hours worked for the threenine months ended September 30, 20162017, 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 September 30, 2017, Compared to Three Months Ended September 30, 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 September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$49,884
 $65,384
 $(15,500)(23.7)%
Cost of revenue50,378
 60,125
 (9,747)(16.2)%
Gross profit (loss)(494) 5,259
 (5,753)(109.4)%
 Gross profit (loss) percentage(1.0)% 8.0%   
General and administrative expenses4,370
 5,086
 (716)(14.1)%
Operating income (loss)(4,864) 173
 (5,037)(2,911.6)%
Other income (expense):      
Interest expense(45) (110) 65
 
Interest income—
 12
 (12) 
Other income (expense), net38
 599
 (561) 
Total other income (expense)(7) 501
 (508)101.4%
Net income (loss) before income taxes(4,871) 674
 (5,545)(822.7)%
Income tax expense (benefit)(1,761) 133
 (1,894)(1,424.1)%
Net income (loss)$(3,110) $541
 $(3,651)(674.9)%

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, 2016.2017 and 2016, was $49.9 million and $65.4 million, respectively, representing a decrease of 23.7%. The decrease is primarily attributable to an overall decrease in work experienced in our facilities primarily 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%48.4% and 45.3%33.8% for the three-monthsthree months ended September 30, 20162017 and 2015,2016, 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 20152017, was $494,000 compared to a gross profit of $5.3 million (8.0% of revenue) and $(7.8) million, respectively. Our gross profit improved compared to third quarter of 2015for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting fromincurred by our inabilityShipyards division related to recover certaincost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $1.1 million and jacket for one of our deepwater projects. We had no such loss during the third quarter of 2016 and implemented cost cutting measures.lower margins on current work due to competitive pressures. This was partially offset by tighter margins within all ofdecreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our segments due to a decrease in workSouth Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as a result ofassets held for sale) and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

General and administrative expenses - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016, compared to $3.8 million for the three months ended September 30, 2015.2016. The increasedecrease in general

and administrative expenses for the three months ended September 30, 20162017, was primarily attributable to the operations acquired in the LEEVAC transactionlower bonuses accrued during 2017, employee reductions and bonus expense, partially offset bycontinued cost cuttingminimization efforts implemented during 2016.by management for the period.

Asset impairmentOther income (expense), net - - 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 assetsOther income was significantly limited, and we reassessed the asset’s net realizable value based on the estimated scrap value of the assets. We had no such impairments during the three months ended September 30, 2016.
Interest expense, net - The Company had net interest expense of $98,000$38,000 for the three months ended September 30, 20162017, as compared to net interest expenseother income of $31,000$599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2015. The increase2017 relates to insurance proceeds received from damage to a corporate automobile that was primarily driven by an increase in the cost of unused credit facility fees under our credit agreement.
fully depreciated. Other income net - Other income increased $599,000 for thefor three months ended September 30, 2016. The increase was2016 primarily duerelates to gains on sales of assets from our Fabrication division.

Income taxestax expense (benefit) - Our effective income tax rate for the three months ended September 30, 20162017, was 19.7%36.2%, compared to an effective tax rate of 34.0%19.7% for the comparable period during 2015.2016. The changeincrease in ourthe effective tax rate is duethe result of changes to the decrease inestimates of our effective rateyear-end tax provision during for the year-to-date period.three months ended September 30, 2016.

Operating Segments

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2016 2015 Amount Percent
Revenue $22,311
 $32,133
 $(9,822) (30.6)%
Gross profit (loss) $532
 $(14,009) $14,541
 103.8 %
Gross profit percentage 2.4% (43.6)%   46.0 %
General and administrative expenses $1,481
 $2,138
 $(657) (30.7)%
Asset impairment $—
 $6,600
 $(6,600) n/a
Operating income (loss) $(949) $(22,747)    
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 and nine months ended September 30, 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 its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 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 September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $18,318
 $22,311
 $(3,993) (17.9)%
Gross profit (loss) 1,250
 601
 649
 108.0%
    Gross profit (loss) percentage 6.8% 2.7%   4.1%
General and administrative expenses 778
 885
 (107) (12.1)%
Operating income (loss) 472
 (284)    

Revenue - Revenue from our Fabrication division decreased $9.8$4.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015.2016. 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.

Gross profit increased $14.5 million to $532,000(loss) - Gross profit from our Fabrication division for the three months ended September 30, 20162017, was $1.3 million compared to a gross lossprofit of $14.0 million$601,000 for the three months ended September 30, 20152016. The increase in gross profit was 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.

GeneralGains on scrap sales of approximately $701,000 at our South Texas facility,
Decreases in costs resulting from reductions in workforce as we wrapped up and administrative expenses decreased $657,000completed projects at our South Texas fabrication yards,
No depreciation being recorded for our South Texas assets for the three months ended September 30, 20162017, as these assets are classified as assets held for sale; and
Continued cost minimization efforts implemented by management for the period.

This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from lower bonuses accrued during 2017 as a result of our consolidated operating loss, reductions in workforce at our South Texas fabrication facilities.

Asset impairment - Duringyards and continued cost minimization efforts implemented by management for 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.period.


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 September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $15,074
 $23,060
 $(7,986) (34.6)%
Gross profit (loss) (1)
 (3,504) 1,945
 (5,449) (280.2)%
    Gross profit (loss) percentage (23.2)% 8.4%   (31.6)%
General and administrative expenses 888
 1,468
 (580) (39.5)%
Operating income (loss) (1)
 (4,392) 477
    
___________
(1)Revenue for the three months ended September 30, 2017, and 2016, includes $510,000 and $1.5 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 $8.0 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 20152016, due to the operations acquiredcorresponding reduction in customer demand for shipbuilding and repair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $16.8oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $3.5 million in revenue for the three months ended September 30, 2016.

Gross2017, compared to a gross profit decreased $60,000of $1.9 million for the three months ended September 30, 20162016. The decrease was due to:

$2.1 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division; and
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.

General and administrative expenses - General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 20152016, primarily due to tighter margins on new work and inefficiencies incurred on the contracts acquired inreductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction partially offsettransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by savings realized from cost cutting measures implementedmanagement for the period during the first part of 2016.

General and administrative expenses increased $1.7
Services Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $17,651
 $20,928
 $(3,277) (15.7)%
Gross profit (loss) 1,912
 2,918
 (1,006) (34.5)%
    Gross profit (loss) percentage 10.8% 13.9%   (3.1)%
General and administrative expenses 695
 943
 (248) (26.3)%
Operating income (loss) 1,217
 1,975
    

Revenue - Revenue from our Services division decreased $3.3 million for the three months ended September 30, 20162017, compared to the three months ended September 30, 2015 primarily2016, 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 completedServices division decreased $1.0 million for the fabricationthree months ended September 30, 2017, compared to the three months ended September 30, 2016, due to decreased revenue discussed above and lower margins on new work performed during 2017.

General and administrative expenses - General and administrative expenses for our Services division decreased $248,000 for the three months ended September 30, 2017, compared to the three months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a 1,200 foot jacket, pilescombination of a smaller workforce and an approximate 450 short ton topsideour consolidated operating loss.

Corporate Three Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (152) (205) 53
 25.9%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 2,009
 1,790
 219
 12.2%
Operating income (loss) (2,161) (1,995) 

  

General and administrative expenses - General and administrative expenses for our Corporate division increased primarily due to a restructuring of our corporate division with no similaradditional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in 2016. Our decrease in revenue earnedanticipation of the proceeds to be received from offshore fabrication work wasthe sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the assets and operations acquired quarter due to our consolidated operating loss.

Nine Months Ended September 30, 2017, Compared to Nine Months Ended September 30, 2016 (in the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9 million inthousands, except for percentages):
Consolidated
 Nine Months Ended September 30, Increase or (Decrease)
 2017 2016 AmountPercent
Revenue$133,745
 $230,864
 $(97,119)(42.1)%
Cost of revenue150,755
 205,839
 (55,084)(26.8)%
Gross profit (loss)(17,010) 25,025
 (42,035)(168.0)%
Gross profit (loss) percentage(12.7)% 10.8%   
General and administrative expenses12,940
 14,633
 (1,693)(11.6)%
Asset impairment389
 —
 389
100.0%
Operating income (loss)(30,339) 10,392
 (40,731)(391.9)%
Other income (expense):      
Interest expense(262) (248) (14) 
Interest income12
 20
 (8) 
Other income (expense), net(221) 1,039
 (1,260) 
Total other income (expense)(471) 811
 (1,282)(158.1)%
Net income (loss) before income taxes(30,810) 11,203
 (42,013)(375.0)%
Income tax expense (benefit)(10,322) 4,134
 (14,456)(349.7)%
Net income (loss)$(20,488) $7,069
 $(27,557)(389.8)%

Revenue - Our revenue for the nine months ended September 30, 2016. Pass-through2017 and 2016, was $133.7 million and $230.9 million, respectively, representing a decrease of 42.1%. 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 as well as the completion of a vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements. Pass-

through costs as a percentage of revenue were 35.0%45.3% and 43.2%35.0% for the nine months ended September 30, 20162017 and 2015,2016, 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 profitloss for the nine months ended September 30, 2016 and 20152017, was $17.0 million compared to a gross profit of $25.0 million (10.8% of revenue) and $2.4 million (1.0% of revenue), respectively. Our gross profit improved compared to 2015for the nine months ended September 30, 2016. The decrease was primarily due to the LEEVAC transaction$12.7 million of losses incurred by our Shipyards division related to cost overruns and contract losses of $14.3 million that were recorded during the third quarter of 2015 resulting from our inability to recover certainre-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to a deckour South Texas assets of $3.6 million and jacketlower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for one of our deepwater projects. We had no such lossSouth Texas assets and Prospect shipyard during the third quarter of 2016nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented cost cutting measures in response to decreases in work at our fabrication facilities.by management for the period.

General and administrative expenses - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016, compared to $11.8 million for the nine months ended September 30, 2015.2016. The increasedecrease in general and administrative expenses for the nine months ended September 30, 2016 was2017, is primarily attributable to:

an increase of stock-based compensation expense of $589,000,
due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses and
the LEEVAC transaction; partially offset by
cost cutting efforts implementedaccrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the downturn in the oil and gas industry.period.

Asset impairmentImpairment - During the nine months ended September 30, 2015,2017, we recorded an asset impairment charge of $6.6 million$389,000 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. Dueour assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to the sustained downturn in the energy sector, our ability to effectivelyConsolidated Financial Statements.

market these assetsOther income (expense), net - Other expense 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$221,000 for the nine months ended September 30, 20162017, compared to net interest expenseother income 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 income increased $1.0 million for the nine months ended September 30, 2016. The increaseOther expense for the period was primarily due to losses on sales of two drydocks from our Shipyards division. Other income for the prior period was primarily due to gains of $924,000 related to the sale of three cranes at our Texas facility as well ason sales of smaller assets byfrom our Shipyards division.Fabrication division recorded during 2016.

Income taxestax expense (benefit) - Our effective income tax rate for the nine months ended September 30, 20162017, was 36.9%33.5%, compared to an effective tax rate of 34.0%36.9% for the comparable period during 2015.2016. The increasedecrease in ourthe effective tax rate is due to the effectresult of state income taxes from income generated within Louisiana with no offsetting tax benefit from losses generated within Texas.limitations on the deductibility of executive compensation.

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) 
 
As discussed above and 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 and nine months ended September 30, 2017. 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 nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $42,517
 $70,436
 $(27,919) (39.6)%
Gross profit (loss) 216
 4,564
 (4,348) (95.3)%
   Gross profit (loss) percentage 0.5% 6.5%   (6.0)%
General and administrative expenses 2,432
 2,821
 (389) (13.8)%
Operating income (loss) (2,216) 1,743
    

Revenue - Revenue from our Fabrication division decreased $67.0$27.9 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 2015.2016. 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. During 2015, weAs discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed theor transferred to our Houma fabrication of a 1,200 foot jacket, piles and an approximate 450 short ton topside with no similar project in 2016.yard.

Gross profit increased $18.5 million(loss) - Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to $4.4a gross profit of $4.6 million for the nine months ended September 30, 2016 compared2016. The decrease was due to a gross losslower revenue

from decreased fabrication work as discussed above and approximately $3.6 million of $14.1 millionholding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2015. The increase is due to contract losses of $14.3 million that were recorded during2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for 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.period.

General and administrative expenses - General and administrative expenses for our Fabrication division decreased $2.5 million$389,000 for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016. The decrease is primarily due to cost cutting measures implemented during 2016 in response to decreases in workcosts resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication facilities.

Asset impairment - During the nine months ended September 30, 2015, we recorded an asset impairment chargeyards and lower bonuses accrued during 2017 as a result of $6.6 million relateda combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to a partially constructed topside, related valves, pipingmarket our South Texas assets for sale 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 valuepayment of the assets. We had no such impairmentstermination benefits during the nine months ended September 30, 2016.first quarter of 2017 as we reduced its workforce and completed those operations.

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
    
Shipyards Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue (1)
 $51,798
 $86,553
 $(34,755) (40.2)%
Gross profit (loss) (1)
 (19,061) 9,742
 (28,803) (295.7)%
   Gross profit (loss) percentage (36.8)% 11.3%   (48.1)%
General and administrative expenses 2,835
 4,218
 (1,383) (32.8)%
Asset impairment 389
 —
 389
 100.0%
Operating income (loss) (1)
 (22,285) 5,524
    
_______________________
(1)Revenue for the nine months ended September 30, 2017, and 2016, includes $2.4 million and $4.1 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 $39.4- Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to the assetscorresponding reduction in customer demand for shipbuilding and operations acquired inrepair services supporting the LEEVAC transaction (see LEEVAC Transaction above), which contributed $55.9oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on the second vessel under contract with this customer. See also Note 9 of the Notes to the Consolidated Financial Statements.

Gross profit (loss) - Gross loss from our Shipyards division was $19.1 million in revenuefor the nine months ended September 30, 2017, compared to a gross profit of $9.7 million for the nine months ended September 30, 2016. The increasedecrease was partially offsetdue to:

$12.7 million in contract losses related to cost overruns and re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;
Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility;
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 due to the downturn in the oil and gas industry.under other various contracts.

Gross profit increased $3.6General and administrative expenses - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transactiontransaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as well as increases in profitability estimatesa result of our consolidated operating loss and cost minimization efforts implemented by management for other jobs in progress due to cost cutting measures.the period.

General and administrative expenses increased $4.6Asset Impairment - During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.


Services Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $43,758
 $76,179
 $(32,421) (42.6)%
Gross profit (loss) 2,335
 11,158
 (8,823) (79.1)%
   Gross profit (loss) percentage 5.3% 14.6%   (9.3)%
General and administrative expenses 2,008
 2,462
 (454) (18.4)%
Operating income (loss) 327
 8,696
    

Revenue - Revenue from our Services division decreased $32.4 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the expenses associated with the operations acquiredcorresponding reduction in the LEEVAC transactioncustomer demand for oil and bonuses.gas related service projects.

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 $5.2Gross profit - Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in the scope of two large offshore service projectsdecreased revenue discussed above and lower margins on new work performed during the first half of 2016.2017.

Gross profit increased $563,000General and administrative expenses - General and administrative expenses for our Services division decreased $0.5 million for the nine months ended September 30, 20162017, compared to the nine months ended September 30, 20152016, due to increases in revenueslower bonuses accrued during 2017 as a result of a combination of a smaller workforce and improved absorption of fixed costs resulting from an increase in labor hours worked.our consolidated operating loss.

Corporate Nine Months Ended September 30, Increase or (Decrease)
  2017 2016 Amount Percent
Revenue $—
 $—
 $—
 —%
Gross profit (loss) (500) (439) (61) (13.9)%
   Gross profit (loss) percentage n/a
 n/a
   
General and administrative expenses 5,665
 5,132
 533
 10.4%
Operating income (loss) (6,165) (5,571) (594)  

Gross profit (loss) - Gross loss from our Corporate division increased primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.
General and administrative expenses - General and administrative expenses for our Corporate division increased $1.1 millionprimarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the nine months ended September 30, 2016 comparedproceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the nine months ended September 30, 2015 due to additional administrative support costs related to increases in activityConsolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and bonuses.our consolidated operating loss.
Liquidity and Capital Resources
Historically, we have funded our business activities through cash generated from operations. At September 30, 20162017, 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$17.8 million compared to $34.8$51.2 million at December 31, 2015.2016. Working capital was $79.8$164.0 million and our ratio of current assets to current liabilities was 2.834.59 to 1 at September 30, 2017, compared to $78.0 million and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primary sourceuse of cash forduring the nine months ended September 30, 2016, was related to2017, is referenced in the collection of accounts receivable under various customer contracts and sales of three cranes at our Texas facility for $5.8 million. Cash Flow Activities section below.
At September 30, 2016,2017, our contracts receivable balance was $26.6$25.5 million of which we have subsequently collected $12.1$8.3 million through October 31, 2016.2017.
On January 1, 2016,June 9, 2017, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC. The purchase price for the acquisition was $20.0entered into a $40.0 million subject to a working capital adjustment whereby we received a dollar-for-

dollar reduction for the assumption of certain net liabilities of LEEVAC at closing and settlement payments 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. During the quarter, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due to us. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees. Strategically, the transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of transaction, we acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers.

As of September 30, 2016, we had a credit agreement with Whitney Bank, and JPMorgan Chase Bank N.A. that provides for an $80.0 million revolvingas lender. The credit facility maturing January 2, 2017. The credit agreement allows the Company to use up to the full amount of the available borrowing basematures June 9, 2019 and may be used for issuing letters of credit and up to $20.0 million forand/or general corporate and working capital purposes. Our obligationsWe believe that

the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.

Interest on drawings under the credit agreement are secured by substantially all offacility may be designated, at our assets, other than real property locatedoption, as either Base Rate (as defined in the state of Louisiana. On February 29, 2016, we entered into an amendment to our credit agreement. The amendment (i) extendsfacility) or LIBOR plus 2.0% per annum. Unused commitment fees on the termundrawn portion of the Credit Facility from February 29, 2016 to January 2, 2017; (ii) increases the commitment fee on undrawn amounts from 0.25% to 0.50%facility are 0.4% per annum; (iii) increases the letter of credit fee, subject to certain limited exceptions, to 2.00% per annum, and interest 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. Amounts borrowed under our the credit agreement bear interest, at our option, at either the prime lending rate established by JPMorgan Chase Bank, N.A. or LIBOR plus 2.0 percent. Under the amendment our financial covenants beginning with the quarter ending March 31, 2016 as follows:

(i)minimum net worth requirement of not less than $250.0 million plus
a)50% of net income earned in each quarter beginning March 31, 2016 and
b)100% of proceeds from any issuance of common stock;
(ii)debt to EBITDA ratio not greater than 3.0 to 1.0; and
(iii)interest coverage ratio not less than 2.0 to 1.0.

At September 30, 2016, no amounts were outstanding under thelenders is 2.0% per annum. The credit facility and we had outstanding letters of credit totaling $4.5 million, reducing the unused portion of our credit facility for additional letters of credit to $75.5 million. As of September 30, 2016, we were in compliance with all covenants. During the fourth quarter, we expect to enter into a two-year, $40.0 million amended and restated credit facility with our current lenders that will beis secured by substantially all of our assets (other than real property)the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

We anticipatemust comply with the amendedfollowing financial covenants each quarter during the term of the facility:

i.Ratio of current assets to current liabilities of not less than 1.25:1.00;
ii.Minimum tangible net worth requirement of at least the sum of:
a)$230.0 million, plus
b)An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus
c)100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
iii.Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Concurrent with our execution of the credit facility, will allow us to usewe terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the full $40.0time of the termination, there was approximately $4.6 million borrowing baseof letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for bothfuture, additional letters of credit and general corporate purposes. Given the historically low levelsborrowings is $35.4 million. As of borrowings underSeptember 30, 2017, we were in compliance with all of our current facility and our cash position, we requested a reduction in the amount of available credit under our revolver from $80.0 million to $40.0 million to decrease the commitment fees payable to our lenders for the undrawn portion of the facility.covenants.

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 do not anticipate significant capital expenditures for the remainder of 2016 to be approximately $1.8 million primarily for the following:
extension of one of our dry docks, and
improvements to our newly acquired facilities.2017.

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. The customer also announcedagreements and stated that, while it had received limited waivers from its lenders, its debt agreements willwould require further negotiation and amendment. InThis same customer rejected delivery of the eventfirst vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is unsuccessfulincluded in our arbitration proceedings. We disagree with our customer concerning these efforts,alleged technical deficiencies and have put the customer will consider other options including a possible reorganizationin default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the Federal bankruptcy laws. AtUnited States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2016, no contracts receivable2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were outstandingimpacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and deferred revenue exceeded ourequipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and estimated earningswe expect to incur additional future repair costs in excess of billingsour deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this contract. We continuetime and that insurance proceeds will at a minimum be sufficient to monitor our work performed in relationreimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our customer’s statusSouth Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled 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.

such differences could be material.

In February 2016,event of one or more sales of our BoardSouth Texas assets, we expect to use all or a portion of Directors approved a decreasethe sales proceeds to invest in our quarterly dividendoperating liquidity in order to $0.01 in anfacilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to conserve cash. identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 27, 2016,26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 23, 201624, 2017, to shareholders of record on November 10, 2016.2017.

We believe our cash and cash equivalents generated by our future operating activities, and funds availableproceeds to be received from insurance underwriters, availability under our line of credit facilityand proceeds 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 termnext twelve months to continue our operations,to operate, satisfy our contractual operations and pay dividends to our shareholders.

Cash Flow Activities

For the nine months ended September 30, 20162017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities was $19.3 million, compared to $18.7of $19.4 million for the nine months ended September 30, 2015.2016. The increaseuse of cash in cash provided by operations during the period was primarily due to increased gross profit and collections of contract receivables during 2016 somewhat offset by payments requiredthe following:

Operating losses for trade payables during the nine months ended September 30, 2017, in excess of non-cash depreciation, amortization, impairment and stock compensation expense of approximately $19.6 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 as comparedwas $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 on ongoing shipbuilding projects of $23.0 million that were assigned to 2015.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.
The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; 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 later in 2017 through the first half of 2018.

Net cash provided byused in investing activities for the nine months ended September 30, 20162017, was $2.0$2.4 million, compared to cash used inprovided by investing activities of $5.0$2.0 million for the nine months ended September 30, 2015.2016. The increasechange in cash provided by investing activities is primarily due to cash received from the sale of three cranes at our Texas facility for $5.8 million and $1.6 million of cash acquired in the LEEVAC transaction.transaction during 2016 partially offset by decreases in capital expenditures.

Net cash used in financing activities for the nine months ended September 30, 2017 and 2016, was $1.4 million and 2015 was $440,000 and $4.4 million,$603,000, respectively. The decreaseincrease in cash used in financing activities is due to the reduction incash payments made to taxing authorities on behalf of employees for their vesting of common stock. During the cash dividend in 2016.nine months ended September 30, 2017 we received $2.0 million from borrowings under our new line of credit which were immediately repaid.

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, 2016.2017. 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, 20162017, 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 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference to the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863).
10.1Form of Long-Term Performance-Based Cash Award Agreement.
31
CEO and CFO CertificationCertifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
31.2
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
  (i)Consolidated Balance Sheets,
  (ii)Consolidated Statements of 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. MecheDavid S. Schorlemer
 Kirk J. MecheDavid S. Schorlemer
 President, Chief Executive Officer, Director and InterimVice President, Chief Financial Officer, and Treasurer and Secretary (Principal Executive Officer and Interim Principal Financial and Accounting Officer)

Date: November 2, 2016October 31, 2017


GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
 
Exhibit
Number
  Description of Exhibit
  
2.13.1 
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.
3.2 
Amended and Restated Bylaws of the Company, as amended and restated through April 26, 2012, incorporated by reference to Exhibit 3.13.2 of the Company’s Form 8-K filed on April 30, 2012.November 4, 2016.
4.131.1  Specimen Common Stock Certificate, incorporated by reference
CEO Certifications pursuant to Rule 13a-14 under the Company’s Form S-1/A filed March 19, 1997 (Registration No. 333-21863)Securities Exchange Act of 1934.
10.131.2 Form of Long-Term Performance-Based Cash Award Agreement.
31CEO and
CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.
32  
Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.
99.1 Press release issued by the Company on October 27, 2016, incorporated by reference to Exhibit 99.1 of the Company’s Form 8-K filed on October 27, 2016.
101  Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
   
   (i)Consolidated Balance Sheets,
   (ii)Consolidated Statements of Operations,
   (iii)Consolidated Statement of Changes in Shareholders’ Equity,
   (iv)Consolidated Statements of Cash Flows and
   (v)Notes to Consolidated Financial Statements.

- E-1 -