UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

~~FORM 10-Q~~



x ☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended

September 30, ~~2017~~

2023



¨ ☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from

Commission File Number 001-34279

Gulf Island Fabrication, Inc.

(Exact name of registrant as specified in its charter)

~~GULF ISLAND FABRICATION, INC.~~

~~(Exact name of registrant as specified in its charter)~~



Louisiana		72-1147390
~~LOUISIANA~~		~~72-1147390~~
~~LOUISIANA~~	(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
			(I.R.S. Employer Identification No.)



2170 Buckthorne Place, Suite 420 The woodlands, Texas		77380
2170 Buckthorne Place, Suite 420 The woodlands, Texas	~~16225 PARK TEN PLACE, SUITE 280~~ ~~HOUSTON, TEXAS~~	77380	~~77084~~

(Address of principal executive offices)		(Zip Code)

(713) 714-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
~~(713) 714-6100~~ ~~(Registrant’s telephone number, including area code)~~ Common Stock	Gifi	Nasdaq

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. Yesx☒ 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). Yesx☒ 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 or an emerging growth company. See definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨ ☐	Accelerated filer	x ☐

Non-accelerated filer	¨ ☒	Smaller reporting company	¨ ☒

		Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant 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 October 31, ~~2017,~~2023, was~~14,897,661~~16,287,469.

GULF ISLAND FABRICATION, INC.

I N D E X



		Page

PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Consolidated Balance Sheets at September 30, ~~2017~~2023 (unaudited) and December 31, ~~2016~~2022	3 1
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022 (unaudited)	4 2
	Consolidated ~~Statement~~Statements of Changes in ~~Shareholders’~~Shareholders' Equity for the Three and Nine Months Ended September 30, ~~2017~~2023 and 2022 (unaudited)	5 3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 30, ~~2017~~2023 and ~~2016~~2022 (unaudited)	6 4
	Notes to Consolidated Financial Statements (unaudited)	7 5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16 20
~~Item 3~~.	~~Quantitative and Qualitative Disclosures About Market Risk~~	28
Item 4.	Controls and Procedures	28 42
~~PART II~~	~~Other Information~~
~~Item 1.~~ PART II	~~Legal Proceedings~~OTHER INFORMATION	29 43
Item ~~1A.~~ 1.	~~Risk Factors~~Legal Proceedings	29 43
Item 6. 1A.	~~Exhibits~~Risk Factors	29 43
~~Signatures~~ Item 5.	30Other Information	43
~~Exhibit Index~~ Item 6.	~~E-1~~Exhibits	44
Signatures		45

GLOSSARY OF TERMS

As used in this report filed on Form 10-Q for the quarter ended September 30, 2023 (“this Report”), the following abbreviations and terms have the meanings listed below. In addition, the terms “Gulf Island,” “the Company,” “we,” “us” and “our” refer to Gulf Island Fabrication, Inc. and its consolidated subsidiaries, unless the context clearly indicates otherwise. Certain terms defined below may be redefined separately within this Report when we believe providing a definition upon the first use of the term will assist users of this Report. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Report.


2022 Annual Report	Our annual report for the year ended December 31, 2022, filed with the SEC on Form 10-K on March 28, 2023.

2022 Financial Statements	Our Financial Statements for the year ended December 31, 2022 and related notes, included in our 2022 Annual Report.

Active Retained Shipyard Contracts	Contracts and related obligations for our seventy-vehicle ferry and two forty-vehicle ferry projects that were under construction as of the date of the Shipyard Transaction, which were excluded from the Shipyard Transaction. The Active Retained Shipyard Contracts did not include the contracts and related obligations for the projects that were subject to our previous MPSV Litigation.

ASC	Accounting Standards Codification.

ASU	Accounting Standards Update.

Balance Sheet	Our Consolidated Balance Sheets, as filed in this Report.

contract assets	Costs and estimated earnings recognized to date in excess of cumulative billings.

contract liabilities	Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses.

cost-reimbursable	Work is performed and billed to the customer at cost plus a profit margin or other variable fee arrangements which can include a mark-up.

COVID-19	The global coronavirus pandemic.

deck	The component of a platform on which drilling, production, separating, gathering, piping, compression, well support, crew quartering and other functions related to offshore oil and gas development are conducted.

DSS Acquisition	The acquisition of a services and industrial staffing business on December 1, 2021.

DTA(s)	Deferred Tax Asset(s).

EPC	Engineering, Procurement and Construction.

Exchange Act	Securities Exchange Act of 1934, as amended.

Fabrication Division	Our Fabrication reportable segment.

Facilities	Our Houma Facilities and other facilities that support our operations.

FDC	Fidelity & Deposit Company of Maryland.

Financial Statements	Our Consolidated Financial Statements, including comparative consolidated Balance Sheets, Statements of Operations, Statements of Changes in Shareholders’ Equity and Statements of Cash Flows, as filed in this Report.

GAAP	Generally Accepted Accounting Principles in the U.S.

GIS	Gulf Island Shipyards, LLC.

Gulf Coast	Along the coast of the Gulf of Mexico.

Hornbeck	Hornbeck Offshore Services, LLC.

Houma Facilities	Our owned facilities located in Houma, Louisiana that support our Fabrication Division and Services Division and represent our primary operating facilities.

inland	Typically, bays, lakes and marshy areas.



Insurance Finance Arrangements	Short-term finance arrangements for insurance premiums associated with our property and equipment and general liability insurance coverages.

jacket	A component of a fixed platform consisting of a tubular steel braced structure extending from the mudline of the seabed to a point above the water surface. The jacket is anchored with tubular steel piles driven into the seabed. The jacket supports the deck structure located above the water.

labor hours	Hours worked by employees directly involved in the fabrication of our products or delivery of our services.

LC Facility	Our $10.0 million letter of credit facility with Whitney Bank maturing on June 30, 2024, as amended.

LNG	Liquefied Natural Gas.

Mortgage Agreement	Multiple indebtedness mortgage arrangement with Zurich, to secure our obligations and liabilities under our Note Agreement with Zurich and our general indemnity agreement with Zurich associated with outstanding surety bonds for certain contracts. The mortgage arrangement encumbers the real estate associated with our Houma Facilities and includes certain covenants and events of default.

modules	Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a refining, petrochemical, LNG or industrial system.

MPSV(s)	Multi-Purpose Supply Vessel(s).

MPSV Litigation	The lawsuit filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and is styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC, bearing docket number 2018-14861, which was resolved on October 4, 2023.

Note Agreement	Promissory note entered into with Zurich, pursuant to which we will pay Zurich $20.0 million, plus interest at a fixed rate of 3.0% per annum, payable in 15 equal annual installments beginning on December 31, 2024. The promissory note was entered into in connection with the resolution of our MPSV Litigation.

offshore	In unprotected waters outside coastlines.

onshore	Inside the coastline on land.

Performance Bonds	The performance bonds issued by Zurich in connection with the construction of two MPSVs that were subject to our previous MPSV Litigation, for which the face amount of the bonds totaled $50.0 million.

performance obligation	A contractual obligation to construct and transfer a distinct good or service to a customer. It is the unit of account in Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

piles	Rigid tubular pipes that are driven into the seabed to anchor a jacket.

platform	A structure from which offshore oil and gas development drilling and production are conducted.

POC	Percentage-of-completion.

Restrictive Covenant Agreement	Restrictive covenant arrangement with Zurich, to secure our obligations and liabilities under our general indemnity agreement with Zurich associated with its outstanding surety bonds for certain contracts that precluded us from paying dividends or repurchasing shares of our common stock, which was terminated on November 6, 2023 in connection with the Settlement Agreement and Note Agreement.

SEC	U.S. Securities and Exchange Commission.

Services Division	Our Services reportable segment.

Settlement Agreement	Agreement with Zurich pursuant to which, among other things, Zurich released GIS and the Company from all of their obligations under the Performance Bonds and the associated general indemnity agreements relating to the Performance Bonds, and we agreed to release possession of the MPSVs to Zurich.

Shipyard Division	Our Shipyard reportable segment.

Shipyard Transaction	The sale of our Shipyard Division’s operating assets and certain construction contracts on April 19, 2021.

Statement of Cash Flows	Our Consolidated Statements of Cash Flows, as filed in this Report.

iii


Statement of Operations	Our Consolidated Statements of Operations, as filed in this Report.

Statement of Shareholders’ Equity	Our Consolidated Statements of Changes in Shareholders’ Equity, as filed in this Report.

Surety or Sureties	A financial institution that issues bonds to customers on behalf of the Company for the purpose of providing third-party financial assurance related to the performance of our contracts. Payments by a Surety pursuant to one of our bonds in the event of non-performance are subject to reimbursement to such Surety by us under a general indemnity agreement relating to such bond.

T&M	Time and materials. Work is performed and billed to the customer at contracted time and material rates.

Topic 606	The revenue recognition criteria prescribed under ASU 2014-09, Revenue from Contracts with Customers.

U.S.	The United States of America.

USL&H	United States Longshoreman and Harbor Workers Act.

VA(s)	Valuation allowance(s).

Whitney Bank	Hancock Whitney Bank.

Zurich	FDC and Zurich American Insurance Company.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

September 30,
2017 December 31,
2016
(Unaudited) (Note 1)
ASSETS
Current assets:
Cash and cash equivalents $ 17,792
$ 51,167
Contracts receivable and retainage, net 25,513
20,169
Contracts in progress 42,810
26,829
Prepaid expenses and other assets 4,158
3,222
Inventory 12,325
11,973
Assets held for sale 107,010
—
Total current assets 209,608
113,360
Property, plant and equipment, net 90,989
206,222
Other assets 2,783
2,826
Total assets $ 303,380
$ 322,408
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 21,457
$ 9,021
Advance billings on contracts 4,367
3,977
Deferred revenue, current 4,148
11,881
Accrued contract losses 1,982
387
Accrued expenses and other liabilities 13,685
10,032
Income tax payable —
50
Total current liabilities 45,639
35,348
Net deferred tax liabilities 12,999
23,234
Deferred revenue, noncurrent —
489
Other liabilities 895
305
Total liabilities 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, 14,851,949 issued and outstanding at September 30, 2017, and 14,695,020 at December 31, 2016, respectively 10,817
10,641
Additional paid-in capital 100,388
98,813
Retained earnings 132,642
153,578
Total shareholders’ equity 243,847
263,032
Total liabilities and shareholders’ equity $ 303,380
$ 322,408


	September 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	25,125		$	33,221
Restricted cash		1,197			1,603
Short-term investments		15,437			9,905
Contract receivables and retainage, net		35,684			29,427
Contract assets		4,305			4,839
Prepaid expenses and other assets		3,438			6,475
Inventory		2,340			1,599
Total current assets		87,526			87,069
Property, plant and equipment, net		29,285			31,154
Goodwill		2,217			2,217
Other intangibles, net		735			842
Other noncurrent assets		839			13,584
Total assets	$	120,602		$	134,866
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	11,515		$	8,310
Contract liabilities		3,534			8,196
Accrued expenses and other liabilities		13,247			14,283
Total current liabilities		28,296			30,789
Contract liabilities, non-current		20,000			—
Other noncurrent liabilities		822			1,453
Total liabilities		49,118			32,242
Shareholders’ equity:
Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding		—			—
Common stock, no par value, 30,000 shares authorized, 16,287 shares issued and outstanding at September 30, 2023 and 15,973 at December 31, 2022		11,690			11,591
Additional paid-in capital		108,257			107,372
Accumulated deficit		(48,463	)		(16,339	)
Total shareholders’ equity		71,484			102,624
Total liabilities and shareholders’ equity	$	120,602		$	134,866

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

- 1 -

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,
2017 2016 2017 2016
Revenue $ 49,884
$ 65,384
$ 133,745
$ 230,864
Cost of revenue 50,378
60,125
150,755
205,839
Gross profit (loss) (494 ) 5,259
(17,010 ) 25,025
General and administrative expenses 4,370
5,086
12,940
14,633
Asset impairment —
—
389
—
Operating income (loss) (4,864 ) 173
(30,339 ) 10,392
Other income (expense):
Interest expense (45 ) (110 ) (262 ) (248 )
Interest income —
12
12
20
Other income (expense), net 38
599
(221 ) 1,039
Total other income (expense) (7 ) 501
(471 ) 811
Net income (loss) before income taxes (4,871 ) 674
(30,810 ) 11,203
Income tax expense (benefit) (1,761 ) 133
(10,322 ) 4,134
Net income (loss) $ (3,110 ) $ 541
$ (20,488 ) $ 7,069
Per share data:
Basic and diluted earnings (loss) per share - common shareholders $ (0.21 ) $ 0.04
$ (1.38 ) $ 0.48
Cash dividend declared per common share $ 0.01
$ 0.01
$ 0.03
$ 0.03


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Revenue	$	5,023		$	39,593		$	106,517		$	104,181
Cost of revenue		34,902			35,373			126,881			98,709
Gross profit (loss)		(29,879	)		4,220			(20,364	)		5,472
General and administrative expense		4,080			4,510			12,883			12,965
Other (income) expense, net		(324	)		(944	)		(689	)		(3,698	)
Operating income (loss)		(33,635	)		654			(32,558	)		(3,795	)
Interest (expense) income, net		397			(46	)		1,057			(104	)
Income (loss) before income taxes		(33,238	)		608			(31,501	)		(3,899	)
Income tax (expense) benefit		3			(10	)		9			(2	)
Net income (loss)	$	(33,235	)	$	598		$	(31,492	)	$	(3,901	)

Per share data:
Basic and diluted income (loss) per share	$	(2.04	)	$	0.04		$	(1.95	)	$	(0.25	)

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

- 2 -

GULF ISLAND FABRICATION, INC.

CONSOLIDATED ~~STATEMENT~~STATEMENTS 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, 2017 14,695,020
$ 10,641
$ 98,813
$ 153,578
$ 263,032
Net income (loss) —
—
—
(20,488 ) (20,488 )
Vesting of restricted stock 156,929
(88 ) (797 ) —
(885 )
Compensation expense - restricted stock —
264
2,372
—
2,636
Dividends on common stock —
—
—
(448 ) (448 )
Balance at September 30, 2017 14,851,949
$ 10,817
$ 100,388
$ 132,642
$ 243,847

thousands)


	Common Stock					Additional Paid-In			Accumulated			Total Shareholders’
	Shares		Amount			Capital			Deficit			Equity
Balance at December 31, 2021		15,622	$	11,384		$	105,511		$	(12,987	)	$	103,908
Net loss		—		—			—			(5,027	)		(5,027	)
Vesting of restricted stock		153		(6	)		(53	)		—			(59	)
Stock-based compensation expense		—		57			514			—			571
Balance at March 31, 2022		15,775		11,435			105,972			(18,014	)		99,393
Net income		—		—			—			528			528
Vesting of restricted stock		148		(6	)		(56	)		—			(62	)
Stock-based compensation expense		—		49			440			—			489
Balance at June 30, 2022		15,923		11,478			106,356			(17,486	)		100,348
Net income		—		—			—			598			598
Stock-based compensation expense		—		40			364			—			404
Balance at September 30, 2022		15,923	$	11,518		$	106,720		$	(16,888	)	$	101,350


	Common Stock					Additional Paid-In			Accumulated			Total Shareholders’
	Shares		Amount			Capital			Deficit			Equity
Balance at December 31, 2022		15,973	$	11,591		$	107,372		$	(16,339	)	$	102,624
Adoption of ASU 2016-13		—		—			—			(632	)		(632	)
Balance at January 1, 2023		15,973		11,591			107,372			(16,971	)		101,992
Net income		—		—			—			641			641
Vesting of restricted stock		82		(18	)		(163	)		—			(181	)
Stock-based compensation expense		—		51			458			—			509
Balance at March 31, 2023		16,055		11,624			107,667			(16,330	)		102,961
Net income		—		—			—			1,102			1,102
Vesting of restricted stock		232		(30	)		(271	)		—			(301	)
Stock-based compensation expense		—		44			400			—			444
Balance at June 30, 2023		16,287	$	11,638		$	107,796		$	(15,228	)	$	104,206
Net loss		—		—			—			(33,235	)		(33,235	)
Stock-based compensation expense		—		52			461			—			513
Balance at September 30, 2023		16,287	$	11,690		$	108,257		$	(48,463	)	$	71,484

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

- 3 -

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

Nine Months Ended
September 30,

2017 2016
Cash flows from operating activities:
Net income (loss) $ (20,488 ) $ 7,069
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Bad debt expense 19
422
Depreciation and amortization 10,141
19,262
Amortization of deferred revenue (2,397 ) (4,114 )
Asset impairment 389
—
Loss (gain) on sale of assets 224
(924 )
Deferred income taxes (10,235 ) 3,651
Compensation expense - restricted stock 2,636
2,452
Changes in operating assets and liabilities:
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 12,436
(13,654 )
Advance billings on contracts 390
(20 )
Deferred revenue (5,825 ) (8,928 )
Deferred compensation 590
—
Accrued expenses and other liabilities 2,336
4,713
Accrued contract losses 1,595
(8,001 )
Net cash (used in) provided by operating activities (29,559 ) 19,431
Cash flows from investing activities:
Capital expenditures (4,515 ) (5,415 )
Net cash received in acquisition —
1,588
Proceeds from the sale of equipment 2,120
5,813
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 (448 ) (440 )
Proceeds received from borrowings under our line of credit 2,000
—
Repayment of borrowings under our line of credit (2,000 ) —
Net cash used in financing activities (1,421 ) (603 )
Net change in cash and cash equivalents (33,375 ) 20,814
Cash and cash equivalents at beginning of period 51,167
34,828
Cash and cash equivalents at end of period $ 17,792
$ 55,642


	Nine Months Ended September 30,
	2023			2022
Cash flows from operating activities:
Net loss	$	(31,492	)	$	(3,901	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization		4,115			3,764
Asset impairments		—			484
Change in allowance for doubtful accounts and credit losses		(410	)		—
Gain on sale or disposal of fixed assets, net		(249	)		(79	)
Gain on insurance recoveries		(245	)		(1,200	)
Stock-based compensation expense		1,466			1,464
Changes in operating assets and liabilities:
Contract receivables and retainage, net		(6,479	)		(17,026	)
Contract assets		534			(3,048	)
Prepaid expenses, inventory and other current assets		2,829			1,203
Accounts payable		2,914			2,811
Contract liabilities		(4,662	)		(2,355	)
Accrued expenses and other current liabilities		(373	)		(288	)
Noncurrent assets and liabilities, net		31,880			(654	)
Net cash used in operating activities		(172	)		(18,825	)
Cash flows from investing activities:
Capital expenditures		(1,701	)		(1,032	)
Proceeds from Shipyard Transaction		—			886
Proceeds from sale of property and equipment		396			2,035
Recoveries from insurance claims		245			1,200
Purchases of short-term investments		(30,731	)		(9,809	)
Maturities of short-term investments		25,200			—
Net cash used in investing activities		(6,591	)		(6,720	)
Cash flows from financing activities:
Payments on Insurance Finance Arrangements		(1,257	)		(963	)
Tax payments for vested stock withholdings		(482	)		(121	)
Net cash used in financing activities		(1,739	)		(1,084	)
Net decrease in cash, cash equivalents and restricted cash		(8,502	)		(26,629	)
Cash, cash equivalents and restricted cash, beginning of period		34,824			54,589
Cash, cash equivalents and restricted cash, end of period	$	26,322		$	27,960

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

- 4 -

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2017~~

2023

(Unaudited)

~~(Unaudited)~~

~~NOTE 1 –~~

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Gulf Island Fabrication, Inc. ~~("Gulf Island," and together~~(together with its subsidiaries, ~~"the~~“Gulf Island,” “the Company,~~" "we" or "our"~~” “we,” “us” and “our”), is a leading fabricator of complex steel structures and ~~marine vessels used in energy extraction~~modules and ~~production, petrochemical and industrial facilities, power generation, alternative energy projects and shipping and marine transportation operations. We also provide related installation,~~a provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and ~~maintenance~~staffing services ~~with specialized crews~~to the industrial 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.energy sectors. Our customers include U.S. and, to a lesser extent, international energy ~~producers,~~producers; refining, petrochemical, LNG, industrial and power operators; and ~~marine operators.~~EPC companies. We currently operate and manage our business through three operating ~~divisions: Fabrication, Shipyards~~divisions (“Services”, “Fabrication” and ~~Services.~~“Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in ~~Houston,~~The Woodlands, Texas ~~with fabrication~~and our primary operating facilities are located in Houma, ~~Jennings~~Louisiana (“Houma Facilities”).

On April 19, 2021, we sold our Shipyard Division operating assets and ~~Lake Charles, Louisiana. Our fabrication facilities~~certain construction contracts (“Shipyard Transaction”) and intend to wind down our remaining Shipyard Division operations by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in ~~Aransas Pass~~Note 2).

On December 1, 2021, we acquired a services and ~~Ingleside, Texas are currently being marketed~~industrial staffing business (“DSS Acquisition”), which increased our skilled workforce, further diversified our customer base and expanded our service offerings for ~~sale.~~our Services Division.

On October 4, 2023, we resolved our MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.

Basis of Presentation

The ~~consolidated financial statements include the accounts of Gulf Island Fabrication, Inc. and its~~accompanying unaudited Consolidated Financial Statements (“Financial Statements”) reflect all wholly owned subsidiaries. ~~All significant intercompany~~Intercompany balances and transactions have been eliminated in consolidation.

~~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, 2016.~~

The ~~accompanying unaudited, consolidated financial statements~~Financial Statements have been prepared in accordance with ~~U.S.~~accounting principles generally accepted ~~accounting principles~~in the U.S. (“GAAP”) for interim financial ~~information,~~statements, the instructions to Form 10-Q and Article 10 of Regulation ~~S-X.~~S-X of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, the ~~consolidated financial statements~~Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In ~~the~~our 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, ~~2017,~~2023 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~

~~The balance sheet~~2023. Our Consolidated Balance Sheet (“Balance Sheet”) at December 31, ~~2016,~~2022, 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 our 2022 Financial Statements.

Operating Cycle

The duration of our contracts vary, but may extend beyond twelve months from the ~~consolidated financial statements~~date of contract award. Consistent with industry practice, assets and ~~notes thereto~~liabilities have been classified as current under the operating cycle concept whereby all contract-related items are classified as current regardless of whether cash will be received or paid within a twelve-month period. Assets and liabilities classified as current, which may not be received or paid within the next twelve months, include contract retainage, contract assets and contract liabilities. Variations from normal contract terms may result in the classification of assets and liabilities as long-term. See Note 4 for discussion of the noncurrent contract liability associated with the resolution of our MPSV Litigation.

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Use of Estimates

General –The preparation of our Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We believe our most significant estimates and judgments are associated with:

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revenue recognition for our long-term contracts, including application of the percentage-of-completion method (“POC"), estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims (including amounts arising from disputes with customers) and liquidated damages;

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fair value and recoverability assessments that must be periodically performed with respect to long-lived tangible assets, goodwill and other intangible assets;

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determination of deferred income tax assets, liabilities and related valuation allowances;

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reserves for bad debts and credit losses;

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liabilities related to self-insurance programs;

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insurance recoveries associated with damage to our Houma Facilities resulting from Hurricane Ida discussed further in Note 2; and

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the impacts of volatile oil and gas prices and macroeconomic conditions on our business, estimates and judgments as discussed further below.

If the underlying estimates and assumptions upon which our Financial Statements are based change in the future, actual amounts may differ materially from those included in the ~~Company’s Annual Report~~Financial Statements.

Oil and Gas Price Volatility and Macroeconomic Conditions – Since 2008, the prices of oil and gas have experienced significant volatility, including depressed prices over extended periods, resulting in reductions in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, our operating results and cash flows were negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing and under-utilization of our operating facilities and resources. Beginning in 2020, the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on ~~Form 10-K~~oil and gas prices (with oil prices reaching a twenty-year low and gas prices reaching a four-year low), which further negatively impacted certain of our end markets through the first quarter 2022. This volatility in oil and gas prices was compounded by Russia’s invasion of Ukraine in February 2022 (and the related European energy crisis), and the U.S. and other countries actions in response (with oil prices reaching an eight-year high and gas prices reaching a fourteen-year high), which positively impacted certain of our end markets. While oil and gas prices have somewhat stabilized, the duration of such stability is uncertain and difficult to predict.

In addition, global economic factors that are beyond our control, have and could continue to impact our operations, including, but are not limited to, supply chain disruptions (including global shipping and logistics challenges that began in 2020), inflationary pressures, economic slowdowns and recessions, bank failures, natural disasters, public health crises (such as COVID-19), and geopolitical conflicts (such as the conflict in Ukraine and the Israel-Hamas conflict).

The ultimate business and financial impacts of oil and gas price volatility and macroeconomic conditions on our business and results of operations continues to be uncertain, but the impacts have included, or may continue to include, among other things, reduced bidding activity; suspension or termination of backlog; deterioration of customer financial condition; and unanticipated project costs and schedule delays due to supply chain disruptions, labor and material price increases, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, increased safety incidents, lack of performance by subcontractors and suppliers, and contract disputes. We continue to monitor the impacts of oil and gas price volatility and macroeconomic conditions on our operations, and our estimates in future periods will be revised for any events and changes in circumstances arising after the date of this Report.

Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing net income or loss by the weighted average number of common shares outstanding for the ~~year ended~~period. Diluted income (loss) per share reflects the assumed conversion of dilutive securities in periods in which income is reported. See Note 5 for calculations of our basic and diluted income (loss) per share.

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Cash Equivalents, Restricted Cash and Short-Term Investments

Cash Equivalents – We consider investments with original maturities of three months or less when purchased to be cash equivalents. We hold substantially all of our cash deposits with Hancock Whitney Bank (“Whitney Bank”).

Restricted Cash – At September 30, 2023 and December 31, ~~2016.~~2022, we had $1.2 million and $1.6 million, respectively, of restricted cash as security for letters of credit issued under our letter of credit facility (“LC Facility”) with Whitney Bank. Our restricted cash is held in an interest-bearing money market account with Whitney Bank. The classification of the restricted cash as current and noncurrent is determined by the contractual maturity dates of the letters of credit being secured, with letters of credit having maturity dates of twelve months or less from the balance sheet date classified as current, and letters of credit having maturity dates of longer than twelve months from the balance sheet date classified as noncurrent. See Note 3 for further discussion of our letters of credit and associated security requirements.

Short-term Investments – We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. At September 30, 2023 and December 31, 2022, our short-term investments included U.S. Treasuries with original maturities of four and six months, respectively. We intend to hold these investments until maturity and it is not more likely than not that we will be required to sell the investments prior to their maturity. The investments are stated at amortized costs, which approximates fair value due to their near-term maturities. All short-term investments are traded on active markets with quoted prices and represent Level 1 fair value measurements.

Inventory

Inventory is recorded at the lower of cost or net realizable value determined using the first-in-first-out basis. The cost of inventory includes acquisition costs, production or conversion costs, and other costs incurred to bring the inventory to a current location and condition. Net realizable value is our estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation. An allowance for excess or inactive inventory is recorded based on an analysis that considers current inventory levels, historical usage patterns, estimates of future sales and salvage value.

~~Reclassifications~~

~~We made~~

Allowance for Doubtful Accounts and Credit Losses

As further discussed under “New Accounting Standards” below, we adopted the ~~following reclassifications~~new accounting standard for measuring credit losses effective January 1, 2023. In the normal course of business, we extend credit to our customers on a short-term basis and contract receivables are generally not collateralized; however, we typically have the right to place liens on our projects in the event of nonpayment by our customers. We provide an allowance for credit losses and routinely review individual contract receivable balances and other financial ~~statements~~assets for ~~three~~collectability and ~~nine months ended September 30, 2016, to conform to current period presentation:~~

~~We reclassified $163,000 from operating activities~~make provisions for probable uncollectible amounts as necessary. Among the factors considered in our review are the financial condition of our customer and its access to financing, ~~activities~~underlying disputes with the customer, the age and value of the receivable balance, company-specific credit ratings, historical company-specific uncollectable amounts and economic conditions in general. See Note 2 for further discussion of our allowance for doubtful accounts and credit losses.

Stock-Based Compensation

Awards under our stock-based compensation plans are calculated using a fair value-based measurement method. Depending on the ~~Company’s consolidated statement~~terms of ~~cash flows~~the award, we use the straight-line or graded vesting methods to recognize share-based compensation expense over the requisite service period of the award. We recognize the excess tax benefit or tax deficiency resulting from the difference between the deduction we receive for tax purposes and the ~~nine months ended September 30, 2016, related to~~stock-based compensation expense we recognize for financial reporting purposes created when common stock vests, as an income tax benefit or expense on our Consolidated Statements of Operations (“Statement of Operations”). Tax payments made ~~by the Company~~on behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations ~~arising~~ from the vesting of shares under our stock-based compensation plans are classified as a ~~result~~financing activity on our Consolidated Statements of Cash Flows (“Statement of Cash Flows”).

Depreciation and Amortization Expense

Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from three to 25 years. Ordinary maintenance and repairs, which do not extend the physical or economic lives of the ~~adoption~~plant or equipment, are charged to expense as incurred. Intangible assets are amortized on a straight-line basis over seven years and amortization expense is reflected within general and administrative expense on our Statement of ~~Accounting Standards Update 2016-09~~Operations.

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Long-Lived Assets

Goodwill –Goodwill is not amortized, but instead is reviewed for impairment at least annually at a reporting unit level, absent any indicators of impairment or when other actions require an impairment assessment (such as ~~discussed~~a change in ~~"New Accounting Standards" below. This reclassification~~reporting units). Our Services Division represents our only reporting unit with goodwill. We perform our annual impairment assessment during the fourth quarter of each year based upon balances as of October 1. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is greater than its carrying value. If we determine that it is more likely than not that the carrying value of the reporting unit is greater than its fair value, we perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing it to the carrying value of the reporting unit, and we recognize an impairment charge to the extent its carrying value exceeds its fair value. To determine the fair value of our reporting unit and test for impairment, we utilize an income approach (discounted cash flow method) as we believe this is the most direct approach to incorporate the specific economic attributes and risk profile of our reporting unit into our valuation model. We had no ~~impact to our financial position or results~~indicators of ~~operations.~~

~~We reclassified corporate administrative costs and overhead expenses previously allocated to~~impairment during the ~~results of operations of our three operating divisions to our Corporate division for the three and~~ nine months ended September 30, ~~2016,~~2023. If, based on future assessments, our goodwill is deemed to ~~conform~~be impaired, the impairment would result in a charge to ~~current~~our operating results in the period ~~presentation~~of impairment.

Other Long-Lived Assets –Our property, plant and equipment, lease assets (included within other noncurrent assets), and finite-lived intangible assets are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, we compare the estimated future undiscounted cash flow associated with the asset or asset group to its carrying amount to determine if an impairment exists. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and the excess of the carrying amount of the asset or asset group over its fair value is recorded as ~~discussed in Note 8. These reclassifications~~an impairment charge. Fair value is determined based on discounted cash flows, appraised values or third-party indications of value, as appropriate. We had no ~~impact~~indicators of impairment during the nine months ended September 30, 2023.

Leases

We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our ~~consolidated~~lease payments for leases with an original term of longer than twelve months. We do not record an asset or liability for leases with an original term of twelve months or less and we do not separate lease and non-lease components for our leases. Our lease assets are reflected within other noncurrent assets, and the current and noncurrent portions of our lease liabilities are reflected within accrued expenses and other liabilities, and other noncurrent liabilities, respectively, on our Balance Sheet. For leases with escalations over the life of the lease, we recognize expense on a straight-line basis.

Fair Value Measurements

Fair value determinations for financial ~~statements.~~assets and liabilities are based on the particular facts and circumstances. Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:

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Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets.

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Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market.

~~New Accounting Standards~~•

Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.

The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair values. Our fair value assessments for determining the impairments of inventory, goodwill and long-lived assets are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy.

~~On May 28, 2014,~~

Revenue Recognition

General – Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate, time and materials (“T&M”) and cost-reimbursable, or a combination thereof. Our contracts primarily relate to the ~~Financial Accounting Standards Board ("FASB") issued~~fabrication of steel structures and modules, and certain service arrangements. We recognize revenue from our contracts in accordance with Accounting Standards Update ~~("ASU"~~(“ASU”) ~~No.~~ 2014-09, ~~“Revenue~~Topic 606 “Revenue from Contracts with Customers” (" (“Topic ~~606"~~606”)~~, which supersedes the revenue recognition requirements in~~

~~FASB Accounting Standard Codification (ASC) Topic 605, “Revenue Recognition.”~~ .

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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. Additionally, provisions of Topic 606 specify which goods and services are distinct and represent separate performance obligations (representing the unit of account in Topic 606) within a contract and which goods and services (which could include multiple contracts or agreements) should be aggregated. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue ~~from~~for performance obligations satisfied over time are recognized as the work progresses. Revenue for performance obligations that do not meet the criteria for over time recognition are recognized at a point-in-time when a performance obligation is complete and the customer has obtained control of a promised asset.

Long-term Contracts Satisfied Over Time – Revenue for our ~~fixed-price and unit-rate~~long-term contracts is recognized ~~under~~using the ~~percentage-of-completion~~POC method ~~computed by the significant inputs method which measures the percentage of labor hours~~based on contract costs incurred to date as compared to total estimated ~~total labor hours for each contract. Revenue from~~contract costs (an input method). Fixed-price contracts, ~~that are based upon time worked~~or contracts with a more significant fixed-price component, generally provide us with greater control over project schedule and ~~materials incurred (“T&M”) is recognized at~~ the ~~contracted rates as the~~timing of when 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,~~incurred, and ~~interim periods within those fiscal years.~~

~~As part~~accordingly, when revenue is recognized. Unit-rate, T&M and cost-reimbursable contracts generally have more variability in the scope of work and provide our ~~implementation of this standard, we have established an implementation team as well as employed the help of outside consultants to assist~~customers 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 impactgreater influence over the timing of ~~revenue recognition, they would not change~~when we perform our work, and accordingly, such contracts often result in less predictability with respect to the timing of when revenue is recognized. Contract costs include direct costs, such as materials and labor, and indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the ~~recognition~~extent 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~~costs incurred. Revenue and gross profit ~~recorded~~or loss for contracts accounted for using the POC method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a ~~given period.~~

~~We expect~~contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to ~~finalize a review of our contracts and complete our calculation~~change, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for the work performed to date. The cumulative ~~implementation adjustment, if any,~~impact of revisions in total cost estimates during the ~~fourth quarter~~progress 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 requirementswork is reflected 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 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~~these changes become known, including, to the ~~amount~~extent required, the reversal of profit recognized in prior periods and the ~~adjustment. ASU 2015-16 is effective for annual periods beginning after December 15, 2016. We adopted this guidance effective January 1, 2017,~~recognition of losses expected to be incurred on contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which ~~did not have an impact on~~could result in material changes to our ~~financial position, results of operations~~Financial Statements and related disclosures.

~~In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to record most leases on their balance sheets but recognize expenses~~ See Note 2 for further discussion of projects with significant changes 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; however, we expect to record our lease obligations on our balance sheet.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which amends 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 within the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016. We adopted the requirements of ASU 2016-09 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 recognized in additional paid-in capital. The expense or benefit required to be recognized is calculated separately as a discrete item each reporting period and not as part of the Company’s projected annual effective tax rate. Duringestimated margins during the three and nine months ended September 30, ~~2017, we recorded tax expense of $1,000~~2023 and ~~$215,000, respectively (approximate $0.01 loss per share) related to the adoption of this ASU. We have adopted these provisions on a prospective basis~~2022.

Short-term Contracts and our 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 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 nine months ended September 30, 2017, as a result of adoption of this ASU. We have adopted these provisions retrospectively and reclassified $163,000 from cash used in operating activities to cash used in financing activities for the nine months ended September 30, 2016, to conform to the current 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 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 properties are currently underutilized and represent excess capacity within our Fabrication division. Our net book value of property, plant and equipment for these assets was $104.5 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.

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. 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 our 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 time and that insurance proceeds willContracts Satisfied at a ~~minimum be sufficient to reimburse us~~Point In Time – Revenue 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.~~

As a result of the decision to place our South Texas facilities up for sale, we have and will continue to incur costs associated with maintaining these facilities. These costs include insurance, general maintenance of the properties in their current state, property taxes and retained employees which will be expensed as incurred. We do not expect the sale of these assets to impact our ability to 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-acre complex 26 miles from the Gulf of Mexico in Houma, Louisiana. We have entered into an agreement to terminate the lease no later than December 31, 2017, with the owner of the property (currently a senior vice president within the Company and the former chief executive officer of LEEVAC Shipyards, LLC) 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. 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 sold 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 our Prospect Shipyard is as follows (in thousands):~~

Assets South Texas Fabrication Yards Prospect Shipyard Consolidated
Land $ 5,492
$ —
$ 5,492

Buildings and improvements 117,582
—
117,582

Machinery and equipment 93,552
2,719
96,271

Furniture and fixtures 867
82
949

Vehicles 610
—
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 to recognize revenue from fixed-price and unit-rate~~short-term contracts computed using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. Revenue recognized in a period for a contract is the pro rata portion of the contract value based upon the labor hours incurred to the total labor hours estimated to complete the contract plus pass-through costs incurred 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(which includes revenue associated with ~~projects. Consequently, pass-through~~our master services arrangements) and contracts that do not satisfy the criteria for revenue recognition over time is recognized when the work is performed or when control of the asset is transferred, the related 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,
2017 2016 2017 2016
Pass-through costs as a percentage of revenues 48.4% 33.8% 45.3% 35.0%

~~Contracts in progress at September 30, 2017, were $42.8 million with $31.7 million relating to two major customers. Advance billings on contracts at September 30, 2017, was $4.4 million~~incurred and included advances of $3.2 million from two 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.

collection is reasonably assured.

Variable Consideration–Revenue and gross profit onor loss for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims (including amounts arising from disputes with customers), incentives and ~~claims~~liquidated damages that may not be resolved until the later stages of the contract or after the contract has been ~~completed~~completed. Variable consideration can also include revenue associated with work performed on a unit-rate, T&M or cost-reimbursable basis that is recognized using the POC method. We estimate variable consideration based on the amount we expect to be entitled and ~~delivery occurs.~~include estimated amounts in transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. See Note 2 for further discussion of our unapproved change orders, claims, incentives and liquidated damages.

Additional Disclosures– Topic 606 also requires disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. See Note 2 for required disclosures under Topic 606.

Pre-Contract Costs

Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At September 30, ~~2017,~~2023 and December 31, 2022, we had no deferred pre-contract costs.

Other (Income) Expense, Net

Other (income) expense, net, generally represents recoveries or provisions for bad debts and credit losses, gains or losses associated with the sale or disposition of property and equipment, and income or expense associated with certain nonrecurring items.

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Income Taxes

Income taxes have been provided for using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted rates expected to be in effect during the year in which the differences are expected to reverse. Due to state income tax laws related to the apportionment of revenue for our projects, judgment is required to estimate the effective tax rate expected to apply to tax differences that are anticipated to reverse in the future.

A valuation allowance is provided to reserve for deferred tax assets (“DTA(s)”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our DTAs depends on our ability to generate sufficient taxable income of the appropriate character and in the appropriate jurisdictions. Our effective tax rate differs from our statutory rate for the three months ended September 30, 2023, and nine months ended September 30, 2023 and 2022, as no federal income tax benefit was recorded for our losses as a full valuation allowance was recorded against our net deferred tax assets generated during the periods, and for the three months ended September 30, 2022, as no federal income tax expense was recorded for our income as it was fully offset by the reversal of valuation allowance on our net deferred tax assets. Income taxes recorded for the three and nine months ended September 30, 2023 and 2022 relate to state income taxes.

Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense.

New Accounting Standards

Financial Instruments – In the first quarter 2023, we adopted ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way we evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, short-term investments, loans and other instruments, we are required to use a new forward-looking “expected loss” model to evaluate impairment, which includes considering a broader range of information to estimate expected credit losses and may potentially result in earlier recognition of allowances for losses. The new accounting standard was adopted using the cumulative-effect transition method with any cumulative-effect adjustment being recorded to accumulated deficit on January 1, 2023. Upon adoption, we recorded a $0.6 million increase to beginning accumulated deficit, a $0.4 million decrease to contract receivables and retainage, net and contract assets, and a $0.2 million decrease to other noncurrent assets, on our Balance Sheet. Adoption of the new standard did not have a material effect on our results of operations or related disclosures.

Business Combinations – In the first quarter 2023, we adopted ASU 2021-08, “Business Combinations - Accounting for Contract Assets and Contract Liabilities from Contracts with Customers,” which changes the way companies measure contract assets and contract liabilities from contracts with customers acquired in a business combination and creates an exception to the general recognition and measurement principle of ASC 805. Adoption of the new standard did not have a material effect on our financial position, results of operations or related disclosures.

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2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

As discussed in Note 1, we recognize revenue from our contracts in accordance with Topic 606. Summarized below are required disclosures under Topic 606 and other relevant guidance.

Disaggregation of Revenue

The following tables summarize revenue for each of our operating segments, disaggregated by contract type and duration, for the three and nine months ended September 30, 2023 and 2022 (in thousands):


	Three Months Ended September 30, 2023
	Services		Fabrication		Shipyard			Eliminations			Total
Fixed-price and unit-rate	$	557	$	12,185	$	(32,702	)	$	(20	)	$	(19,980	)
T&M and cost-reimbursable		21,086		2,794		—			—			23,880
Other		1,333		—		—			(210	)		1,123
Total	$	22,976	$	14,979	$	(32,702	)	$	(230	)	$	5,023

Long-term	$	557	$	13,043	$	(32,702	)	$	(20	)	$	(19,122	)
Short-term		22,419		1,936		—			(210	)		24,145
Total	$	22,976	$	14,979	$	(32,702	)	$	(230	)	$	5,023


	Three Months Ended September 30, 2022
	Services		Fabrication		Shipyard		Eliminations			Total
Fixed-price and unit-rate	$	986	$	11,410	$	1,849	$	(1	)	$	14,244
T&M and cost-reimbursable		20,937		2,373		—		—			23,310
Other		646		1,646		—		(253	)		2,039
Total	$	22,569	$	15,429	$	1,849	$	(254	)	$	39,593

Long-term	$	986	$	14,078	$	1,849	$	(1	)	$	16,912
Short-term		21,583		1,351		—		(253	)		22,681
Total	$	22,569	$	15,429	$	1,849	$	(254	)	$	39,593


	Nine Months Ended September 30, 2023
	Services		Fabrication		Shipyard			Eliminations			Total
Fixed-price and unit-rate	$	1,356	$	37,773	$	(30,973	)	$	(30	)	$	8,126
T&M and cost-reimbursable		64,456		31,609		—			—			96,065
Other		3,221		—		—			(895	)		2,326
Total	$	69,033	$	69,382	$	(30,973	)	$	(925	)	$	106,517

Long-term	$	1,356	$	65,259	$	(30,973	)	$	(30	)	$	35,612
Short-term		67,677		4,123		—			(895	)		70,905
Total	$	69,033	$	69,382	$	(30,973	)	$	(925	)	$	106,517


	Nine Months Ended September 30, 2022
	Services		Fabrication		Shipyard		Eliminations			Total
Fixed-price and unit-rate	$	3,557	$	25,651	$	7,314	$	(7	)	$	36,515
T&M and cost-reimbursable		59,903		3,588		—		—			63,491
Other		1,953		2,646		—		(424	)		4,175
Total	$	65,413	$	31,885	$	7,314	$	(431	)	$	104,181

Long-term	$	3,557	$	29,319	$	7,314	$	(7	)	$	40,183
Short-term		61,856		2,566		—		(424	)		63,998
Total	$	65,413	$	31,885	$	7,314	$	(431	)	$	104,181

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Future Performance Obligations

The following table summarizes our remaining performance obligations, disaggregated by operating segment and contract type, at September 30, 2023 (in thousands):


	September 30, 2023
	Services		Fabrication		Shipyard		Total
Fixed-price and unit-rate	$	867	$	10,033	$	726	$	11,626
T&M and cost-reimbursable(1)		—		1,474		—		1,474
Total(2)	$	867	$	11,507	$	726	$	13,100

(1)

In February 2023, we received direction from our customer to suspend all activities on our offshore jackets project for our Fabrication Division, and in July 2023, the customer cancelled the contract. Accordingly, during the second quarter 2023, our performance obligations were reduced by $76.1 million to reflect the estimated revenue amount that will not be recognized due to the cancellation. See “Other Operating and Project Matters” below for further discussion of the project cancellation.

(2)

Based on our current estimates we expect to recognize revenue of approximately $12.6 million and $0.5 million for the remainder of 2023 and 2024, respectively, associated with our performance obligations at September 30, 2023. Certain factors and circumstances could result in changes in the timing of recognition of our performance obligations as revenue and the amounts ultimately recognized.

Contracts Assets and Liabilities

The timing of customer invoicing and recognition of revenue using the POC method may occur at different times. Customer invoicing is generally dependent upon contractual billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet, or to the extent we have an unconditional right to the consideration, is reflected as contract receivables on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Information with respect to contracts that were incomplete at September 30, 2023 and December 31, 2022, is as follows (in thousands):


	September 30,			December 31,
	2023			2022
Contract assets(1), (2)	$	4,305		$	4,839
Contract liabilities(3), (4), (5)		(3,534	)		(8,196	)
Contracts in progress, net	$	771		$	(3,357	)

(1)

The decrease in contract assets compared to December 31, 2022, was primarily due to decreased unbilled positions on our forty-vehicle ferry projects for our Shipyard Division, offset partially by increased unbilled positions on various projects for our Fabrication Division.

(2)

Contract assets at September 30, 2023 and December 31, 2022, excluded $3.8 million and $3.6 million, respectively, associated with revenue recognized in excess of amounts billed for which we have an unconditional right to the consideration. Such amounts are reflected within contract receivables.

(3)

The decrease in contract liabilities compared to December 31, 2022, was primarily due to a decrease in advance billings on our cancelled offshore jackets project for our Fabrication Division and accrued contract losses on our forty-vehicle ferry projects for our Shipyard Division. See “Future Performance Obligations” above for further discussion of the project cancellation.

(4)

Revenue recognized during the three months ended September 30, 2023 and 2022, related to amounts included in our contract liabilities balance at June 30, 2023 and 2022 was $1.1 million and $0.6 million, respectively. Revenue recognized during the nine months ended September 30, 2023 and 2022, related to amounts included in our contract liabilities balance at December 31, 2022 and 2021, was $6.2 million and $2.7 million, respectively.

(5)

Contract liabilities at September 30, 2023 and December 31, 2022, includes accrued contract losses of $0.4 million and $1.6 million, respectively. See “Changes in Project Estimates” below for further discussion of our accrued contract losses and Note 4 for discussion of the noncurrent contract liability associated with the resolution of our MPSV Litigation.

Allowance for Doubtful Accounts and Credit Losses

Our provision for bad debts and credit losses is included in other (income) expense, net on our Statement of Operations. For the three and nine months ended September 30, 2023, we recognized income of $0.2 million and $0.4 million, respectively, associated with revisions to our allowance for doubtful accounts and credit losses, and for the three and nine months ended September 30, 2022, changes were not significant. Our allowance for doubtful accounts and credit losses at September 30, 2023 was $0.2 million, and it was not significant at December 31, 2022. We recorded a $0.6 million increase to beginning accumulated deficit as of January 1, 2023, in connection with our adoption of ASU 2016-13. We had no significant write-offs or recoveries of previously recorded bad debts during the three or nine months ended September 30, 2023 or 2022. See “New Accounting Standards” in Note 1 for further discussion of our adoption of ASU 2016-13.

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Variable Consideration

For the three and nine months ended September 30, 2023 and 2022, we had no material amounts in revenue related to unapproved change orders, claims or incentives, other than the amounts related to the resolution of our MPSV Litigation discussed further below. However, at September 30, 2023 and December 31, 2022, certain active projects within our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of $1.5 million and $1.4 million, respectively.

Changes in Project Estimates

We determine the impact of changes in estimated margins on projects ~~which~~for a given period by calculating the amount of revenue recognized in the period that would have been ~~approved~~recognized in a prior period had such estimated margins been forecasted in the prior period. The total impact of changes in estimated margins for a project as disclosed on a quarterly basis may be different from the applicable year-to-date impact due to ~~scope~~the application of the POC method and the changing progress of the project at each period end. Such impacts may also be different when a project is commenced and completed within the applicable year-to-date period but spans multiple quarters.

As a result of the resolution of our MPSV Litigation, we recorded a charge of $32.5 million during each of the three and nine months ended September 30, 2023. See Note 4 for further discussion of the resolution of our MPSV Litigation.

For each of the three and nine months ended September 30, 2023, significant changes in estimated margins on projects positively impacted operating results for our Fabrication Division by $0.7 million, and negatively impacted operating results for our Shipyard Division by $1.5 million and $2.3 million, respectively. For the three and nine months ended September 30, 2022, individual projects with significant changes in estimated margins did not have a material net impact on our operating results. The changes in estimates for the 2023 periods were associated with the following:

Fabrication Division

•

Various Projects – For each of the three and nine months ended September 30, 2023, our operating results were positively impacted by $0.7 million on projects, resulting primarily from increases in contract price due to favorable resolution of customer change orders.

Shipyard Division

•

Seventy-Vehicle Ferry Project – For the three and nine months ended September 30, 2023, our operating results were negatively impacted by $1.2 million and $1.8 million, respectively, for our seventy-vehicle ferry project, resulting primarily from increased materials and subcontracted services costs, duration related costs due to extensions of schedule and net reductions to contract price. The cost impacts were primarily due to delays in the receipt of certain equipment that required replacement and subcontractor delays. The contract price impacts were primarily due to a reduction related to the propeller blades replacement discussed further below, offset partially by increases due to favorable resolution of customer change orders and the customer’s agreement to forego a portion of previously forecasted liquidated damages.

As discussed in our previous quarterly filing, in connection with the delivery and commissioning of the vessel in the second quarter 2023, corrosion on the propeller blades was identified and the customer has determined that replacement of the propeller blades will be required. The customer has agreed to directly procure the new propeller blades and take responsibility for future installation of the blades once received. However, the customer believes we should bear the cost of the new propeller blades through a contract price reduction. We disagree with the customer given the fact that the customer specified the materials and equipment manufacturers to be used for the propulsion system and specified the cathodic protection to be used to mitigate corrosion. In light of the disagreement with the customer regarding who is responsible for the cost of the propeller blades, our forecasts at September 30, 2023, reflect a contract price reduction related to the estimated cost of the propeller blades. We are having ongoing discussions with the customer regarding who should bear final responsibility for the cost of the propeller blades.

At September 30, 2023, the vessel was substantially complete and has been delivered to the customer. We anticipate completion of commissioning activities and final sea trials to occur in the fourth quarter 2023 (previously the third quarter 2023, but was delayed due to the aforementioned impacts). At September 30, 2023, the project was in a loss position and our reserve for estimated losses was $0.1 million. If future subcontractor availability or costs differ from our current estimates, our schedule is further extended or we incur additional liquidated damages, we experience challenges during commissioning or sea trials for the vessel, or unanticipated warranty costs, the project would experience further delays and losses.

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•

Forty-Vehicle Ferry Projects – During the second quarter 2023, we received final customer acceptance of one of the two forty-vehicle ferries that were under construction. For the three and nine months ended September 30, 2023, our operating results were negatively impacted by $0.3 million and $0.5 million, respectively, for our remaining forty-vehicle ferry project, resulting primarily from increased subcontracted services and duration related costs due to extensions of schedule, including forecast liquidated damages. The impacts were primarily due to delays in the receipt of certain equipment that required replacement and subcontractor delays. At September 30, 2023, the vessel was substantially complete, and as of the date of this Report, the ferry is in route for delivery to the customer. We anticipate completion of delivery, commissioning activities and final sea trials to occur in the fourth quarter 2023 (previously the third quarter 2023, but was delayed due to the aforementioned impacts). At September 30, 2023, the project was in a loss position and our reserve for estimated losses was $0.3 million.

As discussed in our 2022 Financial Statements, we have experienced rework, construction and commissioning challenges on the two ferries, resulting in forecast cost increases and liquidated damages and the previous need to fabricate a new hull for the remaining vessel. Accordingly, during 2021 we submitted claims to our customer, and subsequently filed a lawsuit, to extend our project schedules and recover the cost impacts of the design deficiencies. The customer denied all liability. Further, during the fourth quarter 2022 and early 2023, we received correspondence from our customer indicating that the new hull for the remaining ferry under construction was exhibiting deformation issues that are potentially beyond the customer’s desired tolerance levels. Our subsequent evaluation did not support the customer’s conclusions and we completed construction of the vessel as designed.

Our forecast costs and scheduled completion date for the remaining vessel are based on the current vessel design and reflect our best estimates; however, such estimates may be impacted by any future challenges with the vessel design deficiencies, including the final resolution of the aforementioned design and deformation issues in dispute. If future subcontractor availability or costs differ from our current estimates, our schedule is further extended or we incur additional liquidated damages, we experience challenges during delivery, commissioning or sea trails for the remaining vessel, or other challenges associated with the design deficiencies, including unanticipated warranty costs (for either vessel), and are unable to recover associated costs from our customer, or the customer rejects delivery and/or final acceptance of the remaining vessel due to the design dispute, the project would experience further delays and losses. Our forecasts at September 30, 2023 do not reflect potential future benefits, if any, from the favorable resolution of the aforementioned lawsuit and we can provide no assurance that we will be successful recovering previously incurred costs.

Other Operating and Project Matters

Hurricane Ida – On August 29, 2021, Hurricane Ida made landfall near Houma, Louisiana as a high-end Category 4 hurricane, with high winds and heavy rains causing damage to buildings and equipment at our Houma Facilities and resulting in significant debris throughout the facility. Our insurance coverages in effect at the time of the storm generally specify coverage amounts for each of our buildings (including contents) and major equipment.

During the nine months ended September 30, ~~2016,~~2023 and 2022, we received insurance payments of $2.2 million and $7.0 million, respectively, from our insurance carriers associated with interruptions to our operations and damage to buildings and equipment. In addition, we have received payments from our insurance carriers during other periods subsequent to the storm associated with interruptions to our operations and damage to buildings and equipment. Such payments are nonrefundable, and with respect to our buildings, represent the insurance carriers’ estimate of the damage to each building based on the estimated depreciated value of such buildings plus repair costs incurred by us in excess of such estimates for certain buildings. To the extent we incur further repair costs for a building in excess of the amounts received, we may receive additional insurance proceeds up to the limits of our insurance coverage for such building. The classification of insurance proceeds within our Statement of Cash Flows is based on our use or intended use of the proceeds. Proceeds used or intended to be used for repairs that are not deemed to be capital in nature, and proceeds associated with interruptions to our operations, are reflected within operating activities. Proceeds used or intended to be used for repairs that are deemed capital in nature, or proceeds in excess of anticipated repair costs, are reflected within investing activities.

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The timing of payments from our insurance carriers have, and may continue to, differ from when we incur the applicable repair and cleanup costs, and accordingly, we have accounted for such differences in timing as follows:

•

To the extent we incurred repair costs in excess of insurance proceeds received to date, we recorded an insurance receivable when we believe such amounts are probable of recovery under our insurance policies.

•

To the extent we determined that damage to an asset resulted in a complete loss, we recorded an insurance receivable up to the impairments recognized when we believe such amounts are probable of ~~$488,000~~recovery under our insurance policies.

•

To the extent proceeds received exceeded repair costs incurred to date, we recorded an insurance gain as we do not have an obligation to perform further repair activities. Charges will be recorded in future periods to the extent such proceeds received are used for ~~a single customer~~future repair activities that are not deemed to be capital in nature.

•

Insurance deductibles, clean-up costs and uninsured losses have been expensed.

Based on the above, during the three months ended September 30, 2023 and 2022, and nine months ended September 30, 2023 and 2022, we recorded gains of $0.3 million (all related to ~~revenue~~our business interruption coverage), $1.3 million, $0.5 million (including $0.6 million related to our business interruption coverage) and $4.4 million, respectively, related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida. The gains are included in other (income) expense, net on ~~change orders recognized in prior periods that were not recovered.~~

~~NOTE 4 – CONTRACTS RECEIVABLE AND RETAINAGE~~

~~Our customers include major~~our Statement of Operations and ~~large independent oil and gas companies, petrochemical and industrial facilities, marine companies and their contractors. Of~~are reflected within our ~~contracts receivable balance~~Fabrication Division. In addition, at September 30, ~~2017, $16.3~~2023, we had total insurance receivables on our Balance Sheet of $0.1 million. We have finalized our restoration plans and are nearing completion of our repair efforts. We expect to incur future repair costs of approximately $0.5 million ~~or 64.0%, was with three customers. The significant projects for these three customers consist of:~~

One large petroleum supply vessel for a 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 division; and~~

~~The fabrication of four modules~~ associated with ~~a U.S. ethane cracker project.~~

~~As of September 30, 2017, we included an allowance~~previously received insurance payments for bad debt of $2.1 million in our contract receivable 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 - inputs are based upon quoted prices for identical instruments traded in active markets.~~

~~Level 2 - inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market.~~

Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.

~~Recurring fair value measurements and financial instruments~~ - ~~The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and accounts payables, approximate their fair values.~~

~~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~~Further, we expect to incur future repair costs in excess of ~~the damages~~previously received insurance payments for certain buildings and ~~insurance coverage, management believes~~equipment; however, we believe that ~~there is no basis to record a net loss at this time and that~~recovery of insurance proceeds ~~will at a minimum be sufficient~~for such costs is probable.

In addition to ~~reimburse us for all damages~~damage to our Houma Facilities, the storm resulted in damage to one of our forty-vehicle ferry projects, the multi-purpose supply vessels (“MPSVs”) and ~~repair costs.~~

associated equipment that remain in our possession and were subject to our previous MPSV Litigation, and certain bulkheads where the vessels were moored. We are continuing to evaluate the extent to which any damage was the result of third-party vessels that broke free from their mooring during the storm and struck the ferry, MPSVs and bulkheads. During the three months ended September 30, 2023, we recorded charges of $0.1 million, and during the nine months ended September 30, ~~2017,~~2023 and 2022, we recorded ~~an impairment~~charges of ~~$389,000~~$0.4 million and $0.2 million, respectively, associated with damage previously caused by Hurricane Ida. See Note 4 for further discussion of the resolution of our MPSV Litigation.

Offshore Jackets Project – As discussed above, in February 2023, we received direction from our customer to suspend all activities on our offshore jackets project for our Fabrication Division, and in July 2023, the customer cancelled the contract. At September 30, 2023, we had $5.0 million of accounts receivable on our Balance Sheet related to the ~~assets held~~project and we expect such amounts to be paid in the fourth quarter 2023. We have received a payment guarantee bond as security for ~~sale at~~the remaining accounts receivable amounts.

3. CREDIT FACILITIES AND DEBT

LC Facility

On May 5, 2023, we amended our ~~Prospect shipyard.~~LC Facility with Whitney Bank to reduce our letters of credit capacity from $20.0 million to $10.0 million, subject to our cash securitization of the letters of credit, and extend the maturity date to June 30, 2024. Commitment fees on the unused portion of the LC Facility are 0.4% per annum and interest on outstanding letters of credit is 1.5% per annum. At September 30, 2023, we had $1.2 million of outstanding letters of credit under the LC Facility. See Note 2.4 for further discussion of our letters of credit and associated security requirements.

Surety Bonds

We issue surety bonds in the ordinary course of business to support our projects and certain of our insurance coverages. At September 30, 2023, we had $101.6 million of outstanding surety bonds, of which $50.0 million related to our MPSV projects that were subject to our MPSV Litigation (which was resolved on October 4, 2023 and the associated bonds were subsequently terminated), $45.6 million relates to our Active Retained Shipyard Contracts, and $6.0 million relates to our Fabrication Division contracts and certain of our insurance coverages. See Note 4 for further discussion of our surety bonds and related indemnification obligations and the resolution of our MPSV Litigation.

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Insurance Finance Arrangement

In connection with the renewal of our property and equipment insurance coverages during 2022, and general liability insurance coverages during the first quarter 2023, we entered into short-term premium finance arrangements (“Insurance Finance Arrangements”). The property and equipment arrangement totaled $2.4 million, payable in ten equal monthly installments through March 2023, with interest at a fixed rate of 4.3% per annum. The general liability arrangement totaled $0.5 million, payable in eight equal monthly installments through August 2023, with interest at a fixed rate of 6.6% per annum. We considered the transactions to be non-cash financing activities, with the initial financed amount reflected within accrued expenses and other liabilities, and a corresponding asset reflected within prepaid expenses and other assets, on our Balance Sheet. For the nine months ended September 30, 2023 and 2022, we have reflected principal payments of $1.3 million and $1.0 million, respectively, as a financing activity on our Statement of Cash Flows.

Mortgage Agreement and Restrictive Covenant Agreement

In connection with the receipt of a consent for the Shipyard Transaction from one of our Sureties (Fidelity & Deposit Company of Maryland (“FDC”) and Zurich American Insurance Company (together with FDC, “Zurich”)), we entered into a multiple indebtedness mortgage (“Mortgage Agreement”) and a restrictive covenant arrangement (“Restrictive Covenant Agreement”) with Zurich to secure our obligations for our MPSV projects and two forty-vehicle ferry projects. The Mortgage Agreement encumbers all real estate that was not sold in connection with the Shipyard Transaction and includes certain covenants and events of default. In connection with the resolution of our MPSV Litigation and the Note Agreement entered into with Zurich, the Mortgage Agreement was modified on November 6, 2023, to include a provision requiring that 50 percent of the proceeds received by us in excess of $8.0 million from the sale of any real estate of our Houma Facilities be used to make early payments on the principal balance under the Note Agreement. The Mortgage Agreement will terminate when the obligations and liabilities of Zurich associated with the outstanding surety bonds for the forty-vehicle ferry projects are discharged and the Note Agreement is repaid. The Restrictive Covenant Agreement precluded us from paying dividends or repurchasing shares of our common stock; however, in connection with the resolution of our MPSV Litigation, the Restrictive Covenant Agreement was terminated. See Note 1 for further discussion of the Shipyard Transaction and Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.

~~NOTE~~

4. COMMITMENTS AND CONTINGENCIES

Routine Legal Proceedings

We are subject to various routine legal proceedings in the normal conduct of our business, primarily involving commercial disputes and claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the U.S. and the Jones Act. While the outcome of these legal proceedings cannot be predicted with certainty, we believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on our financial position, results of operations or liquidity.

MPSV Litigation Resolution

On March 19, 2018, our subsidiary, Gulf Island Shipyards, LLC (“GIS”), received termination notices from its customer, Hornbeck Offshore Services, LLC (“Hornbeck”), of the contracts for the construction of two MPSVs. GIS disputed the purported terminations and disagreed with Hornbeck’s reasons for such terminations. In connection with such purported terminations, Hornbeck also made claims against the performance bonds issued by Zurich in connection with the construction of the MPSVs, for which the face amount of the bonds totaled $50.0 million (“Performance Bonds”). On October 2, 2018, GIS filed a lawsuit against Hornbeck to enforce its rights and remedies under the applicable construction contracts for the two MPSVs. The lawsuit was filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and was styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC, bearing docket number 2018-14861 (“MPSV Litigation”). Hornbeck subsequently asserted counterclaims against GIS and Zurich seeking damages.

On October 4, 2023, the MPSV Litigation was dismissed in full with prejudice at the request of the parties after the parties reached an agreement in principle. To effectuate such agreement, on November 6, ~~– EARNINGS~~2023, GIS and the Company entered into an agreement (“Settlement Agreement”) with Zurich pursuant to which Zurich released GIS and the Company from all of their obligations under the Performance Bonds and the associated general indemnity agreements relating to the Performance Bonds, and we agreed to release possession of the MPSVs to Zurich. Further, we entered into a promissory note (“Note Agreement”) payable to Zurich in the principal amount of $20 million. The Note Agreement bears interest at a fixed rate of 3.0% per annum commencing on January 1, 2024, with principal and interest payable in 15 equal annual installments of approximately $1.7 million, beginning on December 31, 2024 and ending on December 31, 2038. The estimated present value of the Note Agreement amount is $12.6 million based on an estimated market rate of interest.

- 16 -

As a result of the resolution of the MPSV Litigation, we recorded a charge of $32.5 million during each of the three and nine months ended September 30, 2023, consisting of (i) a $12.5 million charge associated with the write-off of a noncurrent net contract asset related to the MPSV construction contracts, and (ii) a $20.0 million charge associated with recording a liability resulting from the Note Agreement. Because the Note Agreement was entered into subsequent to September 30, 2023, the liability has been reflected as a noncurrent contract liability on our Balance Sheet at September 30, 2023, and will be reclassified as long-term debt in the fourth quarter 2023. The charge was reflected as a reduction to previously recognized revenue on the MPSV construction contracts, resulting in a negative revenue amount for the Shipyard Division for the three and nine months ended September 30, 2023, and is included in the changes in noncurrent assets and liabilities, net on our Statement of Cash Flows.

Insurance

We maintain insurance coverage for various aspects of our business and operations. However, we may be exposed to future losses due to coverage limitations and our use of deductibles and self-insured retentions for our exposures related to property and equipment damage, builder’s risk, third-party liability and workers’ compensation and USL&H claims. In connection with our insurance coverage renewal for our property and equipment in the second quarter 2023, we determined that the benefits of maintaining insurance coverage for our property and equipment were limited due to high premium costs and deductibles and increased coverage limitations. Accordingly, we did not renew all of our property and equipment coverage and are now generally self-insured for exposures resulting from any future damage to our property and equipment.

To the extent we have insurance coverage, we do not have an offset right for liabilities in excess of any deductibles and self-insured retentions. Accordingly, we have recorded a liability for estimated amounts in excess of our deductibles and retentions, and have recorded a corresponding asset related to estimated insurance recoveries, on our Balance Sheet. Further, to the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change. See Note 2 for discussion of insurance deductibles incurred associated with damage caused by Hurricanes Ida.

Letters of Credit and Surety Bonds

We obtain letters of credit under our LC Facility or surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. Letters of credit under our LC Facility are subject to cash securitization of the full amount of the outstanding letters of credit. In the event of non-performance under a contract, our cash securitization with respect to the letter of credit supporting such contract would become the property of Whitney Bank. With respect to surety bonds, payments by a Surety pursuant to a bond in the event of non-performance are subject to reimbursement to such Surety by us under a general indemnity agreement relating to such bond. Such indemnification obligations may include the face amount of the surety bond, or portions thereof, as well as other reimbursable items such as interest and certain investigative expenses and legal fees of the Surety. Such indemnification obligations would require us to use our cash, cash equivalents or short-term investments, and we may not have sufficient liquidity to satisfy such indemnification obligations. When a contract is complete, the contingent obligation terminates, and letters of credit or surety bonds are returned. See Note 3 for further discussion of our LC Facility and surety bonds.

Environmental Matters

Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the laws of other countries, that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of hazardous substances and wastes. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. In connection with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation. We believe we are in compliance, in all material respects, with environmental laws and regulations and maintain insurance coverage to mitigate exposure to environmental liabilities. We do not believe any environmental matters will have a material adverse effect on our financial condition, results of operations or cash flow.

Leases

We maintain operating leases for our corporate office and certain operating facilities and equipment. See Note 1 for further discussion of our leases.

- 17 -

5. INCOME (LOSS) PER SHARE ~~AND SHAREHOLDERS' EQUITY~~

~~Earnings per Share:~~

The following table ~~sets forth~~presents the computation of basic and diluted ~~earnings~~income (loss) per share for the three and nine months ended September 30, 2023 and 2022 (in thousands, except per share data):


	Three Months Ended September 30,					Nine Months Ended September 30,
	2023			2022		2023			2022
Net income (loss)	$	(33,235	)	$	598	$	(31,492	)	$	(3,901	)
Weighted average shares(1)		16,287			15,923		16,162			15,808
Basic and diluted income (loss) per common share	$	(2.04	)	$	0.04	$	(1.95	)	$	(0.25	)

(1)

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Basic and diluted:
Numerator:
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 $ (3,096 ) $ 539
$ (20,388 ) $ 6,999
Denominator:
Weighted-average shares⁽¹⁾
14,852
14,633
14,821
14,621
Basic and diluted earnings (loss) per share - common shareholders $ (0.21 ) $ 0.04
$ (1.38 ) $ 0.48

~~______________~~

~~(1) We have no~~The effect of approximately 147 thousand dilutive ~~securities.~~

~~NOTE 7 – LINE OF CREDIT~~

~~On June 9, 2017, we entered into a $40.0 million credit agreement with Whitney Bank, as lender. The credit facility matures June 9, 2019, and may be used~~non-vested shares is not material to the calculation of diluted income per share for ~~issuing letters of credit and/or general corporate and working capital purposes. Interest on drawings under~~ the credit facility may be designated, at our option, as either Base Rate (as defined in the credit facility) or LIBOR plus 2.0% per annum. Unused commitment fees on the undrawn portion of the facility are 0.4% per annum, and interest on undrawn stated amounts under letters of credit issued by the lenders is 2.0% per annum. The credit facility is secured by substantially all of our assets (other than the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

~~We must comply with the following 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.~~

Atthree months ended September 30, ~~2017, no amounts were outstanding under the credit facility. As of September 30, 2017, we were in compliance with all of~~2022.

6. OPERATING SEGMENTS

We currently operate and manage our ~~financial covenants.~~

~~NOTE 8 - SEGMENT DISCLOSURES~~

~~We have structured~~business through three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our ~~operations with~~reportable segments. Our three operating divisions and ~~a corporate non-operating division. Beginning in 2017,~~Corporate Division are discussed below:

Services Division –Our Services Division provides maintenance, repair, construction, scaffolding, coatings, welding enclosures and other specialty services on offshore platforms and inland structures and at industrial facilities; provides services required to connect production equipment and service modules and equipment on offshore platforms; provides project management ~~reduced its allocation~~and commissioning services; provides industrial staffing services; and performs municipal and drainage projects, including pump stations, levee reinforcement, bulkheads and other public works. Our services activities are managed from our various Facilities and include the results of ~~corporate administrative costs~~the DSS Acquisition. See Note 1 for further discussion of the DSS Acquisition.

Fabrication Division –Our Fabrication Division fabricates modules, skids and ~~overhead expenses from its corporate, non-operating division to its operating divisions in order to individually evaluate corporate administrative costs~~piping systems for onshore refining, petrochemical, LNG and ~~overhead within our Corporate division~~industrial facilities and offshore facilities; fabricates foundations, secondary steel components and support structures for alternative energy developments and coastal mooring facilities; fabricates offshore production platforms and associated structures, including jacket foundations, piles and topsides for fixed production and utility platforms, as well as hulls and topsides for floating production and utility platforms; and fabricates other complex steel structures and components. Our fabrication activities are performed at our Houma Facilities.

Shipyard Division –Our Shipyard Division previously fabricated newbuild marine vessels and provided marine repair and maintenance services. However, on April 19, 2021, we sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”). The Shipyard Transaction excluded the contracts and related obligations for our seventy-vehicle ferry and two forty-vehicle ferry projects (“Active Retained Shipyard Contracts”) that were under construction as of the transaction date and excluded the contracts and related obligations for the projects that were subject to ~~not overly burden~~ our MPSV Litigation (which was resolved on October 4, 2023). The Active Retained Shipyard Contracts have been or will be completed at our Houma Facilities and we intend to wind down our Shipyard Division operations by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in Note 2). At September 30, 2023 and December 31, 2022, the net operating ~~divisions~~liabilities on our Balance Sheet associated with our Shipyard Division operations totaled $3.5 million and $2.7 million, respectively. See Note 1 for further discussion of the Shipyard Transaction and Note 4 for further discussion of the resolution of our MPSV Litigation.

Corporate Divisionand Allocations –Our Corporate Division includes costs that do not directly relate to ~~their operations. Accordingly, a significant portion of~~ our corporate 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 and its Corporate division each meeting the criteria of reportable segments under GAAP. Our operating divisions and 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 division 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 facility. We have 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 drydocks 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 construct 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~~Such costs include, but are not limited to, costs ~~related to~~of maintaining our corporate office, executive management salaries and incentives, board of directors' fees, ~~clerical and administrative salaries,~~certain insurance costs ~~of maintaining the corporate office~~ and costs associated with ~~being~~overall corporate governance and reporting requirements for a publicly traded ~~company~~company. Shared resources and ~~its overall governance.~~

costs that benefit more than one operating division are allocated amongst the operating divisions based on each operating division’s estimated share of the benefit received. Such costs include, but are not limited to, human resources, insurance, information technology, accounting, business development and certain division leadership.

- 18 -

Segment Results –We generally evaluate the performance of, and allocate resources to, our ~~segments~~divisions based upon gross profit ~~(loss)~~or loss and operating income ~~(loss).~~or loss. Segment assets are comprised of all assets attributable to each segment. Corporate administrative costs and overhead are allocated to our three operating divisions for expenses that directly relate 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.division. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information ~~concerning~~for our segments as of September 30, 2023 and 2022, and for the three and nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022, is as follows (in thousands):


	Three Months Ended September 30, 2023
	Services		Fabrication		Shipyard			Corporate			Consolidated
Revenue	$	22,976	$	14,979	$	(32,702	)	$	(230	)	$	5,023
Gross profit (loss)		3,260		1,217		(34,356	)		—			(29,879	)
Operating income (loss)		2,577		904		(35,117	)		(1,999	)		(33,635	)
Depreciation and amortization expense		502		813		—			75			1,390
Capital expenditures		—		573		—			72			645
Total assets(1)		30,407		44,372		727			45,096			120,602


	Three Months Ended September 30, 2022
	Services		Fabrication		Shipyard			Corporate			Consolidated
Revenue	$	22,569	$	15,429	$	1,849		$	(254	)	$	39,593
Gross profit (loss)		3,163		1,326		(269	)		—			4,220
Operating income (loss)		2,390		2,120		(1,393	)		(2,463	)		654
Depreciation and amortization expense		382		807		—			51			1,240
Capital expenditures		499		4		—			55			558
Total assets(1)		33,899		40,061		17,349			43,430			134,739


	Nine Months Ended September 30, 2023
	Services		Fabrication		Shipyard			Corporate			Consolidated
Revenue	$	69,033	$	69,382	$	(30,973	)	$	(925	)	$	106,517
Gross profit (loss)		10,348		5,243		(35,955	)		—			(20,364	)
Operating income (loss)		8,187		4,443		(39,268	)		(5,920	)		(32,558	)
Depreciation and amortization expense		1,440		2,460		—			215			4,115
Capital expenditures		508		1,111		—			82			1,701
Total assets(1)		30,407		44,372		727			45,096			120,602


	Nine Months Ended September 30, 2022
	Services		Fabrication			Shipyard			Corporate			Consolidated
Revenue	$	65,413	$	31,885		$	7,314		$	(431	)	$	104,181
Gross profit (loss)		8,295		(2,064	)		(759	)		—			5,472
Operating income (loss)		5,912		787			(3,965	)		(6,529	)		(3,795	)
Depreciation and amortization expense		1,128		2,436			—			200			3,764
Capital expenditures		817		160			—			55			1,032
Total assets(1)		33,899		40,061			17,349			43,430			134,739

(1)

Cash and short-term investments are reported within our Corporate Division.

Three Months Ended September 30, 2017
Fabrication
Shipyards ⁽¹⁾
Services Corporate Eliminations Consolidated
Revenue $ 18,318
$ 15,074
$ 17,651
$ —
$ (1,159 ) $ 49,884
Gross profit (loss) 1,250
(3,504 ) 1,912
(152 ) —
(494 )
Operating income (loss) 472
(4,392 ) 1,217
(2,161 ) —
(4,864 )
Total assets 205,463
96,614
100,820
364,016
(463,533 ) 303,380
Depreciation and amortization expense 1,133
1,030
413
95
—
2,671
Capital expenditures 1,479
1,054
94
25
—
2,652

Three Months Ended September 30, 2016
Fabrication
Shipyards ⁽¹⁾
Services Corporate Eliminations Consolidated
Revenue $ 22,311
$ 23,060
$ 20,928
$ —
$ (915 ) $ 65,384
Gross profit (loss) 601
1,945
2,918
(205 ) —
5,259
Operating income (loss) (284 ) 477
1,975
(1,995 ) —
173
Total assets 285,320
75,779
100,781
332,617
(457,285 ) 337,212
Depreciation and amortization expense 4,637
1,183
443
123
—
6,386
Capital expenditures 1,228
318
565
14
—
2,125

Nine Months Ended September 30, 2017
Fabrication
Shipyards ⁽¹⁾
Services Corporate Eliminations Consolidated
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 assets 205,463
96,614
100,820
364,016
(463,533 ) 303,380
Depreciation and amortization expense 5,420
3,034
1,266
421
—
10,141
Capital expenditures 2,327
1,872
199
117
—
4,515

Nine Months Ended September 30, 2016
Fabrication
Shipyards ⁽¹⁾
Services Corporate Eliminations Consolidated
Revenue $ 70,436
$ 86,553
$ 76,179
$ —
$ (2,304 ) $ 230,864
Gross profit (loss) 4,564
9,742
11,158
(439 ) —
25,025
Operating income (loss) 1,743
5,524
8,696
(5,571 ) —
10,392
Total assets 285,320
75,779
100,781
332,617
(457,285 ) 337,212
Depreciation and amortization expense 14,081
3,507
1,342
332
—
19,262
Capital expenditures 2,539
534
1,612
730
—
5,415

~~____________~~


~~(1)~~	Revenue includes non-cash amortization of deferred revenue related to the values assigned to contracts acquired in the LEEVAC 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~~

7. SUBSEQUENT EVENTS

On October 4, 2023, we resolved our MPSV Litigation, resulting in a charge of $32.5 million during both the three and ~~Arbitration:~~

~~During~~nine months ended September 30, 2023. In addition, on November 6, 2023, we entered into the ~~third~~Settlement Agreement, Note Agreement and ~~fourth quarters~~an amendment to the Mortgage Agreement, and the Restrictive Covenant Agreement was terminated. See Note 3 for further discussion 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~~the Mortgage Agreement amendment and Restrictive Covenant Agreement termination, and Note 4 for further discussion of the resolution of our ~~consolidated balance sheet or recognized in revenue in our consolidated statement of operations as of~~MPSV Litigation, the Settlement Agreement, the Note Agreement and the associated impacts 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. 2023.

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 10 – SUBSEQUENT EVENTS~~

On October 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 24, 2017, to shareholders of record on November 10, 2017.

- 19 -

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Forward-Looking Statements~~

~~Statements under “Backlog,” “Results~~

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and ~~“Liquidity and Capital Resources” and other statements~~significant trends that may impact our future performance. This discussion should be read in ~~this report~~conjunction with our Financial Statements and the ~~exhibits hereto~~related notes thereto. References to “Notes” relate to the Notes to our Financial Statements in Item 1. References to “nm” relate to percentage references that are not considered meaningful. Certain terms are defined in the “Glossary of Terms” beginning on page ii.

Cautionary Statement on Forward-Looking Information

This Report contains forward-looking statements in which we discuss our potential future performance, operations and projects. Forward-looking statements, within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, are all statements other than statements of historical ~~fact~~facts, such as projections or expectations relating to operating results, timing of delivery of vessels related to the Active Retained Shipyard Contracts and subsequent wind down of our Shipyard Division operations; impacts of the resolution of the MPSV Litigation; diversification and entry into new end markets; improvement of risk profile; industry outlook; oil and gas prices; timing of investment decisions and new project awards; cash flows and cash balance; capital expenditures; liquidity; tax rates; and execution of strategic initiatives. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be,” “potential” and any similar expressions are intended to identify those assertions as forward-looking statements. ~~These~~

We caution readers that forward-looking statements are ~~subject to certain risks~~not guarantees of future performance and ~~uncertainties that could cause~~ actual results ~~and outcomes to~~may differ materially from ~~the results and outcomes predicted~~those anticipated, projected or assumed in ~~such forward-looking statements. Investors are cautioned not to place undue reliance upon such~~the forward-looking statements. Important factors that ~~may~~can cause our actual results to differ materially from ~~expectations~~those anticipated in the forward-looking statements include: supply chain disruptions (including global shipping and logistics challenges), inflationary pressures, economic slowdowns and recessions, natural disasters, public health crises (such as COVID-19), labor costs and geopolitical conflicts (such as the conflict in Ukraine and the Israel-Hamas conflict), and the related volatility in oil and gas prices and other factors impacting the global economy; cyclical nature of the oil and gas industry; our ability to resolve any material legal proceedings; competition; reliance on significant customers; competitive pricing and cost overruns on our projects; performance of subcontractors and dependence on suppliers; timing and our ability to secure and commence execution of new project awards, including fabrication projects for refining, petrochemical, LNG, industrial and sustainable energy end markets; our ability to maintain and further improve project execution; nature of our contract terms and customer adherence to such terms; suspension or ~~projections include those~~termination of projects; changes in contract estimates; customer or subcontractor disputes; operating dangers, weather events and availability and limits on insurance coverage; operability and adequacy of our major equipment; recoveries of any insurance proceeds for previous damage at our Houma Facilities; our ability to raise additional capital; our ability to amend or obtain new debt financing or credit facilities on favorable terms; our ability to generate sufficient cash flow; our ability to obtain letters of credit or surety bonds and ability to meet any indemnification obligations thereunder; consolidation of our customers; financial ability and credit worthiness of our customers; adjustments to previously reported profits or losses under the percentage-of-completion method; our ability to employ a skilled workforce; loss of key personnel; utilization of facilities or closure or consolidation of facilities; failure of our safety assurance program; barriers to entry into new lines of business; weather impacts to operations; any future asset impairments; changes in trade policies of the U.S. and other countries; compliance with regulatory and environmental laws; lack of navigability of canals and rivers; systems and information technology interruption or failure and data security breaches; performance of partners in any future joint ventures and other strategic alliances; shareholder activism; focus on environmental, social and governance factors by institutional investors and regulators; and other factors described under “Risk Factors” in Part I, Item 1A of our 2022 Annual Report as updated in Item ~~1A. Risk Factors included~~1A “Risk Factors” in our ~~Annual Report~~quarterly report on Form ~~10-K~~10-Q for the ~~year~~quarter ended ~~December 31, 2016.~~

~~Executive Summary~~

June 30, 2023 and as may be further updated by subsequent filings with the SEC.

Additional factors or risks that we currently deem immaterial, that are not presently known to us or that arise in the future could also cause our actual results to differ materially from our expected results. Given these uncertainties, investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the date the forward-looking statements are made, which we cannot control. Further, we may make changes to our business plans that could affect our results. We caution investors that we undertake no obligation to publicly update or revise any forward-looking statements, which speak only as of the date made, for any reason, whether as a result of new information, future events or developments, changed circumstances, or otherwise, and notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes.

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Overview

We are a leading fabricator of complex steel structures and ~~marine vessels used in energy extraction~~modules and ~~production, petrochemical and industrial facilities, power generation, alternative energy projects and shipping and marine transportation operations. We also provide related installation,~~provider of specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, welding enclosures, civil construction and ~~maintenance~~staffing services ~~with specialized crews~~to the industrial 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.energy sectors. Our customers include U.S. and, to a lesser extent, international energy ~~producers,~~producers; refining, petrochemical, LNG, industrial and power operators; and ~~marine operators.~~

EPC companies. We currently operate and manage our business through three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our ~~industry environment continues~~corporate headquarters is located in The Woodlands, Texas, and our primary operating facilities are located in Houma, Louisiana (“Houma Facilities”). See Note 6 for further discussion of our reportable segments.

On April 19, 2021, we sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”) and intend to ~~be challenged~~wind down our remaining Shipyard Division operations by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in Note 2). See Note 1 for further discussion of the Shipyard Transaction.

On December 1, 2021, we acquired a services and industrial staffing business (“DSS Acquisition,”) which increased our skilled workforce, further diversified our customer base and expanded our service offerings for our Services Division. See Note 1 for further discussion of the DSS Acquisition.

On October 4, 2023, we resolved our MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.

Impacts of Oil and Gas Price Volatility and Macroeconomic Conditions on Operations

Since 2008, the prices of oil and gas have experienced significant volatility, including depressed prices over extended periods, resulting in reductions in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, our operating results and cash flows were negatively impacted as ~~low~~we experienced reductions in revenue, lower margins due to competitive pricing and under-utilization of our operating facilities and resources. Beginning in 2020, the global coronavirus pandemic (“COVID-19”) added another layer of pressure and uncertainty on oil and gas prices ~~remain. Our customers in the global~~(with oil prices reaching a twenty-year low and gas ~~industry continue to limit capital spending relative to the already reduced spending levels from 2015 and 2016. This has also~~prices reaching a four-year low), which further negatively impacted ~~the marine and offshore service industries that support offshore exploration and production which has had an adverse effect on~~certain of our overall backlog levels and created challenges with respect to our ability to operate our 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~~end markets through the ~~third~~first 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 fluctuations2022. This volatility in oil and gas prices was compounded by Russia’s invasion of Ukraine in February 2022 (and the related European energy crisis), and ~~may actually benefit~~the U.S. and other countries actions in ~~the longer term from reliable, lower cost commodity prices. We are currently fabricating complex modules for the construction of~~response (with oil prices reaching an eight-year high and gas prices reaching 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 selectionfourteen-year high), which positively impacted certain 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~~end markets. While oil and gas ~~sector including passenger cruise vessels~~prices have somewhat stabilized, the duration of such stability is uncertain 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 vesselsdifficult to predict.

In addition, global economic factors that are beyond our control, have 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~~could continue to ~~limit their spending; however, we~~impact our operations, including, but are not limited to, supply chain disruptions (including global shipping and logistics challenges that began in 2020), inflationary pressures, economic slowdowns and recessions, bank failures, natural disasters, public health crises (such as COVID-19), and geopolitical conflicts (such as the conflict in Ukraine and the Israel-Hamas conflict).

The ultimate business and financial impacts of oil and gas price volatility and macroeconomic conditions on our business and results of operations continues to be uncertain, but the impacts have ~~secured some offshore platform facility expansion work which entails the onshore fabrication~~included, or may continue to include, among other things, reduced bidding activity; suspension or termination of ~~structural~~backlog; deterioration of customer financial condition; and ~~production components as well as offshore installation~~unanticipated project costs and ~~hook-up scopes~~schedule delays due to supply chain disruptions, labor and material price increases, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, increased safety incidents, lack of ~~work. In addition to onshore plant expansions~~performance by subcontractors and ~~maintenance programs.~~

suppliers, and contract disputes. We continue to ~~actively compete for additional bidding opportunities~~monitor the impacts of oil and ~~believe we~~gas price volatility and macroeconomic conditions on our operations, and our estimates in future periods will be ~~successful~~revised for any events and changes in ~~obtaining~~circumstances arising after the date of this Report. See Note 1 for further discussion of the impacts of oil and gas price volatility and macroeconomic conditions and Note 2 for further discussion of the impacts of the aforementioned on our projects. See also “Risk Factors” in Part I, Item 1A of our 2022 Annual Report as updated in Item 1A “Risk Factors” in our quarterly report on Form 10-Q for the quarter ended June 30, 2023.

Other Impacts to Operations

Hurricane Ida – On August 29, 2021, Hurricane Ida made landfall near Houma, Louisiana as a high-end Category 4 hurricane, with high winds and heavy rains causing damage to buildings and equipment at our Houma Facilities and resulting in significant debris throughout the facility. See Note 2 for further discussion of the impacts of Hurricane Ida.

Ferry Projects – We have experienced construction challenges and cost increases on our seventy-vehicle ferry and forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.

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Initiatives to Improve Operating Results and Generate Stable, Profitable Growth

We previously outlined a strategy to address our operational, market and economic challenges and position the Company to generate stable, profitable growth. Underpinning the first phase of our strategic transformation was a focus on the following initiatives:

•

Mitigate the impacts of COVID-19 on our operations and workforce;

•

Reduce our risk profile;

•

Preserve and improve our liquidity;

•

Improve our resource utilization and centralize key project resources;

•

Improve our competitiveness and project execution; and

•

Reduce our reliance on the offshore oil and gas construction sector and pursue new growth end markets, including:

Fabricating modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities in our core Gulf Coast region, and

Fabricating foundations, secondary steel components and support structures for offshore wind developments.

With the significant progress achieved on these objectives, we have shifted our focus to the next phase of our strategic transformation, which is focused on generating stable, profitable growth. Underpinning this strategy is a focus on the following initiatives:

•

Expand our skilled workforce;

•

Further strengthen project execution and maintain bidding discipline;

•

Diversify our offshore services customer base, increase our offshore services offerings and expand our services business to include onshore facilities along the Gulf Coast;

•

Continue to pursue opportunities in our traditional offshore fabrication markets; and

•

Pursue additional growth end markets and increase our T&M versus fixed price revenue mix, including:

Fabricating structures in support of our customers as they transition away from fossil fuels to green energy end markets, and

Fabricating structures that support commercial construction activities outside of energy end markets.

Progress on our Strategic Transformation Initiatives

Efforts to mitigate the impacts of COVID-19 on our operations and workforce – We continue to take actions to mitigate the impacts of COVID-19 on our operations and maintain a safe work environment for our workforce, including maintaining protocols for handling employees who have tested positive for COVID-19 or have come in contact with individuals that have tested positive for COVID-19. In addition, we have protocols for employees to return to work that test positive for COVID-19, including requiring a negative COVID-19 antigen test prior to returning to work.

Efforts to reduce our risk profile – The completion of the Shipyard Transaction improved our risk profile by removing potential future risks associated with certain construction contracts that represented approximately 90% of our backlog ~~awards in 2017~~with durations that extended through 2024. The Active Retained Shipyard Contracts have been or will be completed at our Houma Facilities and ~~2018; however, management believes that even if~~ we are ~~successful~~winding down our Shipyard Division operations, which is currently anticipated to occur by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in ~~obtaining these awards there is~~Note 2). See Note 1 for further discussion of the Shipyard Transaction.

Efforts to preserve and improve our liquidity – We continue to take actions to preserve and improve our liquidity, including cost reduction initiatives, monetization of under-utilized assets and facilities, and an ~~expected lag~~ongoing focus on project cash flow management. In addition, as a result of ~~several months before these awards will materialize into work at~~the Shipyard Transaction and anticipated wind down of our ~~facilities. While we have~~

~~been successful in obtaining new backlog in recent months, primarily in~~Shipyard Division operations, 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~~bonding, letters of credit ~~and/or general corporate~~ and working capital ~~purposes. We believe~~requirements for our remaining Shipyard Division operations were significantly reduced. See Note 1 for further discussion of the ~~new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities~~Shipyard Transaction 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 project activity by reducing our own discretionary spending. Since the beginning of 2016, we have implemented wage adjustments along with employee benefit and overall cost reductions within allNote 3 for further discussion of our ~~divisions.~~ outstanding bonds and letters of credit.

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Efforts to improve our resource utilization and centralize key project resources – We have ~~reduced~~improved our resource utilization and centralized key project resources through the ~~level of our workforce based on booked work in all~~rationalization and integration of our facilities and operations.

•

Consolidation of our fabrication activities – In the first quarter 2022, we combined all of our fabrication activities within our Fabrication Division to improve utilization and operational efficiency.

•

Sublease and lease termination of previously closed facilities – In the first quarter 2022, we entered into a sublease arrangement for a previously closed leased facility associated with our Shipyard Division operations that will ~~continue~~recover our lease costs for the facility for the duration of our lease. In the third quarter 2022, we also terminated a lease for a previously closed facility associated with our Shipyard Division operations that eliminated our future lease obligations for the facility.

•

Completion of Shipyard Transaction and anticipated wind down of our Shipyard Division operations – In the second quarter 2021, we completed the Shipyard Transaction and intend to ~~do so, as necessary.~~wind down our Shipyard Division operations upon completion of the Active Retained Shipyard Contracts, which is currently anticipated to occur by the fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to the potential schedule impacts discussed in Note 2). The Shipyard Transaction and wind down of our Shipyard Division operations is expected to reduce overhead costs, improve utilization and enable senior management to focus on existing and new higher-margin markets associated with our other operating divisions. See Note 1 for further discussion of the Shipyard Transaction.

•

Sale of assets – In the third quarter 2022, we sold (for $1.9 million, net of transaction and other costs) a purchase option entered into in connection with the DSS Acquisition that provided us with a right to buy a leased fabrication and operating facility for a nominal amount. Further, the fabrication activities previously performed at the facility were moved to our Houma Facilities to improve utilization and operational efficiency. In addition, we entered into a separate lease arrangement for a smaller and more cost-effective office and warehouse facility to accommodate our services activities performed at the previous facility. See “Overview” above and Note 1 for further discussion of the DSS Acquisition.

•

Sublease of our corporate office – In the third quarter 2022, we entered into a sublease arrangement with a third-party for the remainder of our corporate office, which will partially recover our lease costs for the office for the duration of our lease. In addition, we entered into a separate lease arrangement for a smaller and more cost-effective office to accommodate our corporate activities.

Efforts to improve our competitiveness, project execution and bidding discipline – We have ~~reduced our capital expenditures~~taken, and continue to ~~evaluate~~take, actions to improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures. Our actions include strategic changes in management and key personnel, the addition of functional expertise, project management training, development of a formal “lessons learned” program, and other measures designed to strengthen our personnel, processes and procedures. Further, we are taking a disciplined approach to pursuing and bidding project opportunities, putting more rigor around our bid estimates to provide greater confidence that our estimates are achievable, increasing accountability and providing incentives for the execution of projects in line with our original estimates and subsequent forecasts, and incorporating previous experience into the bidding and execution of future projects. Additionally, we are focused on managing the risks associated with long-term fixed price contracts given the unpredictability of labor availability and labor and material costs, with a priority on increasing the mix of T&M contracts in our backlog.

Efforts to expand our skilled workforce – We are focused on ways to improve retention and enhance and add to our skilled, craft personnel, as we believe a strong workforce will be a key differentiator in pursuing new project awards given the scarcity of available skilled labor. The DSS Acquisition in the fourth quarter 2021 nearly doubled our skilled workforce and expanded our geographic footprint for skilled labor, which we believe will contribute to the retention and recruitment of personnel. We have successfully maintained our headcount levels for our Services Division and have opportunistically looked to shift our workforce to higher margin opportunities given the industry-wide labor constraints. See “Overview” above and Note 1 for further discussion of the DSS Acquisition.

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Efforts to diversify our offshore services customer base, increase our offshore services offerings and expand our services business to include onshore facilities along the Gulf Coast – We believe diversifying and expanding our services business will deliver a more stable revenue stream while providing underpinning work to recruit, develop and retain our craft professionals. The DSS Acquisition in the fourth quarter 2021 accelerated our progress in this initiative and provides a stronger platform to continue such progress. Further, in the third quarter 2022, we made capital and other investments to expand our offshore services offering to include welding enclosures, which provide a safe environment for welding, cutting and burning without the need to shut down operations. We are also pursuing opportunities to ~~rationalize assets that are either underutilized, under-performing or not expected~~partner with original equipment manufacturers to provide ~~sufficient long-term value which include~~critical services to our ~~South Texas assets as~~customers along the Gulf Coast and strategic partnership opportunities with engineering companies to provide turnkey solutions. See “Overview” above and Note 1 for further ~~discussed below.~~

~~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 cornerdiscussion 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~~DSS Acquisition.

Efforts to ~~the Gulf of Mexico. Our Texas North Yard~~pursue opportunities 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.~~traditional offshore fabrication markets – We continue to fabricate structures associated with our traditional offshore markets, including subsea and associated structures. During the third quarter 2022, we were awarded a large contract for the fabrication of jacket foundations for an offshore project; however, the project was suspended in February 2023 and cancelled in July 2023. See “New Project Awards and Backlog” below and Note 2 for further discussion of the project cancellation.

Efforts to reduce our reliance on the offshore oil and gas construction sector, pursue new growth end markets and increase our T&M versus fixed price revenue mix – While we continue to pursue opportunities in our traditional offshore markets, we are pursuing initiatives to grow our business and diversify our revenue mix.

•

Fabricate onshore modules, piping systems and structures – We continue to focus our business development efforts on the fabrication of modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities. We are having success with smaller project opportunities and our volume of bidding activity for onshore modules, piping systems and structures continues to be strong. We continue to believe that our strategic location in Houma, Louisiana and track record of quality and on-time completion of onshore modules position us well to compete in the onshore fabrication market. We intend to remain disciplined in our pursuit of future large project opportunities to ensure we do not take unnecessary risks generally associated with the long-term, fixed-price nature of such projects. The timing of any future large project opportunities may be impacted by ongoing uncertainty created by oil and gas price volatility and macroeconomic conditions. We continue to strengthen our relationships with key customers and strategic partners and enhance and rationalize our resources as discussed above. See Note 1 for further discussion of the impacts of oil and gas price volatility and macroeconomic conditions.

•

Fabricate offshore wind foundations, secondary steel components and support structures – We continue to believe that current initiatives, and potential future requirements, to provide electricity from renewable and green sources will result in growth of offshore wind projects. Furthermore, we believe that we possess the expertise to fabricate foundations, secondary steel components and support structures for this emerging market. This is demonstrated by our fabrication of wind turbine foundations for the first offshore wind project in the U.S. and the fabrication of a meteorological tower and platform for an offshore wind project. While we believe we have the capability to participate in this emerging market, we do not expect meaningful opportunities in the near-term.

•

Fabricate structures in support of our customers as they transition away from fossil fuels to green energy end markets– We believe that our expertise and capabilities provide us with the necessary foundation to fabricate steel structures in support of our customers as they transition away from fossil fuels to green energy end markets. Examples of these opportunities include refiners who are looking to process biofuels, customers looking to embrace the growing hydrogen economy, and customers using carbon capture technologies to offset their carbon footprint.

•

Fabricate structures that support commercial construction activities outside of energy end markets– We believe our expertise and capabilities for the fabrication of steel structures will enable us to successfully serve the commercial construction market. Examples of these opportunities include the fabrication of structures for data centers and semiconductor manufacturing sites.

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Operating Outlook

Our focus remains on securing profitable new project awards and backlog and generating operating income and cash flows, while ensuring the safety and well-being of our workforce. Our success, including achieving the aforementioned initiatives, will be determined by, among other things:

•

Our ability to hire, develop, motivate and retain key personnel and craft labor to execute our projects in light of industry-wide labor constraints, and maintain our expected project margins if such constraints result in labor cost increases that cannot be recovered from our customers;

•

Oil and gas prices and the level of volatility in such prices, including the impact of macroeconomic conditions, geopolitical conflicts (such as the conflict in Ukraine and the Israel-Hamas conflict) and any current or future public health crises (such as COVID-19);

•

The level of fabrication opportunities in our traditional offshore markets and the new markets that we are pursuing, including refining, petrochemical, LNG and industrial facilities, green energy and offshore wind developments, and the impact of any climate related regulations;

•

The timing of recognition of our backlog as revenue;

•

Our ability to secure new project awards through competitive bidding and/or alliance and partnering arrangements;

•

Our ability to execute projects within our cost estimates and successfully manage them through completion (including the Active Retained Shipyard Contracts);

•

The successful wind down ~~all fabrication activities at these locations~~of our Shipyard Division operations;

•

Consideration of organic and ~~have re-allocated remaining backlog~~inorganic opportunities for growth, including, but not limited to, acquisitions, mergers, joint ventures, partnerships and ~~workforce to~~other strategic arrangements, transactions and capital allocations;

•

The operability and adequacy of our major equipment; and

•

The successful restoration of our Houma Facilities within our insurance coverage amounts, resulting from damage previously caused by Hurricane Ida.

In addition, the near-term utilization of our Fabrication ~~Yard as necessary. As a result~~Division will be impacted by the timing of new project awards and their execution, including the ~~decision~~replacement of our cancelled offshore jackets project, and our operations may continue to ~~market our South Texas facilities for sale~~be impacted by inefficiencies and ~~the underutilization currently being experienced, we expect to incur~~disruptions associated with employee turnover, craft labor hiring challenges, engineering delays, and supplier and subcontractor disruptions. Our results may also be adversely affected by (i) costs associated with ~~maintaining~~ the ~~facility~~retention of certain personnel that ~~will not~~may be ~~recoverable until such time~~temporarily under-utilized as we ~~are able~~evaluate our resource requirements to ~~consummate one or more sales~~support our future operations, (ii) investments in key personnel and process improvement efforts to support our aforementioned initiatives, and (iii) higher costs and availability of ~~these assets. These costs include insurance, general maintenance~~craft labor due to industry labor constraints. See Note 1 for further discussion of the ~~property in its current state, property taxes and retained employees which will be expensed as incurred. We have executed a letter~~impacts of interest with a proposed buyer for the sale of our South Yard in Ingleside, Texas. While this letter of interest 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 impact our ability to service our deepwater customers or operate our Fabrication division.

In the event of one or more sales of our South Texas assets, we expect to use all or a portion of the sales proceeds to invest in our operating liquidity in order to facilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities.

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. 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 our 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 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.

~~Prospect Shipyard Assets -~~ We lease a 35-acre complex 26 miles from the Gulf of Mexico in Houma, Louisiana. We have entered into an agreement to terminate the lease no later than December 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. 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 sold 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 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 current oil and gas ~~industry downturn~~price volatility and ~~as we~~macroeconomic conditions, “Results of Operations” below and Note 2 for further ~~transition~~discussion of our ~~focus on securing future work outside~~project impacts, and “New Project Awards and Backlog” below and Note 2 for further discussion of the ~~offshore upstream oil and gas sector.~~

project cancellation.

Critical Accounting Policies ~~and Estimates~~

For a discussion of critical accounting policies and estimates ~~we use~~used in the preparation of our ~~Consolidated~~ Financial Statements, refer to ~~Item 7. “Management’s~~“Management’s Discussion and Analysis of Financial Condition and Results of ~~Operations”~~Operations” in Part II, Item 7 included in our 2022 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report. There have been no changes ~~in our evaluation of~~to our critical accounting policies and estimates since December 31, ~~2016.~~

2022.

New Project Awards and Backlog

~~Our backlog is based~~

New project awards represent expected revenue values of commitments received during a given period, including scope growth 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~~existing commitments. A commitment represents authorization from our customer ~~has authorized us~~ to begin work or purchase materials pursuant to a written ~~contracts, letters~~agreement, letter of intent or other ~~forms~~form of authorization. ~~As engineering~~Backlog represents the unrecognized revenue for our new project awards and ~~design plans are finalized or changes to existing plans are made, management’s estimate~~at September 30, 2023, was consistent with the value of ~~the direct labor hours~~remaining performance obligations for our contracts required to ~~complete~~be disclosed under Topic 606 and presented in Note 2. In general, a ~~project and the~~performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. We believe that backlog, a non-GAAP financial measure, provides useful information to investors as it represents work that we are obligated to perform under our current contracts. New project ~~at completion is likely to change.~~

~~All projects currently included~~awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments.

- 25 -

Projects in our backlog are generally subject to delay, suspension, termination, or ~~a reduction~~an increase or decrease in scope at the option of the ~~customer, although~~customer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or ~~reduction~~decrease in scope. ~~In addition, customers have the ability to delay the execution of projects.~~

~~Our backlog at September 30, 2017, and December 31, 2016, consisted of the following (in thousands, except for percentages):~~

September 30, 2017 December 31, 2016
Division $'s Labor hours $'s Labor hours
Fabrication $ 29,554
254 $ 65,444
707
Shipyards 200,909
1,045 59,771
457
Services 21,918
265 7,757
101
Intersegment eliminations (649 ) — —
—
Total backlog ⁽¹⁾
$ 251,732
1,564 $ 132,972
1,265

Number Percentage Number Percentage
Major customers ⁽²⁾
five 82.7% two 80.5%

Backlog is expected to be recognized in revenue during: $'s Percentage
2017 ⁽³⁾
$ 40,352
16.0%
2018 ⁽³⁾
139,529
55.4%
2019 ⁽³⁾
63,451
25.2%
2020 ⁽³⁾
8,400
3.4%
$ 251,732
100.0%

~~___________~~


~~(1)~~	We exclude suspended projects from contract backlog when they are expected to be suspended more than 12 months because resumption of work and timing of revenue recognition for these projects are difficult to predict.


~~(2)~~	~~At September 30, 2017, projects for our five largest customers in terms of revenue backlog consisted of:~~


~~(i)~~	~~Two large multi-purpose service vessels for one customer within our Shipyards division, which commenced in the first quarter of 2014 and will be completed during 2018;~~


~~(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 delay, suspension, termination ~~postponement,~~ or ~~reduction~~increase or decrease in scope of any one ~~project~~contract could significantly ~~reduce~~impact our backlog and ~~could have a material adverse effect on revenue, net income~~change the expected amount 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, 2017, we had 989 employees compared to 1,178 employees as of December 31, 2016. Labor hours worked were 1.5 million during the nine months ended September 30, 2017, compared to 2.3 million for the nine months ended September 30, 2016. The overall decrease in labor hours worked for the nine months ended September 30, 2017, was due 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.

~~Results of Operations~~

~~Three Months Ended September 30, 2017, Compared to Three Months Ended September 30, 2016~~ ~~(in thousands, except for percentages):~~

~~Consolidated~~

Three Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ 49,884
$ 65,384
$ (15,500 ) (23.7)%
Cost of revenue 50,378
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 expenses 4,370
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), net 38
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 revenue for the three months ended September 30, 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 percentagetiming of revenue ~~were 48.4% and 33.8%~~recognized. New project awards by Division for the three months ended September 30, 2017 and 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 loss for the three months ended September 30, 2017, was $494,000 compared to a gross profit of $5.3 million for the three months ended September 30, 2016. The decrease was primarily due to $2.1 million of contract losses incurred by our Shipyards division related to cost overruns and re-work identified on two newbuild vessel construction

contracts, decreased revenue as discussed above, holding costs related to our South Texas assets of $1.1 million and lower margins on current work due to competitive pressures. 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, 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 assets held for sale) and continued cost minimization efforts implemented by management for the 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. The decrease in general and administrative expenses for the three months ended September 30, 2017, was primarily attributable to lower bonuses accrued during 2017, employee reductions and continued cost minimization efforts implemented by management for the period.

~~Other income (expense), net -~~ Other income was $38,000 for the three months ended September 30, 2017, as compared to other income of $599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2017 relates to insurance proceeds received from damage to a corporate automobile that was fully depreciated. Other income for for three months ended September 30, 2016 primarily relates to gains on sales of assets from our Fabrication division.

~~Income tax expense (benefit) -~~ Our effective income tax rate for the three months ended September 30, 2017, was 36.2%, compared to an effective tax rate of 19.7% for the comparable period during 2016. The increase in the effective tax rate is the result of changes to estimates of our year-end tax provision during for the three months ended September 30, 2016.

~~Operating Segments~~

~~As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during~~ the three and nine months ended September 30, ~~2017, such~~2023 and 2022, are as follows (in thousands):


	Three Months Ended September 30,						Nine Months Ended September 30,
	2023			2022			2023			2022
Services	$	22,776		$	22,110		$	68,578		$	64,572
Fabrication		16,589			116,926			46,733			136,948
Shipyard		(718	)		380			(1,067	)		1,213
Eliminations		(230	)		(254	)		(925	)		(431	)
Total	$	38,417		$	139,162		$	113,319		$	202,302

Backlog by Division at September 30, 2023 and December 31, 2022, is as follows (in thousands):


	September 30, 2023				December 31, 2022
	Amount		Labor Hours		Amount		Labor Hours
Services	$	867		8	$	1,322		20
Fabrication(1)		11,507		119		110,287		613
Shipyard(2)		726		2		3,272		22
Total(3)	$	13,100		129	$	114,881		655

(1)

In February 2023, we received direction from our customer to suspend all activities on our offshore jackets project for our Fabrication Division, and in July 2023, the customer cancelled the contract. Accordingly, during the second quarter 2023, our backlog was reduced by $76.1 million to reflect the estimated revenue amount that will not be recognized due to the cancellation. See Note 2 for further discussion of the project cancellation.

(2)

At September 30, 2023, backlog for our Shipyard Division included the following significant projects:

(i)

Construction of a ~~significant portion~~forty-vehicle ferry for our Shipyard Division that is being performed primarily on a fixed-price basis. At September 30, 2023, the vessel was substantially complete and we expect final completion of ~~its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included~~the vessel in the ~~operating divisions~~fourth quarter 2023 (previously the third quarter 2023, but was delayed and is subject to ~~within~~ the ~~Corporate division. In doing so, management believes~~potential schedule impacts discussed in Note 2);

(ii)

Construction of a seventy-vehicle ferry for our Shipyard Division that ~~it has created~~is being performed primarily on 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~~fixed-price basis. At September 30, ~~2016,~~2023, the vessel was substantially complete and we ~~allocated substantially all~~expect final completion of ~~our corporate administrative costs~~the vessel in the fourth quarter 2023 (previously the third quarter 2023, but was delayed and ~~overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform~~is subject 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)potential schedule impacts discussed in Note 2).

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 )

(3)

~~Revenue -~~ ~~Revenue from~~Based on our ~~Fabrication division decreased $4.0~~current estimates we expect to recognize revenue of approximately $12.6 million and $0.5 million for the ~~three months ended~~remainder of 2023 and 2024, respectively, associated with our backlog at September 30, ~~2017, compared~~2023. Certain factors and circumstances could result in changes in the timing of recognition of our backlog as revenue and the amounts ultimately recognized.

- 26 -

Results of Operations

Comparison of the Three Months Ended September 30, 2023 and 2022(in thousands in each table, except for percentages):

Consolidated


	Three Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	38,417		$	139,162		$	(100,745	)

Revenue	$	5,023		$	39,593		$	(34,570	)
Cost of revenue		34,902			35,373			471
Gross profit (loss)		(29,879	)		4,220			(34,099	)
Gross profit (loss) percentage	nm				10.7	%
General and administrative expense		4,080			4,510			430
Other (income) expense, net		(324	)		(944	)		(620	)
Operating income (loss)		(33,635	)		654			(34,289	)
Interest (expense) income, net		397			(46	)		443
Income (loss) before income taxes		(33,238	)		608			(33,846	)
Income tax (expense) benefit		3			(10	)		13
Net income (loss)	$	(33,235	)	$	598		$	(33,833	)

References below to 2023 and 2022 refer to the three months ended September 30, ~~2016.~~2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were $38.4 million and $139.2 million, respectively. New project awards for both periods were primarily related to:

•

Small-scale fabrication work for our Fabrication Division, and

•

Offshore services work for our Services Division.

The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023) for our Fabrication Division.

Revenue – Revenue for 2023 and 2022 was $5.0 million and $39.6 million, respectively, representing a decrease of 87.3%. The decrease iswas primarily due to:

•

Lower revenue for our Shipyard Division of $34.6 million (including negative revenue for the 2023 period), primarily attributable to:

−

The reversal of $32.5 million of previously recognized revenue resulting from the resolution of our MPSV Litigation, and

−

Lower revenue for our seventy-vehicle ferry and forty-vehicle ferry projects, which are completed or nearing completion, and

•

Lower revenue for our Fabrication Division of $0.5 million, primarily attributable to:

−

Lower revenue for our offshore jackets project (which was cancelled in July 2023), offset partially by,

−

Higher small-scale fabrication activity, offset partially by,

•

Higher revenue for our Services Division of $0.4 million, primarily attributable to ~~an overall decrease~~incremental revenue associated with our welding enclosures business line (commenced in ~~work experienced in~~the third quarter 2022).

See Note 4 for further discussion of the resolution of our ~~fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore fabrication projects.~~

MPSV Litigation.

- 27 -

Gross profit (loss) - – Gross loss for 2023 was $29.9 million and gross profit for 2022 was $4.2 million (10.7% of revenue). Gross loss for 2023 was primarily impacted by:

•

Charges of $32.5 million related to the aforementioned reversal of revenue resulting from the resolution of our MPSV Litigation for our Shipyard Division,

•

Project charges of $1.5 million on our seventy-vehicle ferry project and remaining forty-vehicle ferry project for our Shipyard Division,

•

The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources for our Fabrication ~~division~~Division and, to a lesser extent, our resources for our Shipyard Division, and

•

Holding costs of $0.2 million related to the two MPSVs that remain in our possession and were subject to our previous MPSV Litigation for our Shipyard Division, offset partially by,

•

Project improvements of $0.7 million for our Fabrication Division, and

•

A strong market and demand for the ~~three months ended September 30, 2017,~~services provided by our Services Division.

The gross loss for 2023 relative to gross profit for 2022 was primarily due to:

•

The aforementioned charges of $32.5 million for 2023 for our Shipyard Division,

•

The aforementioned project charges of $1.5 million for 2023 for our Shipyard Division, and

•

An increase in the under-recovery of overhead costs for our Fabrication Division, offset partially by,

•

Higher revenue for our Services Division,

•

A higher margin mix for our Fabrication Division and Services Division, and

•

Lower property and equipment insurance costs for our Fabrication Division.

See “Operating Segments” below and Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation.

General and administrative expense – General and administrative expense for 2023 and 2022 was $4.1 million and $4.5 million, respectively, representing a decrease of 9.5%. The decrease was primarily due to lower legal and advisory fees associated with our previous MPSV Litigation for our Shipyard Division. General and administrative expense included legal and advisory fees of $0.9 million and $1.2 million for 2023 and 2022, respectively, associated with our previous MPSV Litigation, which are reflected within our Shipyard Division. See Note 4 for further discussion of the resolution of our MPSV Litigation.

Other (income) expense, net –Other (income) expense, net for 2023 and 2022 was income of $0.3 million and $0.9 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts and credit losses, gains or losses associated with the sale or disposition of property and equipment, and income or expense associated with certain nonrecurring items. Other income for 2023 was primarily due to:

•

Gains of $0.3 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities for our Fabrication Division,

•

Gains on the sales of equipment and scrap materials for our Fabrication Division, and

•

Miscellaneous income items for our Shipyard Division, offset partially by,

•

Costs of $0.4 million associated with the consolidation of fabrication activities at our Houma Facilities for our Fabrication Division, and

•

Charges of $0.1 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which are in our possession and were subject to our previous MPSV Litigation for our Shipyard Division.

Other income for 2022 was primarily due to:

•

Gains of $1.3 million ~~compared~~related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities for our Fabrication Division, offset partially by,

•

An impairment charge of $0.5 million associated with the underlying right-of-use asset for our corporate office lease, resulting from a ~~gross profit~~sublease arrangement with a third-party for our Corporate Division.

See Note 2 for further discussion of ~~$601,000~~the impacts of Hurricanes Ida.

- 28 -

Interest (expense) income, net – Interest (expense) income, net for 2023 and 2022 was income of $0.4 million and expense of less than $0.1 million, respectively. Interest (expense) income, net for both periods included the net impact of interest earned on our cash and short-term investment balances and interest incurred on the unused portion of our LC Facility and on our Insurance Finance Arrangements. The income for 2023 relative to expense for 2022 was primarily due to higher interest earned on our cash and short-term investment balances for the ~~three months ended September 30, 2016. The increase in gross profit~~2023 period.

Income tax (expense) benefit – Income tax (expense) benefit for 2023 and 2022 represents state income taxes. No federal income tax benefit was ~~due to~~

~~Gains 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 completed projects at our South Texas fabrication yards,~~

~~No depreciation being~~ recorded for our ~~South Texas~~loss for 2023 as a full valuation allowance was recorded against our net deferred tax assets generated during the period, and no federal income tax expense was recorded for ~~the three months ended September 30, 2017,~~our income for 2022 as ~~these assets are classified as assets held for sale; and~~

~~Continued cost minimization efforts implemented by management for the period.~~

~~This~~it was ~~partially~~fully offset by ~~approximately $1.1 million~~the reversal of ~~holding costs for~~valuation allowance on our ~~South Texas~~net deferred tax assets.

~~General~~

Operating Segments

Services Division


	Three Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	22,776		$	22,110		$	666

Revenue	$	22,976		$	22,569		$	407
Gross profit		3,260			3,163			97
Gross profit percentage		14.2	%		14.0	%
General and administrative expense		701			791			90
Other (income) expense, net		(18	)		(18	)		—
Operating income		2,577			2,390			187

References below to 2023 and ~~administrative expenses~~ ~~- General and administrative expenses for our Fabrication division decreased $107,000 for the three months ended September 30, 2017, compared~~2022 refer to the three months ended September 30, ~~2016. The decrease is~~2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were $22.8 million and $22.1 million, respectively, and were primarily related to offshore services work, with the increase primarily due to ~~decreases~~incremental new project awards associated with our welding enclosures business line (commenced in ~~costs resulting from lower bonuses accrued during 2017 as a result~~the third quarter 2022).

Revenue – Revenue for 2023 and 2022 was $23.0 million and $22.6 million, respectively, representing an increase of 1.8%. The increase was primarily due to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022).

Gross profit – Gross profit for 2023 and 2022 was $3.3 million (14.2% of revenue) and $3.2 million (14.0% of revenue), respectively. The increase in gross profit for 2023 relative to 2022 was primarily due to:

•

Higher revenue, and

•

A higher margin mix (including the benefit of our ~~consolidated operating loss, reductions in workforce at our South Texas fabrication yards~~welding enclosures business line).

General and ~~continued cost minimization efforts implemented by management~~administrative expense – General and administrative expense for ~~the period.~~

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, respectively.

~~Revenue -~~ ~~Revenue from our Shipyards division decreased $8.0~~2023 and 2022 was $0.7 million ~~for the three months ended September 30, 2017, compared~~and $0.8 million, respectively, representing a decrease of 11.4%. The decrease was primarily due to timing of expenses.

- 29 -

Fabrication Division


	Three Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	16,589		$	116,926		$	(100,337	)

Revenue	$	14,979		$	15,429		$	(450	)
Gross profit		1,217			1,326			(109	)
Gross profit percentage		8.1	%		8.6	%
General and administrative expense		448			507			59
Other (income) expense, net		(135	)		(1,301	)		(1,166	)
Operating income		904			2,120			(1,216	)

References below to 2023 and 2022 refer to the three months ended September 30, ~~2016,~~2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were $16.6 million and $116.9 million, respectively, and were primarily related to small-scale fabrication work. The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023).

Revenue – Revenue for 2023 and 2022 was $15.0 million and $15.4 million, respectively, representing a decrease of 2.9%. The decrease was primarily due to:

•

Lower revenue for our offshore jackets project (which was cancelled in July 2023), offset partially by,

•

Higher small-scale fabrication activity.

Gross profit – Gross profit for 2023 and 2022 was $1.2 million (8.1% of revenue) and $1.3 million (8.6% of revenue), respectively. Gross profit for 2023 was primarily impacted by:

•

The partial under-recovery of overhead costs due to the ~~corresponding reduction in customer demand for shipbuilding~~under-utilization of our facilities and ~~repair services supporting the oil and gas industry~~resources due to ~~depressed oil and gas prices as well as~~low work hours, offset partially by,

•

Project improvements of $0.7 million related to favorable resolution of customer change orders.

The decrease in gross profit for 2023 relative to 2022 was primarily due to:

•

An increase in the ~~completion~~under-recovery of ~~a vessel that we tendered for delivery on February 6, 2017, and was rejected~~overhead costs due to lower recoveries resulting from the cancellation of our offshore jackets project in July 2023, offset partially by, ~~the customer alleging certain technical deficiencies. We subsequently suspended~~

•

A higher margin mix associated with our small-scale fabrication work,

•

The aforementioned project improvements 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~~$0.7 million for ~~the three months ended September 30, 2017, compared to~~2023, and

•

Lower property and equipment insurance costs.

See Note 2 for further discussion of our project impacts.

General and administrative expense – General and administrative expense for 2023 and 2022 was $0.4 million and $0.5 million, respectively, representing a ~~gross profit~~decrease of ~~$1.9 million for the three months ended September 30, 2016.~~11.6%. The decrease was primarily due to various cost savings.

Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.1 million and $1.3 million, respectively. Other income for 2023 was primarily due to:

•

~~$2.1~~Gains of $0.3 million ~~in contract losses~~ related to ~~cost overruns~~the net impact of insurance recoveries and ~~re-work that has been identified~~costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities, and

•

Gains on ~~two newbuild vessel construction contracts within~~the sales of equipment and scrap materials, offset partially by,

•

Costs of $0.4 million associated with the consolidation of fabrication activities at our ~~Shipyards division; and~~Houma Facilities.

~~Holding and closing costs~~

Other income for 2022 was primarily due to gains of $1.3 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our ~~Prospect shipyard as we wind down operations at this facility.~~

~~General~~Houma Facilities. See Note 2 for further discussion of the impacts of Hurricane Ida.

- 30 -

Shipyard Division


	Three Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	(718	)	$	380		$	(1,098	)

Revenue	$	(32,702	)	$	1,849		$	(34,551	)
Gross loss		(34,356	)		(269	)		(34,087	)
Gross loss percentage	nm				(14.5	)%
General and administrative expense		857			1,193			336
Other (income) expense, net		(96	)		(69	)		27
Operating loss		(35,117	)		(1,393	)		(33,724	)

References below to 2023 and ~~administrative expenses~~ ~~- General and administrative expenses for our Shipyards division decreased $580,000 for the three months ended September 30, 2017, compared~~2022 refer to the three months ended September 30, ~~2016,~~2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were negative $0.7 million and $0.4 million, respectively. The negative new project awards for 2023 were due to liquidated damages and contract price adjustments for our seventy-vehicle ferry and remaining forty-vehicle ferry project.

Revenue – Revenue for 2023 and 2022 was negative $32.7 million and $1.8 million, respectively. The decrease was primarily due to:

•

The reversal of previously recognized revenue resulting from the resolution of our MPSV Litigation. The reversals were primarily due to:

−

The write-off of a $12.5 million noncurrent net contract asset associated with the construction contracts subject to ~~reductions~~the MPSV Litigation, and

−

A charge of ~~administrative personnel~~$20.0 million resulting from the Note Agreement entered into with Zurich in connection with the resolution of our MPSV Litigation.

•

No revenue for our forty-vehicle ferry project that was substantially completed in the fourth quarter 2022 and accepted by the customer in the second quarter 2023,

•

Lower revenue for our remaining forty-vehicle ferry project, which is nearing completion, and

•

Lower revenue for our seventy-vehicle ferry project, which is nearing completion.

See Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.

Gross loss –Gross loss for 2023 and 2022 was $34.4 million and $0.3 million (14.5% of revenue), respectively. The gross loss for 2023 was primarily due to:

•

Charges of $32.5 million related to ~~consolidation~~the aforementioned reversal of ~~personnel duties~~revenue resulting from the ~~LEEVAC transaction. Additionally,~~resolution of our ~~Shipyards division incurred lower bonuses accrued during 2017~~MPSV Litigation,

•

Project charges of $1.5 million related to forecast cost increases and liquidated damages on our seventy-vehicle ferry project and remaining forty-vehicle ferry project,

•

Holding costs of $0.2 million related to the two MPSVs that remain in our possession and were subject to our previous MPSV Litigation, and

•

The partial under-recovery of overhead costs due to the under-utilization of our resources due to low work hours as ~~a result~~our remaining projects are nearing completion.

The increase in gross loss for 2023 relative to 2022 was primarily due to:

•

The aforementioned charges of ~~a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by management for the period during the first part of 2016.~~

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~~$32.5 million for 2023,

•

The aforementioned project charges of $1.5 million for 2023, and

•

An increase in the ~~three months ended September 30, 2017, compared~~under-recovery of overhead costs due to a decrease in work hours as our remaining projects are nearing completion.

See Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.

- 31 -

General and administrative expense – General and administrative expense for 2023 and 2022 was $0.9 million and $1.2 million, respectively, representing a decrease of 28.2%. General and administrative expense relates to legal and advisory fees associated with our previous MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.

Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.1 million and $0.1 million, respectively. Other income for 2023 was primarily due to:

•

Miscellaneous income items, offset partially by,

•

Charges of $0.1 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which remain in our possession and were subject to our previous MPSV Litigation.

See Note 2 for further discussion of the impacts of Hurricane Ida.

Corporate Division


	Three Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards (eliminations)	$	(230	)	$	(254	)	$	24

Revenue (eliminations)	$	(230	)	$	(254	)	$	24
Gross profit		—			—			—
General and administrative expense		2,074			2,019			(55	)
Other (income) expense, net		(75	)		444			519
Operating loss		(1,999	)		(2,463	)		464

References below to 2023 and 2022 refer to the three months ended September 30, ~~2016,~~2023 and 2022, respectively.

General and administrative expense – General and administrative expense for 2023 and 2022 was $2.1 million and $2.0 million, respectively, representing an increase of 2.7%.

Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.1 million and expense of $0.4 million, respectively. Other expense for 2022 was primarily due to an ~~overall decrease in work experienced as a result~~impairment charge of ~~depressed oil and gas prices and~~$0.5 million associated with the ~~corresponding reduction in customer demand for oil and gas related service projects.~~

~~Gross profit -~~ Gross profit from our Services division decreased $1.0 million for the three 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~~underlying right-of-use asset 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~~corporate office lease, resulting from a ~~result of~~sublease arrangement with a ~~combination of a smaller workforce and our 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~~third-party.

- General and administrative expenses for 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 as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation32 -

Comparison of the proceeds 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 Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the quarter due to our consolidated operating loss.

Nine Months Ended September 30, ~~2017, Compared to Nine Months Ended September 30, 2016~~ (2023 and 2022 (in thousands in ~~thousands,~~each table, except for percentages):

Consolidated


	Nine Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	113,319		$	202,302		$	(88,983	)

Revenue	$	106,517		$	104,181		$	2,336
Cost of revenue		126,881			98,709			(28,172	)
Gross profit (loss)		(20,364	)		5,472			(25,836	)
Gross profit (loss) percentage		(19.1	)%		5.3	%
General and administrative expense		12,883			12,965			82
Other (income) expense, net		(689	)		(3,698	)		(3,009	)
Operating loss		(32,558	)		(3,795	)		(28,763	)
Interest (expense) income, net		1,057			(104	)		1,161
Loss before income taxes		(31,501	)		(3,899	)		(27,602	)
Income tax (expense) benefit		9			(2	)		11
Net loss	$	(31,492	)	$	(3,901	)	$	(27,591	)

References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were $113.3 million and $202.3 million, respectively. New project awards for both periods were primarily related to:

~~Consolidated~~

•

Small-scale fabrication work for our Fabrication Division, and

Nine Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ 133,745
$ 230,864
$ (97,119 ) (42.1)%
Cost of revenue 150,755
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 expenses 12,940
14,633
(1,693 ) (11.6)%
Asset impairment 389
—
389
100.0%
Operating income (loss) (30,339 ) 10,392
(40,731 ) (391.9)%
Other income (expense):
Interest expense (262 ) (248 ) (14 )
Interest income 12
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)%
•

Offshore services work for our Services Division.

The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023) for our Fabrication Division.

Revenue – Revenue for 2023 and 2022 was $106.5 million and $104.2 million, respectively, representing an increase of 2.2%. The increase was primarily due to:

•

Higher revenue for our Services Division of $3.6 million, primarily attributable to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022), and

•

Higher revenue for our Fabrication Division of $37.5 million, primarily attributable to:

−

Revenue for our offshore jackets project prior to its cancellation (primarily related to procurement activities prior to project suspension), and

−

Increased small-scale fabrication activity, offset partially by,

•

Lower revenue for our Shipyard Division of $38.3 million (including negative revenue for the 2023 period), primarily attributable to:

−

The reversal of $32.5 million of previously recognized revenue resulting from the resolution of our MPSV Litigation, and

−

Lower revenue for our seventy-vehicle ferry and forty-vehicle ferry projects, which are completed or nearing completion.

See Note 4 for further discussion of the resolution of our MPSV Litigation.

- 33 -

Gross profit (loss) – Gross loss for 2023 was $20.4 million (19.1% of revenue) and gross profit for 2022 was $5.5 million (5.3% of revenue). Gross loss for 2023 was primarily impacted by:

•

Charges of $32.5 million related to the aforementioned reversal of revenue resulting from the resolution of our MPSV Litigation for our Shipyard Division,

•

Project charges of $2.3 million on our seventy-vehicle ferry project and remaining forty-vehicle ferry project for our Shipyard Division,

•

The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources for our Fabrication Division, and to a lesser extent, our resources for our Shipyard Division,

•

Holding costs of $0.7 million related to the two MPSVs that remain in our possession and were subject to our previous MPSV Litigation for our Shipyard Division, and

•

A low margin associated with procurement activities for our cancelled offshore jackets project prior to its suspension for our Fabrication Division, offset partially by,

•

Project improvements of $0.7 million for our Fabrication Division, and

•

A strong market and demand for the services provided by our Services Division.

The gross loss for 2023 relative to gross profit for 2022 was primarily due to:

•

The aforementioned charges of $32.5 million for 2023 for our Shipyard Division, and

•

The aforementioned project charges of $2.3 million for 2023 for our Shipyard Division, offset partially by,

•

Higher revenue for our Fabrication Division and Services Division,

•

A higher margin mix for our Fabrication Division and Services Division,

•

A decrease in the under-recovery of overhead costs for our Fabrication Division, and

•

The aforementioned project improvements of $0.7 million for 2023 for our Fabrication Division.

See “Operating Segments” below and Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation.

General and administrative expense – General and administrative expense for 2023 and 2022 was $12.9 million and $13.0 million, respectively, representing a decrease of 0.6%. The decrease was primarily due to:

•

Lower administrative expense for our Fabrication Division and Services Division, offset partially by,

•

Higher legal and advisory fees associated with our previous MPSV Litigation for our Shipyard Division.

General and administrative expense included legal and advisory fees of $3.1 million and $2.9 million for 2023 and 2022, respectively, associated with our previous MPSV Litigation, which are reflected within our Shipyard Division. See Note 4 for further discussion of the resolution of our MPSV Litigation.

Other (income) expense, net –Other (income) expense, net for 2023 and 2022 was income of $0.7 million and $3.7 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts and credit losses, gains or losses associated with the sale or disposition of property and equipment, and income or expense associated with certain nonrecurring items. Other income for 2023 was primarily due to:

•

Gains of $0.5 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities for our Fabrication Division, and

•

Gains on the sales of equipment and scrap material for our Fabrication Division, offset partially by,

•

Costs of $0.4 million associated with the consolidation of fabrication activities at our Houma Facilities for our Fabrication Division, and

•

Charges of $0.4 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which remain in our possession and were subject to our previous MPSV Litigation for our Shipyard Division.

- 34 -

Other income for 2022 was primarily due to:

•

Gains of $4.4 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities for our Fabrication Division, offset partially by,

•

An impairment charge of $0.5 million associated with the underlying right-of-use asset for our corporate office lease, resulting from a sublease arrangement with a third-party for our Corporate Division, and

•

Charges of $0.2 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which remain in our possession and were subject to our previous MPSV Litigation for our Shipyard Division.

See Note 2 for further discussion of the impacts of Hurricanes Ida.

Interest (expense) income, net – Interest (expense) income, net for 2023 and 2022 was income of $1.1 million and expense of $0.1 million, respectively. Interest (expense) income, net for both periods included the net impact of interest earned on our cash and short-term investment balances and interest incurred on the unused portion of our LC Facility and on our Insurance Finance Arrangements. The income for 2023 relative to expense for 2022 was primarily due to higher interest earned on our cash and short-term investment balances for the 2023 period.

Income tax (expense) benefit – Income tax (expense) benefit for 2023 and 2022 represents state income taxes. No federal income tax benefit was recorded for our losses for either period as a full valuation allowance was recorded against our net deferred tax assets generated during the periods.

Operating Segments

Services Division


	Nine Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	68,578		$	64,572		$	4,006

Revenue	$	69,033		$	65,413		$	3,620
Gross profit		10,348			8,295			2,053
Gross profit percentage		15.0	%		12.7	%
General and administrative expense		2,203			2,280			77
Other (income) expense, net		(42	)		103			145
Operating income		8,187			5,912			2,275

References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were $68.6 million and $64.6 million, respectively, and were primarily related to offshore services work, with the increase due to incremental new project awards associated with our welding enclosures business line (commenced in the third quarter 2022).

Revenue – Revenue for 2023 and 2022 was $69.0 million and $65.4 million, respectively, representing an increase of 5.5%. The increase was primarily due to incremental revenue associated with our welding enclosures business line (commenced in the third quarter 2022).

Gross profit – Gross profit for 2023 and 2022 was $10.3 million (15.0% of revenue) and $8.3 million (12.7% of revenue), respectively. The increase in gross profit for 2023 relative to 2022 was primarily due to:

•

Higher revenue, and

•

A higher margin mix (including the benefit of our welding enclosures business line).

General and administrative expense – General and administrative expense for 2023 and 2022 was $2.2 million and $2.3 million, respectively, representing a decrease of 3.4%.

Other (income) expense, net – Other (income) expense, net for 2022 was expense of $0.1 million.

- 35 -

Fabrication Division


	Nine Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	46,733		$	136,948		$	(90,215	)

Revenue	$	69,382		$	31,885		$	37,497
Gross profit (loss)		5,243			(2,064	)		7,307
Gross profit (loss) percentage		7.6	%		(6.5	)%
General and administrative expense		1,438			1,699			261
Other (income) expense, net		(638	)		(4,550	)		(3,912	)
Operating income		4,443			787			3,656

References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were $46.7 million and $136.9 million, respectively, and were primarily related to small-scale fabrication work. The 2022 period also included an award for the fabrication of jacket foundations for an offshore project (which was cancelled by the customer in July 2023).

Revenue – Revenue for 2023 and 2022 was $69.4 million and $31.9 million, respectively, representing an increase of 117.6%. The increase was primarily due to:

•

Revenue for our offshore jackets project prior to its cancellation (primarily related to procurement activities prior to project suspension), and

•

Higher small-scale fabrication activity.

Gross profit (loss) – Gross profit for 2023 was $5.2 million (7.6% of revenue) and gross loss for 2022 was $2.1 million (6.5% of revenue). Gross profit for 2023 was primarily impacted by:

•

A low margin associated with procurement activities for our cancelled offshore jackets project prior to its suspension, and

•

The partial under-recovery of overhead costs due to the under-utilization of our facilities and resources due to low work hours, offset partially by,

•

Project improvements of $0.7 million related to favorable resolution of customer change orders.

The gross profit for 2023 relative to the gross loss for 2022 was primarily due to:

•

Higher revenue,

•

A decrease in the under-recovery of overhead costs due an increase in work hours associated with our small-scale fabrication work and recoveries associated with our offshore jackets project prior to its cancellation, and

•

A higher margin mix associated with our small-scale fabrication work.

The Fabrication Division utilization for 2023 and 2022 benefited by $0.1 million and $0.6 million, respectively, from providing resources and facilities to our Shipyard Division for our seventy-vehicle ferry and forty-vehicle ferry projects. See Note 2 for further discussion of our project impacts.

General and administrative expense – General and administrative expense for 2023 and 2022 was $1.4 million and $1.7 million, respectively, representing a decrease of 15.4%. The decrease was primarily due to various cost savings.

Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.6 million and $4.6 million, respectively. Other income for 2023 was primarily due to:

•

Gains of $0.5 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities, and

•

Gains on the sales of equipment and scrap materials, offset partially by,

•

Costs of $0.4 million associated with the consolidation of fabrication activities at our Houma Facilities.

Other income for 2022 was primarily due to gains of $4.4 million related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida to buildings and equipment at our Houma Facilities.

- 36 -

Shipyard Division


	Nine Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards	$	(1,067	)	$	1,213		$	(2,280	)

Revenue	$	(30,973	)	$	7,314		$	(38,287	)
Gross loss		(35,955	)		(759	)		(35,196	)
Gross loss percentage	nm				(10.4	)%
General and administrative expense		3,107			2,939			(168	)
Other (income) expense, net		206			267			61
Operating loss		(39,268	)		(3,965	)		(35,303	)

References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.

New project awards – New project awards for 2023 and 2022 were negative $1.1 million and $1.2 million, respectively. The negative new project awards for 2023 were due to liquidated damages and contract price adjustments for our seventy-vehicle ferry and remaining forty-vehicle ferry project.

Revenue – Revenue for 2023 and 2022 was negative $31.0 million and $7.3 million, respectively. The decrease was primarily due to:

•

The reversal of previously recognized revenue resulting from the resolution of our MPSV Litigation. The reversals were primarily due to:

−

The write-off of a $12.5 million noncurrent net contract asset associated with the construction contracts subject to the MPSV Litigation, and

−

A charge of $20.0 million resulting from the Note Agreement entered into with Zurich in connection with the resolution of our MPSV Litigation.

•

Lower revenue for our forty-vehicle ferry project that was substantially completed in the fourth quarter 2022 and accepted by the customer in the second quarter 2023,

•

Lower revenue for our remaining forty-vehicle ferry project, which is nearing completion, and

•

Lower revenue for our seventy-vehicle ferry project, which is nearing completion.

See Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement.

Gross loss –Gross loss for 2023 and 2022 was $36.0 million and $0.8 million (10.4% of revenue), respectively. The gross loss for 2023 was primarily due to:

•

Charges of $32.5 million related to the aforementioned reversal of revenue resulting from the resolution of our MPSV Litigation,

•

Project charges of $2.3 million related to forecast cost increases and liquidated damages on our seventy-vehicle ferry project and remaining forty-vehicle ferry project,

•

Holding costs of $0.7 million related to the two MPSVs that remain in our possession and were subject to our previous MPSV Litigation, and

•

The partial under-recovery of overhead costs due to the under-utilization of our resources due to low work hours as our remaining projects are nearing completion.

The increase in gross loss for 2023 relative to 2022 was primarily due to:

•

The aforementioned charges of $32.5 million for 2023,

•

The aforementioned project charges of $2.3 million for 2023, and

•

An increase in the under-recovery of overhead costs due to a decrease in work hours as our remaining projects are nearing completion.

See Note 2 for further discussion of our project impacts and Note 4 for further discussion of the resolution of our MPSV Litigation.

General and administrative expense – General and administrative expense for 2023 and 2022 was $3.1 million and $2.9 million, respectively, representing an increase of 5.7%. General and administrative expense relates to legal and advisory fees associated with our previous MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation.

- 37 -

Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was expense of $0.2 million and $0.3 million, respectively. Other expense for 2023 was primarily due to:

•

Charges of $0.4 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which are in our possession and were subject to our previous MPSV Litigation, offset partially by,

•

Miscellaneous income items.

Other expense for 2022 was primarily due to charges of $0.2 million associated with damage previously caused by Hurricane Ida to bulkheads and the MPSVs which are in our possession and were subject to our previous MPSV Litigation.

Corporate Division


	Nine Months Ended September 30,						Favorable (Unfavorable)
	2023			2022			Change
New project awards (eliminations)	$	(925	)	$	(431	)	$	(494	)

Revenue (eliminations)	$	(925	)	$	(431	)	$	(494	)
Gross profit		—			—			—
General and administrative expense		6,135			6,047			(88	)
Other (income) expense, net		(215	)		482			697
Operating loss		(5,920	)		(6,529	)		609

References below to 2023 and 2022 refer to the nine months ended September 30, 2023 and 2022, respectively.

General and administrative expense – General and administrative expense for 2023 and 2022 was $6.1 million and $6.0 million, respectively, representing an increase of 1.5%.

Other (income) expense, net – Other (income) expense, net for 2023 and 2022 was income of $0.2 million and expense of $0.5 million, respectively. Other expense for 2022 was primarily due to an impairment charge of $0.5 million associated with the underlying right-of-use asset for our corporate office lease, resulting from a sublease arrangement with a third-party.

- 38 -

Liquidity and Capital Resources

Available Liquidity

Our primary sources of liquidity are our cash, cash equivalents and scheduled maturities of our short-term investments. At September 30, 2023, our cash, cash equivalents, short-term investments and restricted cash totaled $41.8 million, as follows (in thousands):


	September 30, 2023
Cash and cash equivalents	$	25,125
Short-term investments(1)		15,437
Available cash, cash equivalents and short-term investments		40,562
Restricted cash, current		1,197
Total cash, cash equivalents, short-term investments and restricted cash	$	41,759

(1)

Includes U.S. Treasuries with original maturities of four months.

Our available liquidity is impacted by changes in our working capital and our capital expenditure requirements. Fluctuations in our working capital, and its components, are not unusual in our business and are impacted by the size of our projects and the mix of our backlog. Our working capital is particularly impacted by the timing of new project awards and related payments in advance of performing work, and the subsequent achievement of billing milestones or project progress on backlog. Working capital is also impacted at period-end by the timing of contract receivables collections and accounts payable payments on our projects.

At September 30, 2023, our working capital was $59.2 million and included $41.8 million of cash, cash equivalents, short-term investments and restricted cash. Excluding cash, cash equivalents, short-term investments and restricted cash, our working capital at September 30, 2023 was $17.5 million, and consisted of: net contract assets and contract liabilities of $0.8 million; contract receivables and retainage of $35.7 million; inventory, prepaid expenses and other current assets of $5.8 million; and accounts payable, accrued expenses and other current liabilities of $24.8 million. The components of our working capital (excluding cash, cash equivalents, short-term investments and restricted cash) at September 30, 2023 and December 31, 2022, and changes in such amounts during the nine months ended September 30, 2023, were as follows (in thousands):


	September 30, 2023			December 31, 2022			Change(3)
Contract assets	$	4,305		$	4,839		$	(534	)
Contract liabilities(1)		(3,534	)		(8,196	)		4,662
Contracts in progress, net(2)		771			(3,357	)		4,128
Contract receivables and retainage, net		35,684			29,427			6,257
Prepaid expenses, inventory and other current assets		5,778			8,074			(2,296	)
Accounts payable, accrued expenses and other current liabilities		(24,762	)		(22,593	)		(2,169	)
Total	$	17,471		$	11,551		$	5,920

(1)

Contract liabilities at September 30, 2023 and December 31, 2022, includes accrued contract losses of $0.4 million and $1.6 million, respectively, associated primarily with the Active Retained Shipyard Contracts.

(2)

Represents our cash position relative to revenue recognized on projects, with contract assets representing unbilled amounts that reflect future cash inflows on projects, and contract liabilities representing (i) advance payments that reflect future cash expenditures and non-cash earnings on projects and (ii) accrued contract losses that represent future cash expenditures on projects.

(3)

Changes referenced in the “Cash Flow Activity” section below may differ from the changes in this table due to non-cash reclassifications and due to certain changes in balance sheet accounts being reflected within other line items on the Statement of Cash Flows, including allowance for doubtful accounts and credit losses, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures.

- 39 -

Cash Flow Activity(in thousands)


	Nine Months Ended September 30,
	2023			2022
Net cash used in operating activities	$	(172	)	$	(18,825	)
Net cash used in investing activities		(6,591	)		(6,720	)
Net cash used in financing activities		(1,739	)		(1,084	)

Operating Activities – Cash used in operating activities for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022 was ~~$133.7~~$0.2 million and ~~$230.9~~$18.8 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 45.3% and 35.0% for the nine months ended September 30, 2017 and 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 loss for the nine months ended September 30, 2017, was $17.0 million compared to a gross profit of $25.0 million for the nine months ended September 30, 2016. The decrease was primarily due to $12.7 million of losses incurred by our Shipyards division related to cost overruns and re-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to our South Texas assets of $3.6 million and lower 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 our South Texas assets and Prospect shipyard during the nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented 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. The decrease in general and administrative expenses for the nine months ended September 30, 2017, is primarily due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses accrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the period.

~~Asset Impairment~~ - During the 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.

~~Other income (expense), net -~~ Other expense was $221,000 for the nine months ended September 30, 2017, compared to other income of $1.0 million for the nine months ended September 30, 2016. Other 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 on sales of assets from our Fabrication division recorded during 2016.

~~Income tax expense (benefit) -~~ Our effective income tax rate for the nine months ended September 30, 2017, was 33.5%, compared to an effective tax rate of 36.9% for the comparable period during 2016. The decrease in the effective tax rate is the result of limitations on the deductibility of executive compensation.

~~Operating Segments~~

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 $27.9 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The decrease is attributable to an overall decrease in work experienced in our fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore fabrication projects. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed or transferred to our Houma fabrication yard.

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

from decreased fabrication work as discussed above and approximately $3.6 million of holding 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, 2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for the period.

~~General and administrative expenses~~ - General and administrative expenses for our Fabrication division decreased $389,000 for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The decrease is primarily due to decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss. This was partially offset by expenses incurred to market our South Texas assets for sale and payment of termination benefits during the first quarter of 2017 as we reduced its workforce and completed those operations.

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, respectively.

~~Revenue -~~ Revenue from our Shipyards division decreased $34.8 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, due to the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil 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 for 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 decrease was due 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 under other various contracts.~~

~~General and administrative expenses~~ - General and administrative expenses for our Shipyards division decreased $1.4 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, primarily due to reductions of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of our consolidated operating loss and cost minimization efforts implemented by management for the period.

~~Asset 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, 2017, compared to the nine months ended September 30, 2016, due to an overall decrease in work experienced as a result of depressed oil and gas prices and the corresponding reduction in customer demand for oil and gas related service projects.

~~Gross profit -~~ Gross profit from our Services division decreased $8.8 million for the nine months ended September 30, 2017, compared to the nine 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 $0.5 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016, due to lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and 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 primarily 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 proceeds 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 Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss.

~~Liquidity and Capital Resources~~

Historically, we have funded our business activities through cash generated from operations. At September 30, 2017, we had no amounts outstanding under our credit facility, $4.6 million in outstanding letters of credit, and cash and cash equivalents totaling $17.8 million compared to $51.2 million at December 31, 2016. Working capital was $164.0 million and our ratio of current assets to current liabilities was 4.59 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 use of cash during the nine months ended September 30, 2017, is referenced in the Cash Flow Activities section below.

~~At September 30, 2017, our contracts receivable balance was $25.5 million of which we have subsequently collected $8.3 million through October 31, 2017.~~

On June 9, 2017, we entered into a $40.0 million credit agreement with Whitney Bank, as lender. 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 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 facility may be designated, at our option, as either Base Rate (as defined in the credit facility) or LIBOR plus 2.0% per annum. Unused commitment fees on the undrawn portion of the facility are 0.4% per annum, and interest on undrawn stated amounts under letters of credit issued by the lenders is 2.0% per annum. The credit facility is secured by substantially all of our assets (other than the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

~~We must comply with the following 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, 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. Availability under our credit facility for future, additional letters of credit and borrowings is $35.4 million. As of September 30, 2017, we were in compliance with all of our covenants.

Our primary liquidity requirements are for the costs associated with fabrication projects, capital expenditures and payment of dividends to our shareholders. We do not anticipate significant capital expenditures for the remainder of 2017.

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. 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 our 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 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 loss 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.

In event of one or more sales of our South Texas assets, we expect to use all or a portion of the sales proceeds to invest in our operating liquidity in order to facilitate 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 identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

We believe our cash and cash equivalents generated by our future operating activities, proceeds to be received from insurance underwriters, availability under our line of credit and proceeds to be received from future assets sales will be sufficient to fund our capital expenditures and meet our working capital needs for next twelve months to continue to operate, satisfy our contractual operations and pay dividends to our shareholders.

~~Cash Flow Activities~~

For the nine months ended September 30, 2017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities of $19.4 million for the nine months ended September 30, 2016. The use of cash in operations during the period was primarily due to the net impacts of the following:

2023 Activity

•

~~Operating~~Net loss adjusted for depreciation and amortization of $4.1 million, gain from net changes in allowance for doubtful accounts and credit losses ~~for~~of $0.4 million, gain on the ~~nine months ended September 30, 2017, in excess~~sale of ~~non-cash depreciation, amortization, impairment~~fixed assets of $0.2 million, gain on insurance recoveries of $0.2 million and ~~stock~~stock-based compensation expense of ~~approximately $19.6~~$1.5 million;

•

Decrease in contract assets of $0.5 million

~~Payment of year-end bonuses~~ related to ~~2016,~~the timing of billings on projects, primarily due to decreased unbilled positions on our forty-vehicle ferry projects for our Shipyard Division, offset partially by increased unbilled positions on various projects for our Fabrication Division;

~~Progress~~•

Decrease in contract liabilities of $4.7 million, primarily due to a decrease in advance billings on our cancelled offshore jackets project for our Fabrication Division and accrued contract losses on our forty-vehicle ferry projects for our Shipyard Division;

•

Increase in contract receivables and retainage of $6.5 million related to the timing of billings and collections on projects, primarily due to increased receivable positions on various projects for our Fabrication Division and Services Division;

•

Decrease in prepaid expenses, inventory and other assets of $2.8 million, primarily due to prepaid expenses and the associated timing of certain prepayments. The change differs from the table above primarily due to the Insurance Finance Arrangements discussed further in Note 3;

•

Increase in accounts payable, accrued expenses and other current liabilities of $2.5 million, primarily due to the timing of payments and increased accounts payable positions on various projects for our Fabrication Division. The change differs from ~~assumed contracts~~the table above primarily due to the Insurance Finance Arrangements discussed further in Note 3; and

•

Change in noncurrent assets and liabilities, net of $31.9 million, primarily due to the ~~LEEVAC transaction. While~~write-off of a $12.5 million noncurrent net contract asset, and recording of a $20.0 million noncurrent contract liability, associated with the resolution of our ~~purchase price~~MPSV Litigation. The contract liability was replaced with the Note Agreement on November 6, 2023. See Note 4 for ~~the acquisition~~further discussion of the ~~LEEVAC~~resolution of our MPSV Litigation and the Note Agreement.

2022 Activity

•

Net loss adjusted for depreciation and amortization of $3.8 million, non-cash asset impairments of $0.5 million, gain on the sale of fixed assets ~~during 2016 was $20.0~~of $0.1 million, ~~we received a net~~gain on insurance recoveries of $1.2 million and stock-based compensation expense of $1.5 million;

•

Increase in contract assets of $3.0 million related to the timing of billings on projects, primarily due to increased unbilled positions on our seventy-vehicle ferry and forty-vehicle ferry projects for our Shipyard Division;

•

Decrease in ~~cash from~~contract liabilities of $2.4 million, primarily due to a decrease in accrued contract losses and the ~~seller~~unwind of advance payments on our forty-vehicle ferry projects for our Shipyard Division;

•

Increase in contract receivables and retainage of $17.0 million related to the ~~assumption~~timing of billings and collections on projects, primarily due to increased receivable positions on various projects for our Services Division and Fabrication Division;

•

Increase in prepaid expenses, inventory and other assets of $1.2 million, primarily due to prepaid expenses and the associated timing of certain ~~net~~prepayments;

•

Increase in accounts payable, accrued expenses and other current liabilities ~~and settlement payments on ongoing shipbuilding projects~~ of ~~$23.0~~$2.5 million, that were assigned to us in the transaction. We have significantly progressed these contracts, which in turn has resulted in utilization of the working capital and settlement payments received during 2016.

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 Notesprimarily due to the ~~Consolidated Financial Statements;~~timing of payments and increased accounts payable positions on various projects for our Services Division and Fabrication Division; and

~~Build-up~~•

Change in noncurrent assets and liabilities, net 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.$0.7 million.

~~Net cash~~

- 40 -

Investing Activities – Cash used in investing activities for the nine months ended September 30, ~~2017,~~2023 and 2022 was ~~$2.4~~$6.6 million ~~compared to cash provided by~~and $6.7 million, respectively. Cash used in investing activities ~~of $2.0 million~~ for ~~the nine months ended September 30, 2016. The change in cash provided by investing activities is~~2023 was primarily due to ~~cash received~~net purchases of short-term investments of $5.5 million and capital expenditures of $1.7 million, offset partially by recoveries from insurance claims of $0.2 million, and proceeds from the sale of ~~three cranes at our Texas facility~~fixed assets of $0.4 million. Cash used in investing activities for ~~$5.8~~2022 was primarily due to net purchases of short-term investments of $9.8 million and ~~$1.6~~capital expenditures of $1.0 million, offset partially by proceeds from the Shipyard Transaction of ~~cash acquired in~~$0.9 million, recoveries from insurance claims of $1.2 million, and proceeds from the ~~LEEVAC transaction during 2016 partially offset by decreases in capital expenditures.~~

~~Net cash~~sale of fixed assets of $2.0 million. See Note 1 for further discussion of the Shipyard Transaction and Note 2 for further discussion of our insurance claims associated with Hurricane Ida.

Financing Activities – Cash used in financing activities for the nine months ended September 30, ~~2017~~2023 and ~~2016,~~2022 was ~~$1.4~~$1.7 million and ~~$603,000,~~$1.1 million, respectively. ~~The increase in cash~~Cash used in financing activities isfor 2023 and 2022 was primarily due to ~~the cash~~payments on our Insurance Finance Arrangements of $1.3 million and $1.0 million, respectively, and tax payments made ~~to taxing authorities~~ on behalf of employees from vested stock withholdings. See Note 3 for ~~their vesting~~further discussion of ~~common stock. During~~our Insurance Finance Arrangements.

Credit Facilities

See Note 3 for discussion of our LC Facility, Surety Bonds, Insurance Finance Arrangements, Mortgage Agreement and Restrictive Covenant Agreement and Note 4 for discussion of our Note Agreement.

Registration Statement

We have a shelf registration statement that is effective with the ~~nine months ended~~SEC that expires on August 24, 2026. The shelf registration statement enables us to issue up to $200.0 million in either debt or equity securities, or a combination thereof, from time to time subsequent to the filing of a prospectus supplement, which among other things, identifies the underwriter, dealer or agent, specifies the number and value of securities that may be sold, and provides a time frame over which the securities may be offered.

Liquidity Outlook

We have made significant progress in our efforts to preserve and improve our liquidity, including cost reductions, the sale of under-utilized assets and facilities, improved project cash flow management and the completion of the Shipyard Transaction. The primary uses of our liquidity for the remainder of 2023 and the foreseeable future are to fund:

•

Overhead costs associated with the under-utilization of our facilities and resources for our Fabrication Division until we secure and begin to execute sufficient backlog to fully recover our overhead costs;

•

Capital expenditures, including expenditures to maintain, upgrade and replace aged equipment;

•

Accrued contract losses for the Active Retained Shipyard Contracts;

•

Working capital requirements for our projects, including the unwind of advance payments on projects and the payment of vendor obligations prior to receipt of payment from our customer for our cancelled offshore jackets project. See “New Project Awards and Backlog” above and Note 2 for further discussion of the project cancellation;

•

Remaining liabilities of the Shipyard Division operations that were excluded from the Shipyard Transaction;

•

Interest and principal payments on the Note Agreement entered into in connection with the resolution of our MPSV Litigation. See Note 4 for further discussion of the resolution of our MPSV Litigation and the Note Agreement;

•

Corporate administrative expenses (including the temporary under-utilization of personnel as we evaluate our resource requirements to support our future operations);

•

Initiatives to diversify and enhance our business; and

•

Costs associated with the impacts of Hurricane Ida, including uninsured losses, if any, as well as repair costs for buildings and equipment for which insurance payments have previously been received from our insurance carriers.

We anticipate capital expenditures of approximately $2.0 million for the remainder of 2023, excluding any future expenditures for deductibles and uninsured losses, if any, associated with damage caused by Hurricane Ida, that may be determined to be capital items. Further investments in facilities may be required to win and execute potential new project awards, which are not included in these estimates.

- 41 -

We believe that our cash, cash equivalents and short-term investments at September 30, ~~2017 we received $2.0 million from borrowings under~~2023, will be sufficient to enable us to fund our ~~new line of credit which were immediately repaid.~~

~~Contractual Obligations~~

~~There have been no material changes~~operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the ~~information included in~~date of this Report. Our evaluation of the sufficiency of our ~~Annual Report on Form 10-K for the year ended December 31, 2016. For more information~~cash and liquidity is primarily based on our ~~contractual obligations, refer~~financial forecast for 2023 and 2024, which is impacted by our existing backlog and estimates of future new project awards and may be further impacted by the ongoing effects of oil and gas price volatility and macroeconomic conditions, and future losses, if any, due to ~~Part II, Item 7~~coverage limitations and our use of deductibles and self-insured retentions for our ~~Annual Report on Form 10-K for the year ended December 31, 2016.~~

exposures related to property and equipment damage, builder’s risk, third-party liability and workers’ compensation and USL&H claims. We can provide no assurances that our financial forecast will be achieved or that we will have sufficient cash and short-term investments to meet planned operating expenses and unforeseen cash requirements. Accordingly, we may be required to obtain new or additional credit facilities, sell additional assets or conduct equity or debt offerings at a time when it is not beneficial to do so.

Off-Balance Sheet Arrangements

~~There~~

We are not a party to any contract or other obligation not included on our Balance Sheet that has, or is reasonably likely to have, ~~been no material changes from the information included in~~a current or future effect on our ~~Annual Report on Form 10-K for the year ended December 31, 2016.~~

~~Item 3. Quantitative and Qualitative Disclosures About Market Risk.~~

~~There have been no material~~financial condition, changes in ~~the Company’s market risks during the quarter ended September 30, 2017. For more information on market risk, refer to Part II, Item 7A.~~financial condition, revenues or expenses, results of ~~our Annual Report on Form 10-K for the year ended December 31, 2016.~~

operations, liquidity, capital expenditures or capital resources.

Item 4. Controls and Procedures.

~~The Company maintains~~

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed ~~by the Company~~ in the reports that ~~it files~~we file or ~~submits~~submit 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~~our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. ~~The Company’s management,~~Management, with the participation of ~~the Company’s~~our Chief Executive Officer and Chief Financial Officer, ~~have~~has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the ~~Securities~~ Exchange ~~Act of 1934)~~Act) as of the end of the period covered by this ~~report.~~Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this ~~report.~~

~~There have been~~Report.

During the third quarter 2023, there were no changes ~~during the fiscal quarter ended September 30, 2017,~~ in ~~the Company’s~~our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, ~~the Company’s~~our internal control over financial reporting.

- 42 -

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

~~The Company is subject to various routine~~

See Note 4 of our Financial Statements in Part I, Item 1 for discussion of our legal proceedings, inincluding the ~~normal conduct~~resolution 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.

our MPSV Litigation, which is incorporated herein by reference.

Item 1A. Risk Factors.

There have been no material changes ~~from the information included~~to our risk factors previously disclosed in Part I, Item 1A1A. “Risk Factors” ~~included in~~of our 2022 Annual Report, except as disclosed in Part II, Item 1A. “Risk Factors” of our quarterly report on Form ~~10-K~~10-Q for the ~~year~~quarter ended June 30, 2023.

Item 5. Other Information.

On November 6, 2023 we entered into the Note Agreement in the principal amount of $20.0 million. The Note Agreement bears interest at a fixed rate of 3.0% per annum commencing on January 1, 2024, with principal and interest payable in 15 equal annual installments of approximately $1.7 million, beginning on December 31, ~~2016.~~

2024 and ending on December 31, 2038. See Note 3 of our Financial Statements in Part I, Item 1 for discussion of the related amendment to the Mortgage Agreement and termination of the Restrictive Covenant Agreement, and Note 4 of our Financial Statements in Part I, Item 1 for further discussion of the Note Agreement. A copy of the Note Agreement, Mortgage Agreement amendment and Restrictive Covenant Agreement termination are filed with this Report as Exhibits 10.1, 10.2 and 10.3, respectively.

- 43 -

Item 6. Exhibits.



Exhibit Number	Description of Exhibit

3.1	~~Composite~~Amended and Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form ~~10-Q~~8-K filed ~~April 23, 2009.~~with the SEC on May 22, 2020 (SEC File No. 001-34279).
3.2	Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit ~~3.2~~3.1 of the Company’s Form 8-K filed with the SEC on November ~~4, 2016.~~6, 2023 (SEC File No. 001-34279).
~~31.1~~ 10.1	Secured Promissory Note by and among Gulf Island Fabrication, Inc. and all of its subsidiaries, as payors, and Zurich American Insurance Company and Fidelity and Deposit Company of Maryland, as payees, dated November 6, 2023.*
10.2	Amendment to Multiple Indebtedness Mortgage by and among Fidelity and Deposit Company of Maryland and Zurich American Insurance Company, as mortgagees, and Gulf Island, L.L.C. and Gulf Island Services, L.L.C. f/k/a Dolphin Services, L.L.C., as mortgagors, dated November 6, 2023.*
10.3	Nullification of Restrictive Covenant Regarding Restricted Payments by and among Gulf Island Fabrication, Inc., Gulf Island, L.L.C., Gulf Island Shipyards, LLC, Fidelity and Deposit Company of Maryland and Zurich American Insurance Company, dated November 6, 2023.*
31.1	CEO Certifications 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. *
101.INS	Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. *
~~101~~ 101.SCH	~~Attached as Exhibit 101 to this report are~~ Inline XBRL Taxonomy Extension Schema Linkbase Document. *
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document. *
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document. *
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document. *
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document. *
104	The cover page for the ~~following items~~Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, has been formatted in Inline XBRL ~~(Extensible Business Reporting Language):~~
	~~(i)~~	~~Consolidated Balance Sheets,~~
	~~(ii)~~	~~Consolidated Statements of Operations,~~
	~~(iii)~~	~~Consolidated Statement of Changes~~and is contained in ~~Shareholders’ Equity,~~
	~~(iv)~~	~~Consolidated Statements of Cash Flows and~~
	~~(v)~~	~~Notes to Consolidated Financial Statements.~~Exhibit 101. *

* Filed or furnished herewith.

- 44 -

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~Report to be signed on its behalf by the undersigned thereunto duly authorized.



GULF ISLAND FABRICATION, INC.

BY:	/s/ ~~David~~Westley S. ~~Schorlemer~~Stockton
	~~David~~ Westley S. ~~Schorlemer~~Stockton
	Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer and ~~Treasurer (Principal Financial and~~Principal Accounting Officer)

Date: ~~October 31, 2017~~

~~GULF ISLAND FABRICATION, INC.~~

~~EXHIBIT INDEX~~



~~Exhibit~~ ~~Number~~	~~Description of Exhibit~~

~~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, incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed November 4, 2016.~~
~~31.1~~	~~CEO Certifications 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.~~

~~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.~~

November 7, 2023

- ~~E-1~~45 -



	September 30, 2017		December 31, 2016
	(Unaudited)		(Note 1)
ASSETS
Current assets:
Cash and cash equivalents	$	17,792	$	51,167
Contracts receivable and retainage, net	25,513		20,169
Contracts in progress	42,810		26,829
Prepaid expenses and other assets	4,158		3,222
Inventory	12,325		11,973
Assets held for sale	107,010		—
Total current assets	209,608		113,360
Property, plant and equipment, net	90,989		206,222
Other assets	2,783		2,826
Total assets	$	303,380	$	322,408
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	21,457	$	9,021
Advance billings on contracts	4,367		3,977
Deferred revenue, current	4,148		11,881
Accrued contract losses	1,982		387
Accrued expenses and other liabilities	13,685		10,032
Income tax payable	—		50
Total current liabilities	45,639		35,348
Net deferred tax liabilities	12,999		23,234
Deferred revenue, noncurrent	—		489
Other liabilities	895		305
Total liabilities	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, 14,851,949 issued and outstanding at September 30, 2017, and 14,695,020 at December 31, 2016, respectively	10,817		10,641
Additional paid-in capital	100,388		98,813
Retained earnings	132,642		153,578
Total shareholders’ equity	243,847		263,032
Total liabilities and shareholders’ equity	$	303,380	$	322,408



	Three Months Ended September 30,						Nine Months Ended September 30,
	2017			2016			2017			2016
Revenue	$	49,884		$	65,384		$	133,745		$	230,864
Cost of revenue	50,378			60,125			150,755			205,839
Gross profit (loss)	(494		)	5,259			(17,010		)	25,025
General and administrative expenses	4,370			5,086			12,940			14,633
Asset impairment	—			—			389			—
Operating income (loss)	(4,864		)	173			(30,339		)	10,392
Other income (expense):
Interest expense	(45		)	(110		)	(262		)	(248		)
Interest income	—			12			12			20
Other income (expense), net	38			599			(221		)	1,039
Total other income (expense)	(7		)	501			(471		)	811
Net income (loss) before income taxes	(4,871		)	674			(30,810		)	11,203
Income tax expense (benefit)	(1,761		)	133			(10,322		)	4,134
Net income (loss)	$	(3,110	)	$	541		$	(20,488	)	$	7,069
Per share data:
Basic and diluted earnings (loss) per share - common shareholders	$	(0.21	)	$	0.04		$	(1.38	)	$	0.48
Cash dividend declared per common share	$	0.01		$	0.01		$	0.03		$	0.03



	Common Stock				Additional Paid-In Capital			Retained Earnings			Total Shareholders’ Equity
	Common Stock
	Shares	Amount
Balance at January 1, 2017	14,695,020	$	10,641		$	98,813		$	153,578		$	263,032
Net income (loss)	—	—			—			(20,488		)	(20,488		)
Vesting of restricted stock	156,929	(88		)	(797		)	—			(885		)
Compensation expense - restricted stock	—	264			2,372			—			2,636
Dividends on common stock	—	—			—			(448		)	(448		)
Balance at September 30, 2017	14,851,949	$	10,817		$	100,388		$	132,642		$	243,847



Assets	South Texas Fabrication Yards			Prospect Shipyard			Consolidated
Land	$	5,492		$	—		$	5,492
Buildings and improvements	117,582			—			117,582
Machinery and equipment	93,552			2,719			96,271
Furniture and fixtures	867			82			949
Vehicles	610			—			610
Other	—			—			—
Less: accumulated depreciation	(113,596		)	(298		)	(113,894		)
Total assets held for sale	$	104,507		$	2,503		$	107,010



	Three Months Ended September 30, 2017
	Fabrication		Shipyards ⁽¹⁾			Services		Corporate			Eliminations			Consolidated
Revenue	$	18,318	$	15,074		$	17,651	$	—		$	(1,159	)	$	49,884
Gross profit (loss)	1,250		(3,504		)	1,912		(152		)	—			(494		)
Operating income (loss)	472		(4,392		)	1,217		(2,161		)	—			(4,864		)
Total assets	205,463		96,614			100,820		364,016			(463,533		)	303,380
Depreciation and amortization expense	1,133		1,030			413		95			—			2,671
Capital expenditures	1,479		1,054			94		25			—			2,652



	Three Months Ended September 30, 2016
	Fabrication			Shipyards ⁽¹⁾		Services		Corporate			Eliminations			Consolidated
Revenue	$	22,311		$	23,060	$	20,928	$	—		$	(915	)	$	65,384
Gross profit (loss)	601			1,945		2,918		(205		)	—			5,259
Operating income (loss)	(284		)	477		1,975		(1,995		)	—			173
Total assets	285,320			75,779		100,781		332,617			(457,285		)	337,212
Depreciation and amortization expense	4,637			1,183		443		123			—			6,386
Capital expenditures	1,228			318		565		14			—			2,125



	Nine Months Ended September 30, 2017
	Fabrication			Shipyards ⁽¹⁾			Services		Corporate			Eliminations			Consolidated
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 assets	205,463			96,614			100,820		364,016			(463,533		)	303,380
Depreciation and amortization expense	5,420			3,034			1,266		421			—			10,141
Capital expenditures	2,327			1,872			199		117			—			4,515



	Nine Months Ended September 30, 2016
	Fabrication		Shipyards ⁽¹⁾		Services		Corporate			Eliminations			Consolidated
Revenue	$	70,436	$	86,553	$	76,179	$	—		$	(2,304	)	$	230,864
Gross profit (loss)	4,564		9,742		11,158		(439		)	—			25,025
Operating income (loss)	1,743		5,524		8,696		(5,571		)	—			10,392
Total assets	285,320		75,779		100,781		332,617			(457,285		)	337,212
Depreciation and amortization expense	14,081		3,507		1,342		332			—			19,262
Capital expenditures	2,539		534		1,612		730			—			5,415



	September 30, 2017				December 31, 2016
Division	$'s			Labor hours	$'s		Labor hours
Fabrication	$	29,554		254	$	65,444	707
Shipyards	200,909			1,045	59,771		457
Services	21,918			265	7,757		101
Intersegment eliminations	(649		)	—	—		—
Total backlog ⁽¹⁾	$	251,732		1,564	$	132,972	1,265

	Number			Percentage	Number		Percentage
Major customers ⁽²⁾	five			82.7%	two		80.5%

Backlog is expected to be recognized in revenue during:	$'s			Percentage
2017 ⁽³⁾	$	40,352		16.0%
2018 ⁽³⁾	139,529			55.4%
2019 ⁽³⁾	63,451			25.2%
2020 ⁽³⁾	8,400			3.4%
	$	251,732		100.0%



	Three Months Ended September 30,						Increase or (Decrease)
	2017			2016			Amount			Percent
Revenue	$	49,884		$	65,384		$	(15,500	)	(23.7)%
Cost of revenue	50,378			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 expenses	4,370			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), net	38			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)%