UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended

March 31, 20202021

or

 

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

For the transition period from

to

Commission File Number 001-34279

 

GULF ISLAND FABRICATION, INC.Gulf Island Fabrication, Inc.

(Exact name of registrant as specified in its charter)

 

 

LOUISIANALouisiana

 

72-1147390

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

16225 PARK TEN PLACE, SUITEPark Ten Place, Suite 300

HOUSTON, TEXASHouston, Texas

 

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

Common Stock

GIFIGifi

NASDAQNasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).    Yes      No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer

 

 

Accelerated filer

 

 

 

 

 

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  

The number of shares of the registrant’s common stock, no par value per share, outstanding as of May 6, 2020,April 30, 2021, was 15,290,41715,518,069.

 

 

 


- i -


 

GULF ISLAND FABRICATION, INC.

I N D E X

 

 

 

 

 

Page

 

 

 

PART I

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements

 

1

 

 

Consolidated Balance Sheets at March 31, 20202021 (unaudited) and December 31, 20192020

 

1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 and 2019 (unaudited)

 

2

 

 

Consolidated Statements of Changes in Shareholders' Equity for the Three months endedMonths Ended March 31, 2021 and 2020 and 2019 (unaudited)

 

3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 and 2019 (unaudited)

 

4

 

 

Notes to Consolidated Financial Statements (unaudited)

 

5

Item 2.

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

1718

Item 4.

 

Controls and Procedures

 

30

PART II

Other Information

3133

 

 

 

 

 

PART II

Other Information

34

Item 1.

 

Legal Proceedings

 

3134

Item 1A.

 

Risk Factors

 

3134

Item 6.

 

Exhibits

 

3236

Signatures

 

3337

 

- iii -


 

GLOSSARY OF TERMS

 

As used in this report on Form 10-Q for the quarter ended March 31, 2020 ("2021 (“this Report"Report”), the following abbreviations and terms have the meanings as 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.

 

20192020 Annual Report

Our annual report for the year ended December 31, 2019,2020, filed with the SEC on Form 10-K on March 5, 2020.30, 2021.

 

 

ASU

Accounting Standards Update.

 

 

Balance Sheet

Our Consolidated Balance Sheets, as filed in this Report.

CARES Act

The Coronavirus Aid, Relief and Economic Security Act, as amended.

Closing Adjustment

The $8.0 million payment received on the Closing Date associated with the Shipyard Transaction, representing an estimate of the change in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date.

Closing Adjustment

True-up

A post-closing reconciliation and true-up of the Closing Adjustment associated with the Shipyard Transaction based on actual changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date compared to the Closing Adjustment.

Closing Date

The closing date of the Shipyard Transaction of April 19, 2021.

COVID-19

The ongoing global coronavirus pandemic.

 

 

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.

 

 

CARES ActCovered Period

The Coronavirus Aid, Relief and Economic Security Act.

Credit Agreement

Our $40.0 million revolving credit facility with Whitney Bank.eight-week period following the date of the PPP Loan of April 17, 2020.

 

 

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.

 

 

labor hoursDivested Shipyard Contracts

Hours worked by employees directly involvedContracts and related obligations for our three research vessel projects and five towing, salvage and rescue ship projects that were included in the production of our products. These hours do not include support personnel such as maintenance and warehousing.Shipyard Transaction.

 

 

DTA(s)

Deferred Tax Asset(s).

 

 

EPC

Engineering, procurement and construction phases of a complex project that requires project management and coordination of these significant activities.

 

 

ESG

Environmental, Social and Governance.

Exchange Act

Securities Exchange Act of 1934, as amended.

 

 

F&S Facility

Our Fabrication & Services Division.Division’s facility located in Houma, Louisiana.

Fabrication & Services

Our Fabrication & Services Division (also referred to herein as F&S).

 

 

FASB

Financial Accounting Standards Board.

 

 

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.

 

 

inlandGOM

Gulf of Mexico.

Gulf Coast

Along the coast of the Gulf of Mexico.

- ii -


Incentive Plans

Long-term incentive plans under which equity or inshorecash-based awards may be made to eligible employees and non-employee directors.

inland

Typically, in bays, lakes and marshy areas.

 

 

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 pilings driven into the seabed. The jacket supports the deck structure located above the water.

 

 

Jennings YardFacility

Our Shipyard Division's facility located near Jennings, Louisiana.Louisiana, which was closed in the fourth quarter 2020.

labor hours

Hours worked by employees directly involved in the production of our products.

Lake Charles Facility

Our Shipyard Division's facility located near Lake Charles, Louisiana, which was closed in the fourth quarter 2020.

LC Facility

Our $20.0 million letter of credit facility with Whitney Bank maturing June 30, 2023, as amended.

 

 

LIBOR

London Inter-Bank Offered Rate.

 

 

LNG

Liquified Natural Gas.

 

 

- ii -


modules

Fabricated structures including structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a refining, petrochemical, LNG or industrial system. These modules are prefabricated at our facilities and then transported to the customer's location for final integration.

 

 

MPSVMortgage Agreement

Multiple indebtedness mortgage arrangement with a Surety, to secure our obligations and liabilities under our general indemnity agreement with the Surety associated with its outstanding surety bonds for certain contracts, which encumbers all remaining real estate that was not sold in connection with the Shipyard Transaction and includes certain covenants and events of default.

MPSV(s)

Multi-Purpose Service Vessel.Support Vessel(s).

 

 

NOL(s)

Net operating loss(es) that are available to offset future taxable income, subject to certain limitations.

 

 

offshore

In unprotected waters outside coastlines.

 

 

onshore

Inside the coastline on land.

OPEC

Organization of Petroleum Exporting Countries.

 

 

OSV

Offshore Support Vessel.

 

 

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.

 

 

Permissible Expenses

Expenses which may be paid using proceeds from the PPP Loan. Such expenses are limited to payroll costs, rent, utilities, mortgage interest and interest on other pre-existing indebtedness.

piles

Rigid tubular pipes that are driven into the seabed to support platforms.

 

 

PPP

Paycheck Protection Program administered by the SBA under the CARES Act.  

 

 

PPP Loan

Our $10.0 million loan withfrom Whitney Bank issued pursuant to the PPP.

platform

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

Restrictive Covenant Agreement

Restrictive covenant arrangement with a Surety, to secure our obligations and liabilities under our general indemnity agreement with the Surety associated with its outstanding surety bonds for certain contracts, which precludes us from making dividends or repurchasing shares of our common stock.

Retained Shipyard Contracts

Contracts and related obligations for our two forty-vehicle ferry projects, seventy-vehicle ferry project, and two MPSV projects that are subject to dispute, which were excluded from the Shipyard Transaction.

SBA

Small Business Administration.

 

 

SEC

U.S. Securities and Exchange Commission.

- iii -


 

 

Shipyard

Our Shipyard Division.

 

 

SBAShipyard Facility

Small Business Administration.Our Shipyard Division’s facility located in Houma, Louisiana.

Shipyard Transaction

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

 

 

Statement of Cash Flows

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

 

 

Statement of Operations

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

 

 

Surety

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.

 

 

T&M

Work performed and billed to the customer generally at contracted time and material rates, cost plus or other variable fee arrangements.

 

 

Topic 606

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

Transaction Price

The sales price of $28.6 million associated with the Shipyard Transaction.

 

 

U.S.

The United States of America.

 

 

Whitney Bank

Hancock Whitney Bank.

 

 

 

 

 

 

 

- iiiiv -


 

PART I. FINANCIALFINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

March 31,

2020

 

 

December 31,

2019

 

 

March 31,

2021

 

 

December 31,

2020

 

 

(Unaudited)

 

 

 

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

48,562

 

 

$

49,703

 

 

$

32,653

 

 

$

43,159

 

Restricted cash, current

 

 

9,937

 

 

 

 

Short-term investments

 

 

19,993

 

 

 

19,918

 

 

 

8,000

 

 

 

7,998

 

Contracts receivable and retainage, net

 

 

16,178

 

 

 

26,095

 

Contract receivables and retainage, net

 

 

18,173

 

 

 

15,393

 

Contract assets

 

 

64,905

 

 

 

52,128

 

 

 

71,372

 

 

 

67,521

 

Prepaid expenses and other assets

 

 

2,005

 

 

 

3,948

 

 

 

2,817

 

 

 

2,815

 

Inventory

 

 

2,723

 

 

 

2,676

 

 

 

2,105

 

 

 

2,262

 

Assets held for sale

 

 

8,082

 

 

 

9,006

 

 

 

8,214

 

 

 

8,214

 

Total current assets

 

 

162,448

 

 

 

163,474

 

 

 

153,271

 

 

 

147,362

 

Property, plant and equipment, net

 

 

69,651

 

 

 

70,484

 

 

 

43,195

 

 

 

67,458

 

Restricted cash, noncurrent

 

 

406

 

 

 

 

Other noncurrent assets

 

 

18,930

 

 

 

18,819

 

 

 

16,554

 

 

 

16,523

 

Total assets

 

$

251,029

 

 

$

252,777

 

 

$

213,426

 

 

$

231,343

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

70,542

 

 

$

61,542

 

 

$

71,789

 

 

$

70,114

 

Contract liabilities

 

 

11,571

 

 

 

26,271

 

 

 

11,812

 

 

 

15,129

 

Accrued expenses and other liabilities

 

 

8,077

 

 

 

10,031

 

 

 

9,993

 

 

 

7,670

 

Long-term debt, current

 

 

7,183

 

 

 

5,499

 

Total current liabilities

 

 

90,190

 

 

 

97,844

 

 

 

100,777

 

 

 

98,412

 

Long-term debt, noncurrent

 

 

2,817

 

 

 

4,501

 

Other noncurrent liabilities

 

 

2,228

 

 

 

2,248

 

 

 

1,898

 

 

 

2,068

 

Total liabilities

 

 

92,418

 

 

 

100,092

 

 

 

105,492

 

 

 

104,981

 

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, 15,290 shares issued

and outstanding at March 31, 2020 and 15,263 at December 31, 2019

 

 

11,121

 

 

 

11,119

 

Preferred stock, no par value, 5,000 shares authorized, 0 shares

issued and outstanding

 

 

 

 

 

 

Common stock, no par value, 30,000 shares authorized, 15,517 shares issued

and outstanding at March 31, 2021 and 15,359 at December 31, 2020

 

 

11,245

 

 

 

11,223

 

Additional paid-in capital

 

 

103,143

 

 

 

103,124

 

 

 

104,263

 

 

 

104,072

 

Retained earnings

 

 

44,347

 

 

 

38,442

 

Retained earnings (accumulated deficit)

 

 

(7,574

)

 

 

11,067

 

Total shareholders’ equity

 

 

158,611

 

 

 

152,685

 

 

 

107,934

 

 

 

126,362

 

Total liabilities and shareholders’ equity

 

$

251,029

 

 

$

252,777

 

 

$

213,426

 

 

$

231,343

 

 

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 March 31,

 

 

Three Months Ended

March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Revenue

 

$

78,555

 

 

$

67,605

 

 

$

58,951

 

 

$

78,555

 

Cost of revenue

 

 

78,809

 

 

 

67,052

 

 

 

51,370

 

 

 

78,809

 

Gross profit (loss)

 

 

(254

)

 

 

553

 

 

 

7,581

 

 

 

(254

)

General and administrative expense

 

 

3,744

 

 

 

3,834

 

 

 

3,127

 

 

 

3,744

 

Impairments and (gain) loss on assets held for sale

 

 

 

 

 

(70

)

 

 

23,428

 

 

 

 

Other (income) expense, net

 

 

(9,934

)

 

 

71

 

 

 

(516

)

 

 

(9,934

)

Operating income (loss)

 

 

5,936

 

 

 

(3,282

)

 

 

(18,458

)

 

 

5,936

 

Interest (expense) income, net

 

 

53

 

 

 

262

 

 

 

(194

)

 

 

53

 

Net income (loss) before income taxes

 

 

5,989

 

 

 

(3,020

)

Income (loss) before income taxes

 

 

(18,652

)

 

 

5,989

 

Income tax (expense) benefit

 

 

(84

)

 

 

(22

)

 

 

11

 

 

 

(84

)

Net income (loss)

 

$

5,905

 

 

$

(3,042

)

 

$

(18,641

)

 

$

5,905

 

Per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) per common share

 

$

0.39

 

 

$

(0.20

)

 

$

(1.21

)

 

$

0.39

 

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

- 2 -


 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2018

 

 

15,090

 

 

$

11,021

 

 

$

102,243

 

 

$

87,836

 

 

$

201,100

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(3,042

)

 

 

(3,042

)

Vesting of restricted stock

 

 

146

 

 

 

(71

)

 

 

(643

)

 

 

 

 

 

(714

)

Stock-based compensation expense

 

 

 

 

 

56

 

 

 

504

 

 

 

 

 

 

560

 

Balance at March 31, 2019

 

 

15,236

 

 

$

11,006

 

 

$

102,104

 

 

$

84,794

 

 

$

197,904

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2019

 

 

15,263

 

 

$

11,119

 

 

$

103,124

 

 

$

38,442

 

 

$

152,685

 

Net income

 

 

 

 

 

 

 

 

 

 

 

5,905

 

 

 

5,905

 

Vesting of restricted stock

 

 

27

 

 

 

(8

)

 

 

(66

)

 

 

 

 

 

(74

)

Stock-based compensation expense

 

 

 

 

 

10

 

 

 

85

 

 

 

 

 

 

95

 

Balance at March 31, 2020

 

 

15,290

 

 

$

11,121

 

 

$

103,143

 

 

$

44,347

 

 

$

158,611

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2019

 

 

15,263

 

 

$

11,119

 

 

$

103,124

 

 

$

38,442

 

 

$

152,685

 

Net income

 

 

 

 

 

 

 

 

 

 

 

5,905

 

 

 

5,905

 

Vesting of restricted stock

 

 

27

 

 

 

(8

)

 

 

(66

)

 

 

 

 

 

(74

)

Stock-based compensation expense

 

 

 

 

 

10

 

 

 

85

 

 

 

 

 

 

95

 

Balance at March 31, 2020

 

 

15,290

 

 

$

11,121

 

 

$

103,143

 

 

$

44,347

 

 

$

158,611

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Earnings

 

 

Equity

 

Balance at December 31, 2020

 

 

15,359

 

 

$

11,223

 

 

$

104,072

 

 

$

11,067

 

 

$

126,362

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,641

)

 

 

(18,641

)

Vesting of restricted stock

 

 

158

 

 

 

(9

)

 

 

(91

)

 

 

 

 

 

(100

)

Stock-based compensation expense

 

 

 

 

 

31

 

 

 

282

 

 

 

 

 

 

313

 

Balance at March 31, 2021

 

 

15,517

 

 

$

11,245

 

 

$

104,263

 

 

$

(7,574

)

 

$

107,934

 

 

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

 

- 3 -


 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

Three Months Ended March 31,

 

 

Three Months Ended

March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income (loss)

 

$

5,905

 

 

$

(3,042

)

 

$

(18,641

)

 

$

5,905

 

Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

 

Adjustments to reconcile net income (loss) to net cash provided by operating activities:

 

 

 

 

 

 

 

 

Depreciation and lease asset amortization

 

 

2,220

 

 

 

2,552

 

 

 

1,940

 

 

 

2,220

 

Other amortization, net

 

 

13

 

 

 

12

 

 

 

15

 

 

 

13

 

Bad debt expense

 

 

 

 

 

53

 

Asset impairments

 

 

 

 

 

299

 

 

 

22,750

 

 

 

 

(Gain) loss on sale of assets held for sale, net

 

 

 

 

 

(369

)

(Gain) loss on sale of fixed assets and other assets, net

 

 

(5

)

 

 

101

 

 

 

(6

)

 

 

(5

)

Stock-based compensation expense

 

 

95

 

 

 

560

 

 

 

313

 

 

 

95

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Contracts receivable and retainage, net

 

 

9,917

 

 

 

796

 

Contract receivables and retainage, net

 

 

(2,779

)

 

 

9,917

 

Contract assets

 

 

(12,777

)

 

 

(8,725

)

 

 

(3,851

)

 

 

(12,777

)

Prepaid expenses, inventory and other current assets

 

 

1,829

 

 

 

1,095

 

 

 

228

 

 

 

1,829

 

Accounts payable

 

 

9,663

 

 

 

7,542

 

 

 

1,756

 

 

 

9,663

 

Contract liabilities

 

 

(14,700

)

 

 

(7,611

)

 

 

(3,317

)

 

 

(14,700

)

Accrued expenses and other current liabilities

 

 

(1,918

)

 

 

(1,558

)

 

 

2,303

 

 

 

(1,918

)

Noncurrent assets and liabilities, net (including long-term retainage)

 

 

(235

)

 

 

(182

)

 

 

(353

)

 

 

(235

)

Net cash provided by (used in) operating activities

 

 

7

 

 

 

(8,477

)

Net cash provided by operating activities

 

 

358

 

 

 

7

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(2,124

)

 

 

(250

)

 

 

(460

)

 

 

(2,124

)

Proceeds from sale of property, plant and equipment

 

 

1,080

 

 

 

424

 

 

 

39

 

 

 

1,080

 

Purchases of short-term investments

 

 

 

 

 

(20,041

)

Maturities of short-term investments

 

 

 

 

 

8,500

 

Net cash used in investing activities

 

 

(1,044

)

 

 

(11,367

)

 

 

(421

)

 

 

(1,044

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payment of financing cost

 

 

(30

)

 

 

 

 

 

 

 

 

(30

)

Tax payments for vested stock withholdings

 

 

(74

)

 

 

(715

)

 

 

(100

)

 

 

(74

)

Net cash used in financing activities

 

 

(104

)

 

 

(715

)

 

 

(100

)

 

 

(104

)

Net decrease in cash and cash equivalents

 

 

(1,141

)

 

 

(20,559

)

Cash and cash equivalents, beginning of period

 

 

49,703

 

 

 

70,457

 

Cash and cash equivalents, end of period

 

$

48,562

 

 

$

49,898

 

Net decrease in Cash, cash equivalents and restricted cash

 

 

(163

)

 

 

(1,141

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

43,159

 

 

 

49,703

 

Cash, cash equivalents and restricted cash, end of period

 

$

42,996

 

 

$

48,562

 

 

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

 

- 4 -


 

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 20202021

(Unaudited)

 

1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

Gulf Island Fabrication, Inc. (together with its subsidiaries, “Gulf Island,” "the“the Company," "we," "us"” “we,” “us” and "our"“our”) is a leading fabricator of complex steel structures and modules and marine vessels, and a provider of project management, hookup, commissioning, repair, maintenance and civil construction services. Our customers include United States ("U.S.") and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and marine operators; EPC companies; and certain agencies of the U.S. government.companies. We currently operate and manage our business through two2 operating divisions ("Shipyard"(“Fabrication & Services” and "Fabrication & Services"“Shipyard”) and one1 non-operating division ("Corporate"(“Corporate”), which represent our reportable segments. Our corporate headquarters is located in Houston, Texas, withand our operating facilities are located in Houma, JenningsLouisiana.   On April 19, 2021, we sold our Shipyard Division assets and Lake Charles, Louisiana.certain construction contracts (“Shipyard Transaction”), and intend to wind down our remaining Shipyard Division operations by mid-2022.  See Note 78 for further discussion of our realigned reportable segments and discussion of our anticipated closure of the Jennings Yard.

Significant projects in our backlog include the fabrication of an offshore jacket and deck as well as modules for an offshore facility; material supply for an offshore jacket and deck; and construction of three harbor tug vessels, three regional class research vessels, three vehicle ferries, an ice-breaker tug, and five towing, salvage and rescue ships.  Projects completed in recent years include the expansion of a paddle wheel riverboat; fabrication of petrochemical modules as well as a meteorological tower and platform for an offshore wind project; and construction of seven harbor tug vessels and two towboats. Other completed projects include the fabrication of wind turbine foundations for the first offshore wind project in the U.S.; and construction of two technologically-advanced OSVs, two of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM, and the first single point anchor reservoir ("SPAR") hull fabricated in the U.S.Shipyard Transaction.  

 

Basis of Presentation

 

The accompanying unaudited Consolidated Financial Statements ("(“Financial Statements"Statements”) reflect all wholly owned subsidiaries.  Intercompany balances and transactions have been eliminated in consolidation.  The Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. ("GAAP"(“GAAP”) for interim financial statements, the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (the "SEC"“SEC”).  Accordingly, the Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements.  In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 20202021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2020.2021.

 

Our Consolidated Balance Sheet ("(“Balance Sheet"Sheet”) at December 31, 2019,2020, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the Financial Statements and related footnotes included in our 20192020 Annual Report.

Liquidity Outlook

In recent years, our operating results and cash flows have been impacted by lower margins due to competitive pricing, a significant underutilizationunder-utilization of our facilities and losses on certain projects.  As a result, we implemented initiatives to improve and maintain our liquidity (including reducing the compensation of our executive officers and directors and reducing the size of our board)board in 2020), reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector, improve our resource utilization and centralize our key project resources (including the recent closures of our Jennings Facility and Lake Charles Facility), and improve our competitiveness and project execution. These initiatives are ongoing, and while our ability to achieve our goals has been negatively impacted by the ongoing global coronavirus pandemic (“COVID-19”) and volatile oil prices (discussed further below) and while we can provide no assurances that the initiatives will achieve our desired results, we believe our cash, cash equivalents and short-term investments, and availability under our Credit Agreement (defined in Note 4), will be sufficient to enable us to fund our 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 filing date of this Report.

- 5 -


Operating Cycle

The durationsduration of our contracts vary but typically extend beyond twelve months from the date of contract award. Consistent with industry practice, assets and 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.

- 5 -


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 revenue recognition for our contracts, including application of the percentage-of-completion method, estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims and liquidated damages; fair value and recoverability assessments that must be periodically performed with respect to long-lived assets and our assets held for sale; determination of deferred income tax assets, liabilities and related valuation allowances; reserves for bad debts; liabilities related to self-insurance programs; and the impacts of the Coronavirus (“COVID-19”) and low oil prices on our business, estimates and judgments as discussed further below. with:

revenue recognition for our contracts, including application of the percentage-of-completion method, estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims and liquidated damages;

fair value and recoverability assessments that must be periodically performed with respect to long-lived assets and our assets held for sale;

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

reserves for bad debts;

liabilities related to self-insurance programs; and

the ongoing impacts of COVID-19 and volatile oil prices 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 Financial Statements.

COVID-19 COVID-19 and LowVolatile Oil Prices - COVID-19 is a widespread public health crisis that iscontinues to adversely affecting theaffect global economies and financial markets globally. In Marchmarkets. Additionally, the National Bureau of Economic Research indicated on June 8, 2020 the World Health Organization declared COVID-19 a pandemic andthat the U.S. President has announcedeconomy entered a recession in February 2020. The duration and severity of the U.S. recession, which is ongoing, remains unclear at this time.  

During 2020, our operations (as well as the operations of our customers, subcontractors and other counterparties) were negatively impacted by the physical distancing, quarantine and isolation measures recommended by national, emergency relating to COVID-19. National, state and local authorities have recommended social distancing and imposed, or are considering, quarantine and isolation measures on large portions of the population, includingand mandatory business closures. Theseclosures that were enacted in an attempt to control COVID-19. We continue to monitor the impact of COVID-19 on our operations and recognize that it could continue to negatively impact our business and results of operations during the remainder of 2021 and beyond. Even with widespread distribution and acceptance of vaccines, their long-term efficacy, as well as their efficacy against the emergence of potential new strains of COVID-19 are unknown. The extent to which our operations and financial performance will be impacted by COVID-19 during the remainder of 2021 will depend largely on future developments, including global availability and acceptance of the vaccines. Authorities in some areas of the U.S. have begun to relax COVID-19 restrictions; however, if the areas where we have our headquarters and operating facilities, or areas where our customers, subcontractors and other counterparties have operations, were to experience a resurgence in the numbers of cases of the virus, including through the spread of new, more contagious strains of the virus, authorities may reinstate restrictions, including quarantine and isolation measures. The measures taken, while intended to protect human life, have had and are expected to continue to have a significantserious adverse impact on domestic and foreign economies of uncertain severity and duration. The effectiveness of economic stabilization efforts, including proposed government payments to affected citizens and industries, is uncertain. Due to COVID-19 and related measures, there has been a decline in the demand for, and thus prices of, oil and these declines have been exacerbated by a market share dispute between the world’s largest oil producers.  Some economists are predicting the U.S. may enter a recession of unknown duration. The extent to which COVID-19 and low oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable.  As a result of this current

This continued level of uncertainty overmeans the economicultimate business and operationalfinancial impacts of COVID-19 and lowvolatility in oil prices the related business and financial impacts cannot be reasonably estimated at this time, andbut have included, or may include, among other things, reduced bidding activity, suspension or termination of backlog, deterioration of customer financial condition, potential supply disruptions and unanticipated project costs due to project disruptions and schedule delays, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, lack of performance by subcontractors and suppliers, and contract disputes, including claims. Eventsdisputes. Management’s estimates in future periods will be revised for any events and changes in circumstances arising after the date of this Report resulting fromfor the impacts of COVID-19 if any, will be reflected in management’s estimates for future periods.and volatile oil prices.

Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing net income (loss) by the weighted average number of common shares outstanding for the period. Diluted income (loss) per share reflects the assumed conversion of dilutive securities.  See Note 6 for calculations of our basic and diluted income (loss) per share.

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.

Restricted Cash – At March 31, 2021, we had $10.3 million of restricted cash as security for letters of credit issued under our letter of credit facility (“LC Facility”) with Hancock Whitney Bank (“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. We had 0 restricted cash at December 31, 2020. See Note 4 for further discussion of our cash security requirements under our LC Facility.

- 6 -


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 March 31, 2020,2021, our short-term investments include U.S. Treasuries with original maturities of less than six months. We intend to hold these investments until maturity, and it is not more likely than not that we would be required to sell the investments prior to their maturity.  The investments are stated at amortized cost, 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

- 6 -


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.  

Allowance for Doubtful Accounts

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 routinely review individual contract receivable balances for collectibilitycollectability and 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, underlying disputes with the customer, the age and value of the receivable balance, and economic conditions in general. See Note 2 for further discussion of our allowance for doubtful accounts.

Stock-Based Compensation

Awards under our stock-based compensation plans are calculated using a fair value-based measurement method. We use the straight-line method 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 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 Statement of Operations.Operations (“Statement of Operations”).  

Tax payments made on behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations from the vesting of shares under our stock-based compensation plans are classified as a financing activity on our Consolidated Statement of Cash Flows.Flows (“Statement of Cash Flows”).

Assets Held for Sale

Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. See Note 3 for further discussion of our assets held for sale.

Depreciation 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 plant or equipment, are charged to expense as incurred.

Long-Lived Assets

Long-lived assets, which include property, plant and equipment and our lease assets included within other noncurrent 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 recording the excess of the carrying amount of the asset or asset group over its fair value is recorded as an impairment charge. Fair value is determined based on discounted cash flows, appraised values or third-party indications of value, as appropriate. See Note 3 for further discussion of our long-lived asset impairments.

- 7 -


Leases

We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our 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 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:

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

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 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 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.

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.

- 7 -


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 impairments of inventory, long-lived assets and assets held for sale are non-recurring fair value measurements that fall within Level 3 of the fair value hierarchy. See Note 3 for further discussion of our assets held for sale.

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 and T&M.  Our contracts primarily relate to the fabrication and construction of steel structures, modules and marine vessels, and project management services and other service arrangements. We recognize revenue forfrom our contracts in accordance with Accounting Standards Update ("ASU"(“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers” ("(“Topic 606"606”).  

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 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 a customer has obtained control of a promised asset.

Fixed-Price and Unit-Rate Contracts - Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method based on contract costs incurred to date compared to total estimated contract costs (an input method).  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 extent of costs incurred.  Revenue and gross profit for contracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, components, equipment and subcontracts; forecast costs of labor and subcontracts; 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 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 impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the 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 could result in material changes to

- 8 -


our Financial Statements and related disclosures.  See Note 2 for further discussion of projects with significant changes in estimated margins during the three months ended March 31, 20202021 and 2019.2020.

T&M Contracts - Revenue for our T&M contracts is recognized at contracted rates when the work is performed, the costs are incurred and collection is reasonably assured. Our T&M contracts provide for labor and materials to be billed at rates specified within the contract. The consideration from the customer directly corresponds to the value of our performance completed at the time of invoicing.

Variable Consideration - Revenue and gross profit for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims, incentives and liquidated damages that may not be resolved until the later stages of the contract or after the contract has been completed. We estimate variable consideration based on the amount we expect to be entitled and 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 unapproved change orders, claims, incentives and liquidated damages.  damages for our projects.  

Additional Disclosures - Topic 606 also requires enhanced 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 March 31, 20202021 and December 31, 2019,2020, we had no0 deferred pre-contract costs.

- 8 -


Other (Income) Expense, Net

Other (income) expense, net, generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items.  For the three months ended March 31, 2020, other (income) expense also includes a gain of approximately $10.0 million associated with the settlement of a contract dispute for a project completed in 2015.

Income Taxes

Income taxes have been provided 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 changingstate income tax laws significantrelated 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 expected 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 as a full valuation allowance was recorded against our federal deferred tax assets generated during the three months ended March 31, 2021 and 2020. Income taxes recorded for the three months ended March 31, 2021 and 2020 represent 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

Income taxes – During the first quarter 2021, we adopted Accounting Standards Update (“ASU”) 2019-12, “Income Taxes,” which simplifies the accounting for income taxes by removing certain exceptions to the general principles and simplifies areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. Adoption of the new standard did not have a material effect on our financial position, results of operations or related disclosures.


- 9 -


Financial instruments - In June 2016, the FASBFinancial Accounting Standards Board (“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, short-term investments, 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 us in the first quarter 2023. Early adoption of the new standard is permitted; however, we have not elected to early adopt the standard. The new standard is required to be applied using a cumulative-effect transition method. We are currently evaluating the effect that the new standard will have on our financial position, results of operations and related disclosures.

Income taxes - In December 2019, the FASB issued ASU 2019-12, “Income Taxes,” to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for us in the first quarter 2021. We are currently evaluating the effect that the new standard will have on our financial position, results of operations and related disclosures.

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

As discussed in Note 1, we recognize revenue forfrom 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, for the three months ended March 31, 20202021 and 20192020 (in thousands):

 

 

Three Months Ended March 31, 2020

 

 

Shipyard

 

 

F&S

 

 

Eliminations

 

 

Total

 

 

Three Months Ended March 31, 2021

 

Contract Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shipyard

 

 

F&S

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate(1)

 

$

44,302

 

 

$

24,557

 

 

$

(85

)

 

$

68,774

 

 

$

39,778

 

 

$

11,157

 

 

$

(8

)

 

$

50,927

 

T&M(2)

 

 

1,257

 

 

 

6,925

 

 

 

 

 

 

8,182

 

 

 

518

 

 

 

6,269

 

 

 

 

 

 

6,787

 

Other

 

 

 

 

 

1,961

 

 

 

(362

)

 

 

1,599

 

 

 

 

 

 

1,634

 

 

 

(397

)

 

 

1,237

 

Total

 

$

45,559

 

 

$

33,443

 

 

$

(447

)

 

$

78,555

 

 

$

40,296

 

 

$

19,060

 

 

$

(405

)

 

$

58,951

 

- 9 -


 

 

Three Months Ended March 31, 2019(3)

 

 

Shipyard

 

 

F&S

 

 

Eliminations

 

 

Total

 

 

Three Months Ended March 31, 2020

 

Contract Type

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Shipyard

 

 

F&S

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate(1)

 

$

34,450

 

 

$

17,497

 

 

$

(73

)

 

$

51,874

 

 

$

44,302

 

 

$

24,557

 

 

$

(85

)

 

$

68,774

 

T&M(2)

 

 

2,961

 

 

 

10,622

 

 

 

 

 

 

13,583

 

 

 

1,257

 

 

 

6,925

 

 

 

 

 

 

8,182

 

Other

 

 

 

 

 

2,474

 

 

 

(326

)

 

 

2,148

 

 

 

 

 

 

1,961

 

 

 

(362

)

 

 

1,599

 

Total

 

$

37,411

 

 

$

30,593

 

 

$

(399

)

 

$

67,605

 

 

$

45,559

 

 

$

33,443

 

 

$

(447

)

 

$

78,555

 

 

 

(1)

Revenue is recognized as the contract is progressed over time.

 

(2)

Revenue is recognized at contracted rates when the work is performed and costs are incurred.

 

(3)

See Note 7 for discussion of our realigned operating divisions.

Future Performance Obligations Required Under Contracts

The following table summarizes our remaining performance obligations by operating segment at March 31, 20202021 (in thousands):

 

Segment

 

Performance

Obligations

 

 

Performance

Obligations

 

Shipyard(1)

 

$

449,258

 

 

$

327,355

 

Fabrication & Services

 

 

29,191

 

 

 

12,273

 

Total

 

$

478,449

 

 

$

339,628

 

 

 

(1)

Amount excludesIn connection with the Shipyard Transaction, performance obligations associated with the Divested Shipyard Contracts totaling $309.5 million at March 31, 2021, were sold.  Approximately $5.0 million to $10.0 million of performance obligations associated with the Divested Shipyard Contracts is expected to be recognized as revenue subsequent to March 31, 2021 through the Shipyard Transaction closing date.  Excluding the performance obligations associated with the Divested Shipyard Contracts, we expect to recognize revenue of approximately $21.9$27.2 million and $2.9 million for the remainder of 2021 and thereafter, respectively, associated with our remaining performance obligations related to contracts for the construction of two MPSVs that are subject to dispute pursuant to termination notices from our customer.at March 31, 2021.  See Note 58 for further discussion of these contracts.the Shipyard Transaction.

We expect to recognize revenue for our remaining performance obligations at March 31, 2020, in the following periods (in thousands):

- 10 -


 

Year

 

Performance

Obligations

 

Remainder 2020

 

$

144,680

 

2021

 

 

183,269

 

2022

 

 

127,841

 

Thereafter

 

 

22,659

 

Total

 

$

478,449

 

 

Contracts Assets and Liabilities

Revenue recognition and customer invoicing for our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed in Note 1; however, 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 when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets 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 uncompleted contracts that were incomplete at March 31, 20202021 and December 31, 20192020 is as follows (in thousands):

 

 

March 31,

 

 

December 31,

 

 

March 31,

 

 

December 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Contract assets(1)

 

$

64,905

 

 

$

52,128

 

 

$

71,372

 

 

$

67,521

 

Contract liabilities(1), (2), (3)

 

 

(11,571

)

 

 

(26,271

)

Contract liabilities(2), (3), (4)

 

 

(11,812

)

 

 

(15,129

)

Contracts in progress, net

 

$

53,334

 

 

$

25,857

 

 

$

59,560

 

 

$

52,392

 

 

 

(1)

The increase in contract assets compared to December 31, 2020, was primarily due to increased unbilled positions on our research vessel projects and towing, salvage and rescue ship projects within our Shipyard Division, offset partially by decreased unbilled positions for a completed project within our Shipyard Division.

(2)

The decrease in contract liabilities compared to December 31, 2019,2020, was primarily due to the unwind of advance paymentsa decrease in accrued contract losses on threeour towing, salvage and rescue ship projects inwithin our Shipyard Division and two projectsattributable to a change order entered into in our Fabrication & Services Division.the first quarter 2021. See “Changes in Project Estimates” below for further discussion of the change order.

 

(2)(3)

Revenue recognized during the three months ended March 31, 20202021 and 20192020, related to amounts included in our contract liabilities balance at December 31, 2020 and 2019, was $3.5 million and 2018, was $17.0 million, and $13.5 million, respectively.

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(3)(4)

Contract liabilities at March 31, 20202021 and December 31, 2019,2020, includes accrued contract losses of $4.6$5.1 million and $6.4$8.6 million, respectively. See "Project Changes in Estimates"Project Estimates” below for further discussion of our accrued contract losses.

Allowance for Doubtful Accounts

Our provision for bad debts is included in other (income) expense, net on our Statement of Operations.  Our provision for bad debts for the three months ended March 31, 20202021 and 2019,2020, and our allowance for doubtful accounts at March 31, 20202021 and December 31, 2019,2020, were not significant.

Variable Consideration

For the three months ended March 31, 20202021 and 2019,2020, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at March 31, 20202021 and December 31, 2019,2020, certain projects reflected a reduction to our estimated contract price for liquidated damages of $11.8$0.9 million and $12.9$0.6 million, respectively, of which $11.2 million was recorded during 2017.respectively.  

Changes in Project Estimates

Changes in Estimates for 2020 -2021 For the three months ended March 31, 2021, significant changes in estimated margins on projects positively impacted operating results for our Shipyard Division by $7.7 million and positively impacted operating results for our Fabrication & Services Division by $0.6 million.  The changes in estimates were associated with the following:

Shipyard Division

Towing, Salvage and Rescue Ship Projects – Positive impact for 2021 of $8.4 million for our towing, salvage and rescue ship projects, resulting from increased contract price primarily associated with an approved change order ($9.2 million impact), offset partially by increased forecast costs primarily associated with increased craft labor costs ($0.8 million impact). The impacts were primarily due to the items described further below:

Contract Price Increase – The increase in contract price was attributable to a change order of $13.1 million entered into in the first quarter 2021 to facilitate the transfer to our customer, the U.S. Navy, the technology, plans and know-how associated with the existing vessels under construction. The majority of the change order amount was included within contract price for our existing vessel projects, resulting in the recognition of additional gross profit of $9.2 million during the three months ended March 31, 2021 due to the cumulative effect impact from the percentage-of-completion of the projects as of March 31, 2021. The remaining change order amount will be recognized as revenue as we facilitate the transfer of the technology, plans and know-how to the customer.  In connection with the change order, we received a payment of $8.8 million during the three months ended March 31, 2021.

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Forecast Costs Increase – The increase in craft labor costs were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from ongoing craft labor absenteeism and turnover and challenges recruiting and hiring craft labor, due in part to COVID-19.

At March 31, 2021, the projects were at varying stages of completion ranging from approximately 15% to 65% and are forecast to be completed at varying dates from 2022 through 2024.  The projects were approximately break-even at March 31, 2021, inclusive of the increase in contract price attributable to the aforementioned change order. The projects were sold in connection with the Shipyard Transaction. See Note 8 for further discussion of the Shipyard Transaction.  

Seventy-Vehicle Ferry Project – Negative impact for 2021 of $0.7 million for our seventy-vehicle ferry project, resulting from increased forecast costs and forecast liquidated damages, primarily associated with extensions of schedule and associated duration related costs, including supervision and subcontracted services costs. The impacts were primarily due to engineering delays and lower than anticipated progress on the project.  At March 31, 2021, the vessel was approximately 65% complete and is forecast to be completed in the first quarter 2022.  The project was in a loss position at March 31, 2021 and our reserve for estimated losses was $0.6 million. If future craft labor productivity and subcontractor costs differ from our current estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, we are unable to achieve our progress estimates, our schedule is further extended or we incur additional schedule liquidated damages, the project would experience further losses.

Fabrication & Services Division

Offshore Facility Modules Project – Positive impact for 2021 of $0.6 million for our offshore modules project, resulting from reduced forecast costs, primarily associated with reduced craft labor and subcontracted services costs and contingency associated with schedule related liquidated damages.  The impacts were primarily due to better than anticipated labor productivity and favorable resolution of change orders with the customer associated with schedule related liquidated damages.  The project was completed in April 2021.

Changes in Estimates for 2020For the three months ended March 31, 2020, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $1.2 million and benefitedpositively impacted operating results for our Fabrication & Services Division by $0.9 million. The changes in estimates were associated with the following:following.

Shipyard Division

Forty-Vehicle Ferry Projects - Increased forecast costs and forecast liquidated damages of $1.2 million for our two, forty-vehicle ferry projects, primarily associated with increased craft labor and material costs and extensions of schedule.  The increases were primarily due to anticipated rework for the first vessel, including potential reconstruction of previously completed portions of the vessel, resulting from the determination that portions of the vessel structure are outside of acceptable tolerance levels.  The previous construction activities were performed by our former Fabrication Division prior to transferring management and project execution responsibility of the vessels to our Shipyard Division in the first quarter 2020 as discussed further in Note 7.  At March 31, 2020, the projects were approximately 42% and 55% complete and are forecast to be completed in 2020 and 2021.  The projects were in a loss position at March 31, 2020 and our reserve for estimated losses was $3.3 million. If future craft labor productivity and subcontractor costs differ from our current estimates, we are unable to achieve our progress estimates, our schedules are further extended or the projects incur additional schedule liquidated damages, the projects would experience further losses.  

Forty-Vehicle Ferry Projects – Negative impact for 2020 of $1.2 million for our 2 forty-vehicle ferry projects, resulting from increased forecast costs and forecast liquidated damages, primarily associated with increased craft labor and material costs and extensions of schedule. The impacts were primarily due to anticipated rework for the first vessel, including potential reconstruction of previously completed portions of the vessel, resulting from the determination that portions of the vessel structure were outside of acceptable tolerance levels.

Fabrication & Services Division

Paddle Wheel Riverboat and Subsea Components Projects - Reduced forecast costs and increased contract price

Paddle Wheel Riverboat and Subsea Components Projects – Positive impact for 2020 of $0.9 million for our paddle wheel riverboat and subsea components projects, resulting from reduced forecast costs and increased contract price, primarily associated with reduced craft labor and subcontracted services costs and change orders. The benefits were primarily due to better than anticipated labor productivity and favorable resolution of change orders with subcontractors and the customers. At March 31, 2021, the projects were both complete.

3. IMPAIRMENTS AND (GAIN) LOSS ON ASSETS HELD FOR SALE

Shipyard Transaction – During the first quarter of 2021, events and changes in circumstances indicated that the carrying amount of our Shipyard Division’s long-lived assets may not be recoverable. These changes in circumstances were primarily dueattributable to better than anticipated labor productivity and favorable resolutiona reassessment of change orders with subcontractors andour asset groups within our Shipyard Division as well as revisions to our probability assessment of net future cash flows of the customers.  Atapplicable asset group based on the likelihood, that existed as of March 31, 2020,2021, of the projects were both complete.

ChangesShipyard Transaction occurring. Based on these assessments, we determined that an impairment of our Shipyard Division’s property, plant and equipment had occurred.  We measured the impairment by comparing the carrying amount of the applicable asset group at March 31, 2021 to an estimate of its fair value (which represents a Level 3 fair value measurement), resulting in Estimatesan impairment charge of $22.8 million for 2019 - For the three months ended March 31, 2019, individual projects2021. We based our fair value estimate on the Transaction Price inclusive of the Closing Adjustment and estimated Closing Adjustment True-Up, associated with significant changes in estimated margins did not have a material net impact on our operating results.

Other Project Matters

Project Tariffs - Certain imported materials used, or forecast to be used, for our projects are currently subject to existing, new or increased tariffs or duties. We believe such amounts, ifthe Shipyard Transaction. In addition, we incurred are recoverable from our customers undertransaction costs of $0.7 million during the contractual provisions of our contracts; however, we can provide no assurances that we will successfully recover such amounts.

Other – Atthree months ended March 31, 2020 and December 31, 2019, other noncurrent assets on our Balance Sheet included $3.02021 associated with the Shipyard Transaction.  We anticipate recording an additional loss of

- 12 -


approximately $2.0 million of retention for a previously completed project in our Fabrication & Services Division for the fabrication of petrochemical modules. This retention is billable to the customer upon expiration of the contractual warranty period, which is expected to occur induring the second quarter 2020. In January 2020,2021 related to additional transaction and other costs associated with the customer entered into a restructuring through a prepackaged Chapter 11 bankruptcy process and received court approval in March 2020.  The restructuring is intended to enable the customer to fulfill its commitments to suppliers, including payment of our retention; however, it could delay the timing of collectionShipyard Transaction. See Note 8 for further discussion of the retention.  Shipyard Transaction.

- 11 -


3. ASSETS HELD FOR SALE

Assets Held for SaleOur assets held for sale at March 31, 2020,2021, primarily consisted of three3 660-ton crawler cranes within our Fabrication & Services Division and a deck barge.2 drydocks within our Shipyard Division.  A summary of our assets held for sale at March 31, 20202021 and December 31, 2019,2020, is as follows (in thousands):

 

 

March 31,

 

 

December 31,

 

 

March 31, 2021

 

 

December 31, 2020

 

Assets

 

2020

 

 

2019

 

Assets Held for Sale

 

Shipyard

 

 

F&S

 

 

Total

 

 

Shipyard

 

 

F&S

 

 

Total

 

Machinery and equipment

 

$

15,338

 

 

$

17,618

 

 

$

3,619

 

 

$

12,780

 

 

$

16,399

 

 

$

3,619

 

 

$

12,780

 

 

$

16,399

 

Accumulated depreciation

 

 

(7,256

)

 

 

(8,612

)

 

 

(1,605

)

 

 

(6,580

)

 

 

(8,185

)

 

 

(1,605

)

 

 

(6,580

)

 

 

(8,185

)

Total assets held for sale

 

$

8,082

 

 

$

9,006

 

Total

 

$

2,014

 

 

$

6,200

 

 

$

8,214

 

 

$

2,014

 

 

$

6,200

 

 

$

8,214

 

 

During the three months ended March 31, 2020, and 2019, we received proceeds of $1.1 million and $0.4 million, respectively, related tofrom the sale of assets that were held for sale.  During the three months ended March 31, 2020, noNaN gain or loss was recognized on the asset salesassets sold as the proceeds received approximated the carrying valuevalues of the assets. During the three months ended March 31, 2019, we recorded a gain of $0.4 million on the asset sales and recorded impairments of $0.3 million related to otherOur Shipyard Division assets that were held for sale.sale were included in the Shipyard Transaction. See Note 8 for further discussion of the Shipyard Transaction.

4. CREDIT FACILITIES AND DEBT

Credit AgreementLC Facility

We have a $40.0 millionOn March 26, 2021, we amended our revolving credit facility (“Credit Agreement”) with Hancock Whitney Bank, ("Whitney Bank") that can be usedwhich previously provided for up to $40.0 million of borrowings or letters of credit, that matureshad a maturity date of June 9, 2021. On February 28, 2020, we amended our Credit Agreement to amend our financial covenants. Our amended30, 2022, included certain quarterly financial covenants at March 31, 2020, and for the remaining term of the Credit Agreement, are as follows:

Ratio of current assets to current liabilities of not less than 1.25:1.00;

Minimum tangible net worth of at least the sum of $130.0 million, plus 100% of the proceeds from any issuance of stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering;

Minimum cash, cash equivalents and short-term investments of $40.0 million; and

Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Our Credit Agreement also includes restrictions regardingon our ability to: (i) grant liens; (ii) maketo take certain loans or investments; (iii) incur additional indebtedness or guarantee other indebtedness in excess of specified levels; (iv) make any material change to the nature of our business or undergo a fundamental change; (v) make any material dispositions; (vi) acquire another company or all oractions, and was secured by substantially all of its assets; (vii) enter intoour assets with a merger, consolidation, or sale leaseback transaction; or (viii) declarenegative pledge on our real property. In connection with the amendment, the revolving credit facility was modified to remove our ability to make cash borrowings and pay dividends if any potential default or eventprovides for up to $20.0 million of default occurs.

Interestletters of credit (“LC Facility”), subject to our cash securitization of the letters of credit.  The LC Facility has a maturity date of June 30, 2023 and removed all financial covenants and other restrictions, as well as the pledge of all our assets and the negative pledge on borrowings under the Credit Agreement may be designated, at our option, as either the Wall Street Journal published Prime Rate (3.3% at March 31, 2020) or LIBOR (1.0% at March 31, 2020) plus 2.0% per annum.real property. Commitment fees on the unused portion of the Credit AgreementLC Facility are 0.4% per annum and interest on outstanding letters of credit is 2.0% per annum. The Credit Agreement is secured by substantially all of our assets with a negative pledge on our real property.

At March 31, 2020,2021, we had no outstanding borrowings under our Credit Agreement and $9.8$10.3 million of outstanding letters of credit to support our projects, providing $30.2 million of available capacity. At March 31, 2020, we were in compliance with all of our financial covenants, with a tangible net worth of $159.3 million (as defined byoutstanding under the Credit Agreement); total cash, cash equivalents and short-term investments of $68.6 million; a ratio of current assets to current liabilities of 1.80 to 1.00; and a ratio of funded debt to tangible net worth of 0.06:1.00.LC Facility.

Surety Bonds

We issue surety bonds in the ordinary course of business to support our projects.  At March 31, 2020, we had $411.8 million of outstanding surety bonds.


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Loan Agreement

On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with Whitney Bank pursuant to the Paycheck Protection Program (“PPP”), which is sponsored by the Small Business Administration (“SBA”), and is part of under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  We received a consent from Whitney Bank that allows theThe PPP Loan may be prepaid at any time prior to maturity with 0 prepayment penalties.  The PPP Loan, and accrued interest, may be included as permitted debt under our debt covenantsforgiven partially or in our Credit Agreementfull, if certain conditions are met.  

The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum and is subject to, among other things, compliance withpayable in monthly installments commencing on the CARES Act and useearlier of the date on which the amount of loan forgiveness is determined or March 17, 2021.  During the eight-week period following the date of the PPP Loan (“the Covered Period”), the loan proceeds were used only for expenses which may be paid using proceeds from the PPP Loan (“Permissible Expenses”), of which approximately 93% was related to payroll costs. On September 29, 2020, we submitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million.  Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the Small Business Administration (“SBA”) for review.  As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made 0 loan payments. Because the amount borrowed exceeded $2.0 million, the PPP Loan and our loan forgiveness application is subject to audit by the SBA. Any portion of the PPP Loan that is not forgiven, together with accrued interest, will be repaid based on the terms and conditions of the PPP Loan and in accordance with the PPP, as amended, unless the SBA were to determine that we were not eligible to participate in the PPP, in which case the SBA could seek immediate repayment of the PPP Loan. While we believe we are a qualifying business and have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds only for permissible purposes and in a manner intended to maximize our entitlement toPermissible Expenses, we can provide no assurances that we will be eligible for forgiveness of the PPP Loan.Loan, in whole or in part. Accordingly, we have recorded the full amount of the PPP Loan as debt, which is included in long-term debt, current and long-term debt, noncurrent on our Balance Sheet at March 31, 2021 and at December 31, 2020.  The current and noncurrent debt classification is based on the terms and conditions of the PPP Loan and in accordance with the PPP, as amended, and timing of required repayment absent any loan forgiveness.  We intend to reflect the benefit of any loan forgiveness if, and when, our loan forgiveness application is approved by the SBA and after we have reasonable assurance from the SBA that we have met the eligibility and loan forgiveness requirements of the PPP.


- 13 -


Surety Bonds

We issue surety bonds in the ordinary course of business to support our projects.  At March 31, 2021, we had $230.2 million of outstanding surety bonds.  In connection with the Shipyard Transaction, $119.4 million of surety bonds attributable to the Divested Shipyard Contracts were terminated.  See Note 8 for further discussion of the PPP Loan.Shipyard Transaction and entry into agreements with one of our Sureties relating to the Retained Shipyard Contracts.

5. COMMITMENTS AND CONTINGENCIES

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 lawsuits, legal proceedings and claims 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 cash flows.

MPSV Termination Letter

During the first quarter 2018, we received notices of termination from our customer of the contracts for the construction of two MPSVs from one of2 multi-purpose support vessels (“MPSVs”) within our Shipyard Division customers.Division.  We dispute the purported terminations and disagree with the customer’s reasons for such terminations. Pending the resolution of the dispute, weWe have ceased all work and the partially completed vessels and associated equipment and materials remain atin our facilitypossession in Houma, Louisiana. The customer also made claims under the performance bonds issued by the Surety in connection with the construction of the vessels. We have discussed with the Surety our disagreement with the customer's purported terminations and its claims and continue to confer with the Surety regarding the dispute with the customer.vessels, which total $50.0 million.  

On October 2, 2018, we filed a lawsuit against theour customer to enforce our rights and remedies under the applicable construction contracts. Our lawsuit disputescontracts for the propriety of the customer’s purported terminations of the construction contracts and seeks to recover damages associated with the customer’s actions.two MPSVs. The customer filed its responseresponded to our lawsuit denying many of the allegations in the lawsuit and asserting a counterclaim against us seeking, among other things, declaratory judgment as to the validity of the customer’s purported terminations of the construction contracts and other purported claims for which the customer is seeking damages in an unspecified amount.us. We have filed a response to the counterclaim denying all of the customer’s claims. The customer subsequently filed an amendment to its counterclaim to add claims by the customer against the Surety. The customer also filed a motion for partial summary judgment with the trial court seeking, among other things, to obtain possession of the vessels. A hearing on the motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels, which was denied by the trial court. The customer subsequently filed a second motion for partial summary judgment re-urging its previously denied request to obtain possession of the vessels.  A hearing on the second motion was held on November 5, 2019, and the customer’s request to obtain possession of the vessels, which was again denied by the trial court. Thereafter, the customer requested that the appellate court exercise its discretion and review and reverse the trial court’s denial of the customer’s second motion.  We have opposedmotion, which was denied.

On May 19, 2020, the discretionary appellate review requestcustomer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The customer’s prepackaged Chapter 11 plan of reorganization was subsequently confirmed by the bankruptcy court and that plan of reorganization is effective. In connection with its bankruptcy case, on June 3, 2020, the customer filed a separate bankruptcy adversary proceeding against us in which it again sought to obtain possession of the vessels; however, the bankruptcy court’s decision was ultimately delayed to allow the parties an opportunity to mediate the dispute. The parties engaged in mediation until January 26, 2021 when the customer unilaterally and voluntarily dismissed its adversary proceeding seeking possession of the appellate mattervessels. The mediation between the parties was not successful.

The lawsuit was temporarily stayed during the pendency of the customer’s Chapter 11 bankruptcy case; however, the lawsuit is pending.  no longer stayed and will proceed in the ordinary course. Discovery in connection with the lawsuit is ongoing.  

ongoing and no trial date or other deadlines have been scheduled. We are conferring with the Surety regarding the lawsuit. We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contracts and defend against the customer’s claims. At March 31, 20202021 and December 31, 2019,2020, other noncurrent assets on our Balance Sheet included a net contract asset of $12.5 million, which consisted of our contract asset, accrued contract losses, and deferred revenue balances at the time of the customer's purported terminations of the contracts. In April 2020, the customer announced it was entering into a restructuring through a prepackaged Chapter 11 bankruptcy process. However, as of the filing date of this Report, the customer had not filed for Chapter 11.  We continue to hold first priority security interests and liens against the MPSVsvessels that secure the obligations owed to us by the customer.

Insurance

We may be exposed to future losses through our use of deductibles and self-insured retentions for our exposures related to third party liability and workers' compensation.  We expect liabilities in excess of any deductibles and self-insured retentions to be covered by insurance.  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.


- 14 -


Letters of Credit and Surety Bonds

We obtain letters of credit under our Credit AgreementLC 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

- 13 -


contracts.  With respect to a letterLetters of credit under our Credit Agreement, any payment inLC 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 a borrowing under our Credit Agreement and thus a direct obligation.property of Whitney Bank. With respect to a surety bond, any payment in the event of non-performance is subject to indemnification of the Surety by us, which may require us to borrow under our Credit Agreement.us.  When a contract is complete, the contingent obligation terminates, and letters of credit or surety bonds are returned.  See Note 4 for further discussion of our Credit AgreementLC 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.

6. INCOME (LOSS) PER SHARE

The following table presents the computation of basic and diluted income (loss) per share for the three months ended March 31, 20202021 and 20192020 (in thousands, except per share data):

 

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2020

 

 

2019

 

 

2021

 

 

2020

 

Net income (loss) attributable to common shareholders

 

$

5,905

 

 

$

(3,042

)

 

$

(18,641

)

 

$

5,905

 

Weighted-average shares(1)

 

 

15,275

 

 

 

15,151

 

 

 

15,403

 

 

 

15,275

 

Basic and diluted income (loss) per common share

 

$

0.39

 

 

$

(0.20

)

 

$

(1.21

)

 

$

0.39

 

__________________

(1)   We have no0 dilutive securities.

7. OPERATING SEGMENTS

During 2019, we operated and managed our business through three operating divisions ("Fabrication," "Shipyard" and "Services") and one non-operating division ("Corporate"), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services.  The operational combination will enable us to capitalize on the best practices and execution experience of the former divisions and maximize the utilization of our resources. As a result, weWe currently operate and manage our business through two2 operating divisions ("Shipyard"(“Fabrication & Services” and "Fabrication & Services"“Shipyard”) and one1 non-operating division ("Corporate"(“Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for 2019 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination, in the first quarter 2020, management and project execution responsibility for our two, forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division to better align the supervision and construction of these vessels with the capabilities and expertise of our Shipyard Division. Accordingly, results for these projects for 2019 were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020.  Our two operating divisions and Corporate Division are discussed below:  

Shipyard Division - Our Shipyard Division fabricates newbuild marine vessels, including OSVs, MPSVs, research vessels, tugboats, salvage vessels, towboats, barges, drydocks, anchor handling vessels, and lift boats; provides marine repair and maintenance services, including steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft, and rudder reconditioning; and performs conversion projects to lengthen vessels and modify vessels to permit their use for a different type of activity or enhance their capacity or functionality. These activities are performed at our facilities in Houma, Jennings and Lake Charles, Louisiana. In the first quarter 2020, we announced our intent to close the Jennings Yard upon completion of our harbor tug projects, which is forecast to occur in the third quarter 2020.  


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Fabrication & Services Division -Our Fabrication & Services (“F&S”) Division fabricates modules, skids and piping systems for onshore refining, petrochemical, LNG and 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; fabricates other complex steel structures and components; provides services on offshore platforms, including welding, interconnect piping and other services required to connect production equipment and service modules and equipment; provides on-site construction and maintenance services on inland platforms and structures and industrial facilities; and performs municipal and drainage projects, including pump stations, levee reinforcement, bulkheads and other public works.  These activities are performed at our facilityF&S Facility.

Shipyard Division – Our Shipyard Division fabricates newbuild marine vessels, including OSVs, MPSVs, research vessels, tugboats, salvage vessels, towboats, barges, drydocks, anchor handling vessels, and lift boats; provides marine repair and maintenance services, including steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft, and rudder reconditioning; and performs conversion projects to lengthen vessels and modify vessels to permit their use for a different type of activity or enhance their capacity or functionality. These activities are performed at our Shipyard Facility.  As discussed in Houma, Louisiana.Note 1 and Note 8, on April 19, 2021, we completed the Shipyard Transaction. We intend to complete construction of the Retained Shipyard Contracts within our F&S Facility and wind down our Shipyard Division operations, which is anticipated to occur by mid-2022.   See Note 8 for further discussion of the Shipyard Transaction.     

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Corporate Division - Our Corporate Division includes costs that do not directly relate to our two operating divisions. Such costs include, but are not limited to, costs of maintaining our corporate office, executive management salaries and incentives, board of directors' fees, litigation related costs, and costs associated with overall corporate governance and being a publicly traded company. Costs incurred by our Corporate Division on behalf of our operating divisions are allocated to the operating divisions. Such costs include, but are not limited to, human resources, insurance, sales and marketing, information technology and accounting.

We generally evaluate the performance of, and allocate resources to, our divisions based upon gross profit (loss) and operating income (loss). Segment assets are comprised of all assets attributable to each division. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information for our segments as of and for the three months ended March 31, 20202021 and 2019,2020, are as follows (in thousands):

 

 

Three Months Ended March 31, 2020

 

 

Three Months Ended March 31, 2021

 

 

Shipyard

 

 

F&S

 

 

Corporate

 

 

Consolidated

 

 

F&S

 

 

Shipyard

 

 

Corporate

 

 

Consolidated

 

Revenue

 

$

45,559

 

 

$

33,443

 

 

$

(447

)

 

$

78,555

 

 

$

19,060

 

 

$

40,296

 

 

$

(405

)

 

$

58,951

 

Gross profit (loss)

 

 

(1,224

)

 

 

970

 

 

 

 

 

 

(254

)

Gross profit

 

 

1,042

 

 

 

6,539

 

 

 

 

 

 

7,581

 

Operating income (loss)

 

 

(1,899

)

 

 

10,165

 

 

 

(2,330

)

 

 

5,936

 

 

 

981

 

 

 

(17,450

)

 

 

(1,989

)

 

 

(18,458

)

Depreciation and amortization expense

 

 

787

 

 

 

1,358

 

 

 

75

 

 

 

2,220

 

 

 

1,021

 

 

 

840

 

 

 

79

 

 

 

1,940

 

Capital expenditures

 

 

1,443

 

 

 

681

 

 

 

 

 

 

2,124

 

 

 

160

 

 

 

300

 

 

 

 

 

 

460

 

Total assets(1)

 

 

109,651

 

 

 

70,886

 

 

 

70,492

 

 

 

251,029

 

 

 

56,241

 

 

 

103,236

 

 

 

53,949

 

 

 

213,426

 

 

 

Three Months Ended March 31, 2019(2)

 

 

Three Months Ended March 31, 2020

 

 

Shipyard

 

 

F&S

 

 

Corporate

 

 

Consolidated

 

 

F&S

 

 

Shipyard

 

 

Corporate

 

 

Consolidated

 

Revenue

 

$

37,411

 

 

$

30,593

 

 

$

(399

)

 

$

67,605

 

 

$

33,443

 

 

$

45,559

 

 

$

(447

)

 

$

78,555

 

Gross profit (loss)

 

 

(280

)

 

 

969

 

 

 

(136

)

 

 

553

 

 

 

970

 

 

 

(1,224

)

 

 

 

 

 

(254

)

Operating loss

 

 

(904

)

 

 

(251

)

 

 

(2,127

)

 

 

(3,282

)

Operating income (loss)

 

 

10,165

 

 

 

(1,899

)

 

 

(2,330

)

 

 

5,936

 

Depreciation and amortization expense

 

 

1,109

 

 

 

1,341

 

 

 

102

 

 

 

2,552

 

 

 

1,358

 

 

 

787

 

 

 

75

 

 

 

2,220

 

Capital expenditures

 

 

22

 

 

 

228

 

 

 

 

 

 

250

 

 

 

681

 

 

 

1,443

 

 

 

 

 

 

2,124

 

Total assets(1)

 

 

96,961

 

 

 

86,348

 

 

 

75,406

 

 

 

258,715

 

 

 

70,886

 

 

 

109,651

 

 

 

70,492

 

 

 

251,029

 

__________________

 

(1)

Cash and short-term investments are reported within our Corporate Division.Total assets previously reported for 2019 have been recast to conform to our presentation for 2020.

8. SUBSEQUENT EVENTS

Shipyard Transaction – On April 19, 2021 (the “Closing Date” or at “Closing”), we entered into a definitive agreement (the “Purchase Agreement”) pursuant to which we sold the assets and certain vessel construction contracts of our Shipyard Division (“Shipyard Transaction”) to Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C. (collectively, “Bollinger”) for approximately $28.6 million (“Transaction Price”) ($26.1 million, net of estimated transaction and other costs).  We received $26.4 million of the Transaction Price on the Closing Date and the remainder will be received upon Bollinger’s collection of certain customer payments associated with the Divested Shipyard Contracts (defined below).

At Closing, we also received $8.0 million from Bollinger, representing an estimate of the change in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date (the “Closing Adjustment”). Actual changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through March 31, 2021 totaled approximately $3.0 million. The Closing Adjustment is subject to a post-closing reconciliation and true-up (“Closing Adjustment True-Up”) based on actual changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date compared to the Closing Adjustment.

In connection with the Shipyard Transaction, we retained approximately $11.2 million in net working capital liabilities associated with the Divested Shipyard Contracts. Our net cash proceeds inclusive of the Closing Adjustment and estimated Closing Adjustment True-up, will be used to fund (i) the retained working capital liabilities associated with the Divested Shipyard Contracts (which totaled approximately $10.4 million and $11.2 million at March 31, 2021 and December 31, 2020, respectively), (ii) net working capital liabilities associated with the Retained Shipyard Contracts (defined below) and other Shipyard Division liabilities (which totaled approximately $11.0 million and $13.1 million at March 31, 2021 and December 31, 2020, respectively), and (iii) the wind down of the Shipyard Division operations, which is anticipated to occur by mid-2022.  


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Included in the Shipyard Transaction were the Shipyard Division’s:

Property, inventory and equipment in Houma, Louisiana;

 

(2)

Revenue of $0.8 millionContracts and related obligations for our 3 research vessel projects and 5 towing, salvage and rescue ship projects (collectively, the “Divested Shipyard Contracts”);

Contract retentions, contract assets, contract liabilities and certain accounts payable associated with our two, forty-vehicle ferry projectsthe Divested Shipyard Contracts as of the Closing Date; and

NaN drydocks (of which 2 were held for 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020 (the projects had no significant gross profit for 2019)sale at March 31, 2021).

8. SUBSEQUENT EVENTS

As discussed in Note 4, on April 17, 2020, we entered into the PPP Loan with Whitney Bank for proceeds of $10.0 million pursuantBollinger offered employment to the PPP, which is sponsored by the SBA and is partmost of the CARES Act.  The PPP provides for loans to qualifying businesses,employees of our Shipyard Division associated with the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “permissible expenses”).  The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum, and is payable in monthly installments commencing on November 17, 2020.  The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties.  The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met.  The most significant ofAcquired Shipyard Contracts.  

Excluded from the conditions are:

Only amounts expended for permissible expenses duringShipyard Transaction were the eight-week period following April 17, 2020 (the “covered period”) are eligible for loan forgiveness;

Of the total amount of permissible expenses for which forgiveness can be granted, at least 75% must be for payroll costs, or a proportionate reduction of the maximum loan forgiveness amount will occur; and

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Shipyard Division’s:

 

If there are reductions in employee headcount (or employee compensation is reduced by more than 25%) duringAccounts receivable, certain accounts payable and other accrued liabilities associated with the covered period, a further reductionDivested Shipyard Contracts as of the maximum loan forgiveness amount will occur.Closing Date;  

Contracts and related obligations for our (i) 2 forty-vehicle ferry projects, (ii) seventy-vehicle ferry project and (iii) 2 MPSV projects (which are subject to dispute) (collectively, the “Retained Shipyard Contracts”), together with the associated accounts receivable, accounts payable and other accrued liabilities;

The Lake Charles Facility and Jennings Facility which were closed in the fourth quarter 2020; and

Remaining assets and liabilities of the Shipyard Division.

We retained those employees of our Shipyard Division associated with the Retained Shipyard Contracts.

In orderWe anticipate recording a total pre-tax loss of approximately $25.0 million to obtain full forgiveness$26.0 million in connection with the Shipyard Transaction, representing the estimated carry value of the PPP Loan, we must request forgiveness and provide satisfactory documentation in accordance with applicable SBA guidelines.  We will be obligated to repay any portionnet assets sold on the Closing Date over the Transaction Price, inclusive of the principal amountClosing Adjustment, estimated Closing Adjustment True-Up, and transaction and other costs.  We recorded $23.4 million of the PPP Loan that isestimated loss during the three months ended March 31, 2021, related to the impairment of our Shipyard Division’s long-lived assets and transaction costs, and anticipate recording an additional loss of approximately $2.0 million during the second quarter 2021 related to additional transaction and other costs associated with the Shipyard Transaction. At March 31, 2021, the Shipyard Division assets associated with the Shipyard Transaction did not forgiven, together with accrued interest. We intend to usemeet the PPP Loan proceedscriteria for only permissible purposes; however, we can provide no assurances that we will be eligibleclassification as held for forgivenesssale, other than the 2 drydocks previously classified as held for sale at December 31, 2020. See Note 3 for further discussion of the PPP Loan,impairment recorded in wholethe first quarter 2021 and our assets held for sale.  

Mortgage Agreement and Restrictive Covenant Agreement – On April 19, 2021, and in connection with the receipt of a consent for the Shipyard Transaction from our Surety that has outstanding surety bond obligations for our MPSV projects and 2 seventy-vehicle ferry projects, we entered into a multiple indebtedness mortgage (the “Mortgage Agreement”) and a restrictive covenant arrangement (the “Restrictive Covenant Agreement”) with the Surety to secure our obligations and liabilities under our general indemnity agreement with the Surety associated with its outstanding surety bonds for the contracts. The Mortgage Agreement encumbers all remaining real estate that was not sold in connection with the Shipyard Transaction and includes certain covenants and events of default.  Further, the Restrictive Covenant Agreement precludes us from making dividends or in part.repurchasing shares of our common stock. The Mortgage Agreement and Restrictive Covenant Agreement will terminate when the obligations and liabilities of the Surety associated with the outstanding surety bonds are discharged, or any judgment against us or the Surety arising out of litigation related to such contracts is satisfied by us.  

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- 16 -


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

The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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 significant trends that may impact our future performance. This discussion should be read in conjunction with our Financial Statements and the related notes thereto. 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. 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 facts, such as projections or expectations relating to diversification and entry into new end markets, improvement of risk profile, industry outlook, oil and gas prices, operating cash flows, capital expenditures, liquidity and tax rates. 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.

We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements includeinclude: the duration and scope of, and uncertainties associated with, the COVID-19ongoing global pandemic and related contraction in oil demandcaused by COVID-19 and the dispute over production levels between Russiacorresponding weakened demand for, and the membersvolatility of OPECprices of, oil and the impact thereof on our business and the global economy, which are evolving and beyond our control,economy; the potential forgiveness of any portion of the PPP Loan; our ability to secure new project awards, including fabrication projects for refining, petrochemical, LNG and industrial facilities and offshore wind developments,developments; our ability to improve project execution,execution; our inability to realize the expected financial benefits of the Shipyard Transaction; the cyclical nature of the oil and gas industry, competition,industry; competition; consolidation of our customers,customers; timing and award of new contracts,contracts; reliance on significant customers,customers; financial ability and credit worthiness of our customers,customers; nature of our contract terms,terms; competitive pricing and cost overruns on our projects,projects; adjustments to previously reported profits or losses under the percentage-of-completion method,method; weather conditions,conditions; changes in backlog estimates,contract estimates; suspension or termination of projects,projects; our ability to raise additional capital,capital; our ability to amend or obtain new debt financing or credit facilities on favorable terms, our ability to remain in compliance with our covenants contained in our Credit Agreement,terms; our ability to generate sufficient cash flow,flow; our ability to sell certain assets,assets; any future asset impairments,impairments; utilization of facilities or closure or consolidation of facilities,facilities; customer or subcontractor disputes,disputes; our ability to resolve the dispute with a customer relating to the purported terminations of contracts to build two MPSVs and the dispute with a customer related to contracts to build two seventy-vehicle ferries; operating dangers and limits on insurance coverage,coverage; barriers to entry into new lines of business,business; our ability to employ skilled workers,workers; loss of key personnel,personnel; performance of subcontractors and dependence on suppliers,suppliers; changes in trade policies of the U.S. and other countries,countries; compliance with regulatory and environmental laws,laws; lack of navigability of canals and rivers, shutdowns of the U.S. government,rivers; systems and information technology interruption or failure and data security breaches,breaches; performance of partners in any future joint ventures and other strategic alliances,alliances; shareholder activism,activism; focus on environmental, social and governance factors by institutional investorsinvestors; and other factors described under "Risk Factors"in Part I, Item 1A "Risk Factors" inof our 20192020 Annual Report as updated under “Risk Factors” in Part II, Item 1A of this Report and as may be further updated by subsequent filings with the SEC.

InvestorsAdditional 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 do not intendundertake no obligation to publicly update or revise any forward-looking statements, more frequently than quarterlywhich 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, and we undertake no obligation to update any forward-looking statements.changes.

Overview

Certain terms are defined in the “Glossary of Terms” beginning on page ii.

We are a leading fabricator of complex steel structures and modules and marine vessels, and a provider of project management, hookup, commissioning, repair, maintenance and civil construction services. Our customers include United States ("U.S.") and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and marine operators; EPC companies; and certain agencies of the U.S. Government.

During 2019, we operated and managed our business through three operating divisions ("Fabrication," "Shipyard" and "Services") and one non-operating division ("Corporate"), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. As a result, wecompanies.  We currently operate and manage our business through two operating divisions ("Shipyard"(“Fabrication & Services” and "Fabrication & Services"“Shipyard”) and one non-operating division ("Corporate"(“"Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for 2019 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination,Our corporate headquarters is located in the first quarter 2020, management and project execution responsibility for our two, forty-vehicle ferry projects were transferred from our former Fabrication Division to our Shipyard Division. Accordingly,

- 17 -


results for these projects for 2019 were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020 (the projects had no significant gross profit for 2019). Houston, Texas, with operating facilities located in Houma, Louisiana. See Note 7 of our Financial Statements in Item 1 for further discussion of our realigned operating divisions.divisions and Note 8 and “Shipyard Transaction” below for discussion of the Shipyard Transaction.

Our corporate headquarters is located

- 18 -


Significant projects in Houston, Texas, with operating facilities locatedour backlog include the fabrication of modules for an offshore facility and marine docking structures; material supply for an offshore jacket and deck; and construction of three vehicle ferries. Notable projects completed in Houma, Jenningsrecent years include the expansion of a paddlewheel riverboat; fabrication of an offshore jacket and Lake Charles, Louisiana. Indeck, modules for a petrochemical facility, and a meteorological tower and platform for an offshore wind project; and construction of ten harbor tugs, an ice-breaker tug and two towboats. Other significant completed projects include the fabrication of wind turbine foundations for the first quarter 2020,offshore wind project in the U.S.; and construction of two technologically-advanced OSVs, two of the largest liftboats servicing the Gulf of Mexico (“GOM”), one of the deepest production jackets in the Gulf of Mexico, and the first single point anchor reservoir hull fabricated in the U.S. In connection with the Shipyard Transaction, we announcedsold our intentthree regional class research vessel projects and five towing, salvage and rescue ship projects.

Shipyard Transaction

On April 19, 2021 (the “Closing Date” or at “Closing”), we entered into a definitive agreement (the “Purchase Agreement”) pursuant to closewhich we sold the Jennings Yard upon completionassets and certain vessel construction contracts of our harbor tug projects,Shipyard Division (“Shipyard Transaction”) to Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C. (collectively, “Bollinger”) for approximately $28.6 million (“Transaction Price”) ($26.1 million, net of estimated transaction and other costs).  We received $26.4 million of the Transaction Price on the Closing Date and the remainder will be received upon Bollinger’s collection of certain customer payments associated with the Divested Shipyard Contracts (defined below).

At Closing, we also received $8.0 million from Bollinger, representing an estimate of the change in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date (the “Closing Adjustment”). Actual changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through March 31, 2021 totaled approximately $3.0 million. The Closing Adjustment is subject to a post-closing reconciliation and true-up (“Closing Adjustment True-Up”) based on actual changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date compared to the Closing Adjustment.

In connection with the Shipyard Transaction, we retained approximately $11.2 million in net working capital liabilities associated with the Divested Shipyard Contracts. Our net cash proceeds inclusive of the Closing Adjustment and estimated Closing Adjustment True-up, will be used to fund (i) the retained working capital liabilities associated with the Divested Shipyard Contracts (which totaled approximately $10.4 million and $11.2 million at March 31, 2021 and December 31, 2020, respectively), (ii) net working capital liabilities associated with the Retained Shipyard Contracts (defined below) and other Shipyard Division liabilities (which totaled approximately $11.0 million and $13.1 million at March 31, 2021 and December 31, 2020, respectively), and (iii) the wind down of the Shipyard Division operations, which is forecastanticipated to occur by mid-2022.  

Included in the third quarter 2020.  See Note 7Shipyard Transaction were the Shipyard Division’s:

Property, inventory and equipment in Houma, Louisiana;

Contracts and related obligations for our three research vessel projects and five towing, salvage and rescue ship projects (collectively, the “Divested Shipyard Contracts”);

Contract retentions, contract assets, contract liabilities and certain accounts payable associated with the Divested Shipyard Contracts as of the Closing Date; and

Four drydocks (of which two were held for sale at March 31, 2021).

Bollinger offered employment to most of the employees of our Financial Statements in Item 1 for further discussionShipyard Division associated with the Acquired Shipyard Contracts.  

Excluded from the Shipyard Transaction were the Shipyard Division’s:

Accounts receivable, certain accounts payable and other accrued liabilities associated with the Divested Shipyard Contracts as of the Closing Date;  

Contracts and related obligations for our (i) two forty-vehicle ferry projects, (ii) seventy-vehicle ferry project and (iii) two MPSV projects which are subject to dispute (collectively, the “Retained Shipyard Contracts”), together with the associated accounts receivable, accounts payable and other accrued liabilities;

The Lake Charles Facility and Jennings Facility which were closed in the fourth quarter 2020; and

Remaining assets and liabilities of the Shipyard Division.

We retained those employees of our anticipated closureShipyard Division associated with the Retained Shipyard Contracts.

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We believe the Shipyard Transaction, and ultimate wind down of the Jennings Yard.Shipyard Division operations, will benefit our ongoing operations by enabling us to:

Focus our efforts on our Fabrication & Services Division and position us for profitable growth in existing and new higher-margin markets;

Improve our risk profile by removing future risks associated with the Divested Shipyard Contracts that represent approximately 90% of our March 31, 2021 backlog that extends through 2024; and

Strengthen our liquidity by reducing our bonding, letters of credit and working capital requirements related to the Divested Shipyard Contracts and ongoing Shipyard Division operations.

COVID-19 and Oil Price Impacts to Operations

BeginningFor the last several years, the price of oil has been at depressed levels and/or experienced significant volatility, resulting in late 2014, a decline in oil and gas prices led to a significant and sustained reduction in capital spending and drilling activities from our traditional offshore oil and gas customer base.  Consequently, our operating results and cash flows werehave been negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing, significant underutilizationunder-utilization of our operating facilities and losses on certain projects.  DuringAdditionally, the first quarter 2020, we again experienced a significant decline inongoing global coronavirus pandemic (“COVID-19”) has added another layer of pressure and uncertainty on oil prices to historical lows due toand our end markets, which has further impacted our operations. COVID-19 is a decline in demand for oil resulting from an unprecedented globalwidespread public health crisis duethat continues to adversely affect global economies and financial markets. Additionally, the coronavirus (“COVID-19”) and related economic crisis compounded by a market share dispute between the world’s largest oil producers.

In MarchNational Bureau of Economic Research indicated on June 8, 2020 the World Health Organization declared COVID-19 a pandemic andthat the U.S. President declaredeconomy entered a recession in February 2020. The duration and severity of the U.S. recession, which is ongoing, remains unclear at this time.

During 2020, our operations (as well as the operations of our customers, subcontractors and other counterparties) were negatively impacted by the physical distancing, quarantine and isolation measures recommended by national, emergency relating to COVID-19.  National, state and local authorities have recommended social distancing and imposed, or are considering, quarantine and isolation measures on large portions of the population, includingand mandatory business closures. Theseclosures that were enacted in an attempt to control COVID-19. We continue to monitor the impact of COVID-19 on our operations and recognize that it could continue to negatively impact our business and results of operations during the remainder of 2021 and beyond. Even with widespread distribution and acceptance of vaccines, their long-term efficacy, as well as their efficacy against the emergence of potential new strains of COVID-19, are unknown. The extent to which our operations and financial performance will be impacted by COVID-19 during the remainder of 2021 will depend largely on future developments, including global availability and acceptance of the vaccines. Authorities in some areas of the U.S. have begun to relax COVID-19 restrictions; however, if the areas where we have our headquarters and operating facilities, or areas where our customers, subcontractors and other counterparties have operations, were to experience periods of resurgence in the numbers of cases of the virus, including through the spread of new, more contagious strains of the virus, authorities may reinstate restrictions, quarantine and isolation measures. The measures taken, while intended to protect human life, have had and are expected to continue to have a significantserious adverse impact on domestic and foreign economies of uncertain severity and duration.

The effectivenesscontinued level of economic stabilization efforts, including proposed government payments to affected citizensuncertainty means the ultimate business and industries, is uncertain. Some economists are predicting the U.S. may enter a recessionfinancial impacts of unknown duration.

The declineCOVID-19 and volatility in oil prices cannot be reasonably estimated at this time, but have included, or may include, among other things, reduced bidding activity, suspension or termination of backlog, deterioration of customer financial condition, potential supply disruptions and COVID-19 has created significant uncertainty for our oilunanticipated project costs due to project disruptions and gas related customer base.  Certain of our customers have requested to renegotiate pricingschedule delays, lower labor productivity, increased employee and suspended contracts in our backlog, and bidding activities for several new project opportunities have been suspended.  Given that we operate in a critical infrastructure industry as defined by the U.S. Department of Homeland Security, we have continued to operate our facilities.  However, we are being impacted by employeecontractor absenteeism and turnover, craft labor hiring challenges, lack of performance by subcontractors and suppliers, and contract disputes. Management’s estimates in future periods will be revised for any events and changes in circumstances arising after the effects on productivity and utilization from mitigation measures put in place to ensuredate of this Report for the safety and well-being of our employees and contractors (as discussed further below) and by the effectsimpacts of COVID-19 on our suppliers, subcontractors and customers.  volatile oil prices.

See Item1A and Note 12 of our Financial Statements in Item 1 for further discussion of the impacts of the aforementioned on our projects and Note 1 for further discussion of the impacts of COVID-19 pandemic and developmentsvolatility in the global oil markets. prices. See also “Risk Factors” in Part I, Item 1A of our 2020 Annual Report.

Initiatives to Improve Operating Results

We are addressingcontinue to address these operational, market and economic challenges through a strategy focused on the following initiatives to:

Mitigate the impacts of the COVID-19 pandemic on our operations, employees and contractors;

Improve and maintain our liquidity through cost reduction efforts and the sale of underutilized assets;

Improve our resource utilization and centralize our key project resources through the rationalization and integration of our facilities and operations;

Improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures; and

Reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector by repositioning the Company to:

Mitigate the impacts of COVID-19 on our operations, employees and contractors;

 

Reduce our risk profile through the completion of the Shipyard Transaction and anticipated wind down of the Shipyard Division operations;

Preserve and improve our liquidity through cost reduction efforts, the completion of the Shipyard Transaction, and the sale of under-utilized assets;

Improve our resource utilization and centralize key project resources through the rationalization and integration of our facilities and operations;

- 20 -


Improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures; and

Reduce our reliance on the offshore oil and gas sector and pursue more consistent, profitable organic growth by repositioning the Company to:

Fabricate modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities;

 

Fabricate newbuild marine vessels for the government and other customers unrelated to the offshore oil and gas sector; and

Fabricate foundations, secondary steel components and support structures for offshore wind development.developments;

Fabricate structures in support of our customers as they make energy transitions away from fossil fuels; and

Increase our services business to include onshore facilities along the Gulf Coast and expand our customer base for offshore services.


- 18 -


Progress on our InitiativesThe progress and status of these initiatives is summarized further below.

 

Efforts to mitigate the impacts of COVID-19 on our operations, employees and contractors – We are takingcontinuing to take actions to mitigate the impacts of COVID-19 on our operations while ensuring the safety and well-being of our employees and contractors.  

COVID-19 measures – We have initiated measures that include ongoing communications with our leadership team to anticipate and proactively address COVID-19 impacts, work-place distancing of employees (including allowing some employees to work remotely) and regular monitoring of office and yard personnel for compliance.  We are also monitoring employee and visitor temperatures prior to entering our facilities, implemented employee and visitor wellness questionnaires, increased monitoring of employee absenteeism and the reasons for such absences, and initiated protocols for employees returning from absences, including employees that have tested positive for COVID-19, or have come in contact with individuals that tested positive for COVID-19.  In addition, we have installed hand sanitizing stations and taken additional actions to more frequently sanitize our facilities.

Pursuit of force majeure – We have given appropriate notices to our customers and have made the appropriate claims for extensions of schedule for our projects which were impacted by COVID-19.

LoanagreementOn April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with Whitney Bank pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  The proceeds were used for payroll costs, rent and utilities, of which approximately 93% was used for payroll costs. On September 29, 2020, we submitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million.  Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the Small Business Administration (“the SBA”) for review.  As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made no loan payments. See “Liquidity and Capital Resources” below and Note 4 of our Financial Statements in Item 1 for further discussion of the PPP Loan.

COVID-19 measuresEfforts to reduce our risk profileWe have initiated measuresThe completion of the Shipyard Transaction improves our risk profile by removing potential future risks associated with the Divested Shipyard Contracts that include, among other things, daily communicationsrepresent approximately 90% of our March 31, 2021 backlog, which extended through 2024. Further, the wind down of the Shipyard Division operations after completion of the Retained Shipyard Contracts will further reduce our risk profile as it will position us for profitable growth in existing and new higher-margin markets associated with our leadership teams to anticipate and proactively address COVID-19 impacts, work-place distancing of employees (including allowing employees to work from home where appropriate) and regular monitoring of office and yard personnel for compliance.  We are also monitoring employee temperatures prior to entering our facilities, implemented employee wellness questionnaires, increased monitoring of employee absenteeism and the reasons for such absences, and initiated protocols for employees returning from absences including employees that have tested positive for COVID-19. In addition, we have installed hand sanitizing stations and taken additional actions to sanitize our facilities.

Pursuit of force majeure – We are giving appropriate notices to our customers and making the appropriate claims for extensions of schedule for our projects which have been impacted by the COVID-19 pandemic.

Loan agreement – In April 2020, we entered into a loan agreement for proceeds of $10.0 million pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  The proceeds may be used for payroll, benefits, rent and utilities. Fabrication & Services Division.See Liquidity and Capital Resources”Operating Segments” below and Note 82 of our Financial Statements withinin Item 1 for further discussion of the loan agreement.our project impacts.

Efforts to preserve and improve our liquidity – We continue to take actions to preserve and improve our liquidity. Atliquidity, and at March 31, 20202021 our cash, current restricted cash and short-term investments totaled $68.6 million and availability under$50.6 million. To preserve our Credit Agreement totaled $30.2 million. Our liquidity reflects ourposition, we have undertaken cost reduction initiatives (including reducing the compensation of our executive officers and directors and reducing the size of our board)board in 2020), the sale of underutilizedmonetized under-utilized assets and facilities and are maintaining an ongoing focus on project cash flow management. In addition to our cash and short-term investments, at March 31, 2020, our assets held for sale totaled $8.1 million.  Further, as discussed above, we entered intoreceived the PPP Loan in the second quarter 2020, which provided funding necessary to offset the immediate and anticipated impacts of COVID-19.  It also provided us additional liquidity, which is important because a loan agreementstrong balance sheet is required to execute our backlog and compete for new project awards, and we experience significant monthly fluctuations in April 2020 pursuantour working capital.   In addition, as a result of the Shipyard Transaction and anticipated wind down of the Shipyard Division operations, our bonding, letters of credit and working capital requirements related to the PPP under the CARES Act.  Divested Shipyard Contracts and ongoing Shipyard Division operations have been significantly reduced.


- 21 -


Efforts to improve our resource utilization and centralize our key project resources – We are improving our resource utilization and centralizing our key project resources through the rationalization and integration of our facilities and operations.

Closure of Jennings Yard We previously announced our intent to close the Jennings Yard upon completion of our harbor tug projects, which is forecast to occur during the third quarter 2020.  The closure will consolidate our new build marine vessel construction activities in our Houma Yards, enabling us to maximize the utilization of our resources by reducing our overhead costs, combine our management and supervision talent in a single location, and improve our project execution.  See Note 7 of our Financial Statements in Item 1 for further discussion of our anticipated closure of the Jennings Yard.

Combination of our Fabrication Division and Services Division – In the first quarter 2020, we combined our Fabrication Division and Services Division to form an integrated new division called Fabrication & Services.  The integration is enabling us to capitalize on the best practices and execution experience of the former divisions, conform processes and procedures, maximize the utilization of our resources (including reducing overhead costs) and improve project execution.

Closure of Jennings Facility and Lake Charles Facility During the fourth quarter 2020, we closed our Jennings Facility and Lake Charles Facility, reducing overhead costs, improving utilization and accelerating the wind down of our Shipyard Division operations discussed further below.

Combination of our Fabrication Division and Services Division and Realignment of Projects – As discussed above, in the first quarter 2020, we combined our Fabrication and Services Divisions to form an integrated new division called Fabrication & Services.  The integration will enable us to capitalize on the best practices and execution experience of the former divisions, conform processes and procedures, maximize the utilization of our resources (including reducing overhead costs) and improve project execution. In addition, as discussed above, in the first quarter 2020, management and project execution responsibility for our two, forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division to better align the supervision and construction of these vessels with the capabilities and expertise of our Shipyard Division.      

Completion of Shipyard Transaction and wind down of Shipyard Division operations On April 19, 2021, we completed the Shipyard Transaction and intend to wind down the Shipyard Division operations upon completion of the Retained Shipyard Contracts, which is expected to reduce overhead costs, improve utilization and enable senior management to focus on existing and new higher-margin markets associated with our Fabrication & Services Division.

Efforts to improve our competitiveness and project execution – We have taken, and continue to take, actions to improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures.  SuchOur actions include strategic changes in management and key personnel, the addition of functional expertise, project management training, development of a formal “lessons learned” program to incorporate experiences gained from previous projects into current and future projects, and other measures designed to strengthen our personnel, processes and procedures.  Further, we are taking a more 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 recent lessons learnedprevious experience into the bidding and execution of future projects.  

Efforts to reduce our reliance on the offshore oil and gas sector and pursue more consistent, profitable organic growth – We are pursuing several initiatives to reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector.

 

Fabrication of 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 fabrication facilities. We have experienced success with several smaller project opportunities, and our volume of bidding activity for onshore modules, piping systems and structures remains high;is increasing; however, our pursuit of large project opportunities has been negatively affectedimpacted by the competitive market environment and the timing and delay of certain opportunities.opportunities due in part to COVID-19, volatile oil prices and an ongoing competitive market environment. We also continue to believe that our strategic location in Houma, Louisiana and our successful fabricationtrack record of quality and timely deliveryon-time completion of four large petrochemicalonshore modules in 2018, position us well to compete in the onshore fabrication market;

- 19 -


however,market. However, we do not expect large project opportunities to be awarded by customers until late 20202021 or 2021.2022. This timing may be impacted by ongoing uncertainty created by the recent decrease and volatility of oil prices and the COVID-19 pandemic.COVID-19. In the interim, we continue to strengthen our relationships with key customers and strategic partners and enhance our resources as discussed above.  

Fabrication of newbuild marine vessels for the government and other non-oil and gas related customers - We continue to pursue newbuild marine vessel opportunities for customers unrelated to the offshore oil and gas sector.  During the first quarter 2020, the U.S. Navy exercised its options for the construction of two additional towing, salvage and rescue ships, and continues to have options for three additional vessels. At March 31, 2020, 95% of the backlog within our Shipyard Division was attributable to government and other customers unrelated to the offshore oil and gas sector, including the construction of three research vessels, five towing, salvage and rescue ships and three vehicle ferries.  

Fabrication of 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 make energy transitions away from fossil fuels 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 and customers looking to embrace the growing hydrogen economy.  

Increase our services business to include onshore facilities along the Gulf Coast and expand our customer base for offshore services – We believe expanding our services business will deliver a more stable revenue stream while providing underpinning work to recruit, develop and retain our craft professionals. We will also partner with original equipment manufacturers to provide critical services to our customers along the Gulf Coast.

Fabrication of offshore wind foundations, secondary steel components and support structures

-We continue to believe that 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. in 2015, and the fabrication of a meteorological tower and platform for an offshore wind project in 2018. While we believe we have the capability to participate in this emerging market, we do not expect meaningful opportunities until 2021 or 2022. 22 -


Operating Outlook

Our focus remains on securing profitable new project awards and backlog in the near-term and generating operating income and cash flows in the longer-term, while ensuring the safety and well-being of our employees and contractors, in light of the COVID-19 pandemic.which has been further challenged due to COVID-19. Our success, including achieving the aforementioned initiatives, will be determined by, among other things:

Oil and gas prices and the level of volatility in such prices;

Oil and gas prices and the level of volatility in such prices, including the impact of environmental regulations that restrict the oil and gas industry under the new administration and Congress;

The COVID-19 pandemic, for which the business and financial impacts cannot be reasonably estimated at this time;

COVID-19, for which the ultimate business and financial impacts cannot be reasonably estimated at this time;

The level of fabrication opportunities in our traditional offshore markets and the new markets we are pursuing, including refining, petrochemical, LNG and industrial facilities and offshore wind developments;

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 (especially in light of the new administration and Congress), offshore wind developments and green energy;

The level of new build marine vessel activity within, and outside of, the oil and gas sector;

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

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 our Retained Shipyard Contracts);

Our ability to execute projects within our cost estimates and successfully manage them through completion;

Our ability to hire, develop, motivate and retain key personnel and craft labor to execute our projects;

Our ability to hire, motivate and retain key personnel and craft labor to execute our projects;  

The successful integration of our Fabrication Division and Services Division and the wind down of our Shipyard Division operations; and

The successful integration of our Fabrication Division and Services Division and closure of our Jennings Yard; and

Our ability to resolve our dispute with a customer related to the construction of two MPSVs (see Note 5 of our Financial Statements in Item 1 and “Legal Proceedings” in Item 3 for further discussion of the dispute).  

Our ability to resolve our dispute with a customer related to the construction of two MPSVs (see Note 5 of our Financial Statements in Item 1 and “Legal Proceedings” in Part II, Item 1 for further discussion of the dispute).  

 

In addition, in the near-term: (i) thenear-term utilization of our Shipyard Division will be impacted by temporary delays in construction activities for our three research vessel projects until engineering achieves further completion and disruptions caused by the closure of our Jennings Yard, (ii) the utilization of our newly integrated Fabrication & Services Division will be impacted by the delay in timing of new project awards and suspension of work on certain projects in backlog and (iii) the utilization of both divisions will be impacted by continued inefficiencies and disruptions associated with COVID-19 related health and safety mitigation measures, employee absenteeism and mitigation measures.turnover, craft labor hiring challenges, engineering delays, and supplier and subcontractor disruptions. Our near-term results may also be impactedadversely affected by costs associated with (i) the retention of certain personnel that previously supported both our operating divisions but may be temporarily under-utilized due to the Shipyard Transaction as we evaluate our resource requirements to support our future operations, and (ii) investments in key personnel and process improvement efforts to support our aforementioned initiatives. In addition, our gross profit for both divisions will be impacted in the near-term as certain projects within our backlog are in a loss position and a majority of our remaining backlog is at, or near, break-even gross profit.  Specifically, due to previous project awards bid at competitive pricing (including the option exercises by our customer in the first quarter 2020 for two additional towing, salvage and rescue ships) and project charges in 2019, approximately 5% of our backlog is in a loss position (excluding our MPSV projects), 75% of our backlog is at, or near, break-even, and our remaining backlog is at a low gross profit margin.   Accordingly, this backlog will result in future revenue with low or no gross profit; however, we continue to focus on improvements to our people, processes and procedures to improve project gross profit.  See Item1A and Note 1 of our Financial Statements in Item 1 for further discussion of the impacts of COVID-19 pandemic and developmentsvolatility in the global oil markets.prices. See Note 2 of our Financial Statements in Item 1 and “Results of Operations” below for discussion of our project charges and losses on projects.


- 20 -


Critical Accounting Policies

 

For a discussion of critical accounting policies and estimates used in the preparation of our Financial Statements, refer to “Management’sManagement’s Discussion and Analysis of Financial Condition and Results of Operations”Operations in Part II, Item 7 included in our 20192020 Annual Report. There have been no changes to our critical accounting policies since December 31, 2019.2020.

 

New Awards and Backlog

New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unrecognized revenue for our new project awards and may differ fromat March 31, 2021, was comparable to the value of futureremaining performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note 2 of our Financial Statements in Item 1. 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. Backlog includes our performance obligations at March 31, 2020, plus signed contracts that are temporarily suspended or under protest that may not meet the criteria to be reported as future performance obligations under Topic 606 but represent future work that we believe will be performed. We believe that backlog a non-GAAP financial measure, provides useful information to investors.investors as it represents work that we are contractually obligated to perform under our current contracts. New project awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments. Backlog may differ from our remaining performance obligations, which are determined in accordance with GAAP.


- 23 -


Projects in our backlog are generally subject to delay, suspension, termination, or an increase or decrease in scope at the option of the customer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or decrease in scope. Depending on the size of the project, the delay, suspension, termination or increase or reduction in scope of any one contract could significantly impact our backlog and change the expected amount and timing of revenue recognized.

 

New project awards by Division for the three months ended March 31, 20202021 and 2019,2020, are as follows (in thousands):

 

 

Three Months Ended March 31,

 

Division

 

2020

 

 

2019

 

Shipyard

 

$

128,919

 

 

$

2,795

 

Fabrication & Services

 

 

12,647

 

 

 

43,029

 

 Total  New Awards

 

$

141,566

 

 

$

45,824

 

A reconciliation of our remaining performance obligations under Topic 606 (the most comparable GAAP measure as presented in Note 2 of our Financial Statements in Item 1) to our reported backlog is provided below (in thousands).

 

 

March 31, 2020

 

 

 

Shipyard

 

 

F&S

 

 

Consolidated

 

Remaining performance obligations under Topic 606

 

$

449,258

 

 

$

29,191

 

 

$

478,449

 

Contracts under purported termination(1)

 

 

21,888

 

 

 

 

 

 

21,888

 

Total Backlog(2)

 

$

471,146

 

 

$

29,191

 

 

$

500,337

 

 

 

Three Months Ended March 31,

 

Division

 

2021

 

 

2020

 

Shipyard

 

$

15,469

 

 

 

128,919

 

Fabrication & Services

 

 

11,547

 

 

 

12,647

 

 Total New Awards

 

$

27,016

 

 

 

141,566

 

 

Backlog by Division at March 31, 20202021 and December 31, 2019,2020, is as follows (in thousands):

 

March 31, 2020

 

 

December 31, 2019(3)

 

 

March 31, 2021

 

 

December 31, 2020

 

Division

 

Amount

 

 

Labor Hours

 

 

Amount

 

 

Labor Hours

 

 

Amount

 

 

Labor Hours

 

 

Amount

 

 

Labor Hours

 

Shipyard

 

$

471,146

 

 

 

3,182

 

 

$

387,340

 

 

 

2,645

 

 

$

327,355

 

 

 

2,577

 

 

$

352,181

 

 

 

2,784

 

Fabrication & Services

 

 

29,191

 

 

 

317

 

 

 

49,986

 

 

 

492

 

 

 

12,273

 

 

 

152

 

 

 

19,381

 

 

 

236

 

Total Backlog(2)

 

$

500,337

 

 

 

3,499

 

 

$

437,326

 

 

 

3,137

 

Total Backlog(1),(2)

 

$

339,628

 

 

 

2,729

 

 

$

371,562

 

 

 

3,020

 


- 21 -


Backlog at March 31, 2020 is expected to be recognized as revenue in the following periods (in thousands):

Year(4)

 

Total

 

Remainder of 2020

 

$

144,680

 

2021

 

 

183,269

 

2022

 

 

127,841

 

Thereafter

 

 

22,659

 

Future performance obligations under Topic 606

 

 

478,449

 

Contracts under purported termination(1)

 

 

21,888

 

Backlog(2)

 

$

500,337

 

__________________

 

(1)

Represents backlog within our Shipyard Division related to contracts for the construction of two MPSVs that are subject to purported notices of termination by our customer. We dispute the purported terminations and disagreeIn connection with the customer’s reasons for the same. We can provide no assurances that we will reach a favorable resolutionShipyard Transaction, backlog associated with the customer for completion of the two MPSVs. See Note 5 of our Financial Statements in Item 1 and “Legal Proceedings” in Item 3 for further discussion of the dispute.

(2)

AtDivested Shipyard Contracts totaling $309.5 million at March 31, 2019, ten customers represented approximately 98% of our backlog and at December 31, 2019, eleven customers represented approximately 96% of our backlog. At March 31, 2020, backlog from the ten customers consisted of:

(i)

Construction of one harbor tug within our Shipyard Division. The fourth of five vessels2021, was completed in the first quarter 2020. We estimate completion of the remaining vessel in 2020;

(ii)

Construction of two harbor tugs within our Shipyard Division (separate from above). The fourth of five vessels was completed in April 2020. We estimate completion of the remaining vessel in 2020;

(iii)

Construction of three regional class research vessels within our Shipyard Division. We estimate completion of the vessels in 2022 and 2023;

(iv)

Construction of five towing, salvage and rescue ships within our Shipyard Division. We estimate completion of the vessels in 2021, 2022 and 2023. Our customer has options for the construction of three additional vessels;

(v)

Construction of two, forty-vehicle ferries within our Shipyard Division. We estimate completion of the vessels in 2020 and 2021;

(vi)

Fabrication of an offshore jacket and deck (destined for Trinidad) within our Fabrication & Services Division. We estimate completion of the project in 2020;

(vii)

Construction of a seventy-vehicle ferry within our Shipyard Division. We estimate completion of the vessel in 2021;

(viii)

Fabrication of modules for an offshore facility within our Fabrication & Services Division. We estimate completion of the project in 2021;

(ix)

Material supply for an offshore jacket and deck within our Fabrication & Services Division.  In April 2020, our customer suspended the project until further notice; and

(x)

Construction of two MPSV’s within our Shipyard Division. See footnote (1) above for further discussion.

(3)

In the first quarter 2020, our Fabrication and Services Divisions were operationally combinedsold.  Approximately $5.0 million to form a new division called Fabrication & Services. Accordingly, backlog as of December 31, 2019 for our former Fabrication and Services Divisions has been combined to conform to the presentation of our reportable segments for 2020. In addition, in the first quarter 2020, management and project execution responsibility for our two, forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division.  Accordingly, $13.4$10.0 million of backlog and 0.1 million labor hours associated with these projectsthe Divested Shipyard Contracts is expected to be recognized as revenue subsequent to March 31, 2021 through the Shipyard Transaction closing date. Excluding the backlog associated with the Divested Shipyard Contracts, we expect to recognize revenue of Decemberapproximately $27.2 million and $2.9 million for the remainder of 2021 and thereafter, respectively, associated with our remaining backlog at March 31, 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020.  See Note 7 of our Financial Statements in Item 1 for further discussion of our realigned operating divisions.

(4)

2021.  The timing of recognition of the revenue presented in our backlog is based on our current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of recognition of revenue from our backlog. See Note 8 of our Financial Statements in Item 1 and “Shipyard Transaction” above for further discussion of the Shipyard Transaction.

(2)

At March 31, 2021, five customers represented approximately 78% of our backlog excluding the Divested Shipyard Contracts, and at December 31, 2020, seven customers represented approximately 98% of our backlog. At March 31, 2021, backlog from the five customers, including the Retained Shipyard Contracts, consisted of:

(i)

Construction of two forty-vehicle ferries within our Shipyard Division. We estimate completion of the second vessel in the second quarter 2021 and the first vessel in 2022;

(ii)

Construction of a seventy-vehicle ferry within our Shipyard Division. We estimate completion of the vessel in 2022;

(iii)

Fabrication of modules for an offshore facility within our Fabrication & Services Division. We estimate completion of the project in the second quarter 2021;

(iv)

Material supply for an offshore jacket and deck within our Fabrication & Services Division.  We estimate completion of the project in the second quarter 2021;

(v)

Fabrication of marine docking structures within our Fabrication & Services Division. We estimate completion of the project in the third quarter 2021.

Our contracts for the construction of five towing, salvage and rescue ships contain options which grant our customer (the U.S. Navy) the right, if exercised, for the construction of three additional vessels at contracted prices. We do not include options in our backlog. If all options under our current contracts were exercised by such customer, our backlog would increase by approximately $203.0 million. We have not received any commitments from such customer related to the exercise of these options, and we can provide no assurances that any options will be exercised. We believe disclosing these options provides investors with useful information to evaluate additional potential work that we would be contractually obligated to perform under our current contracts as well as the potential significance of these options, if exercised.


- 2224 -


 

 

Results of Operations

Comparison of the Three Months Ended March 31, 20202021 and 2019 2020(in thousands in each table, except for percentages):

In the comparative tables below, percentage changes that are not considered meaningful are shown below as "nm" (generally when the prior period amount is immaterial or when the percentage change is significantly greater than 100%) are shown.

Consolidated

 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percent

 

New project awards

 

$

27,016

 

 

$

141,566

 

 

$

(114,550

)

 

 

(80.9

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

58,951

 

 

$

78,555

 

 

$

(19,604

)

 

 

(25.0

)%

Cost of revenue

 

 

51,370

 

 

 

78,809

 

 

 

27,439

 

 

 

34.8

%

Gross profit (loss)

 

 

7,581

 

 

 

(254

)

 

 

7,835

 

 

nm

 

Gross profit (loss) percentage

 

 

12.9

%

 

 

-0.3

%

 

 

 

 

 

 

 

 

General and administrative expense

 

 

3,127

 

 

 

3,744

 

 

 

617

 

 

 

16.5

%

Impairments and (gain) loss on assets held for sale, net

 

 

23,428

 

 

 

 

 

 

(23,428

)

 

nm

 

Other (income) expense, net

 

 

(516

)

 

 

(9,934

)

 

 

(9,418

)

 

 

(94.8

)%

Operating income (loss)

 

 

(18,458

)

 

 

5,936

 

 

 

(24,394

)

 

nm

 

Interest (expense) income, net

 

 

(194

)

 

 

53

 

 

 

(247

)

 

nm

 

Income (loss) before income taxes

 

 

(18,652

)

 

 

5,989

 

 

 

(24,641

)

 

nm

 

Income tax (expense) benefit

 

 

11

 

 

 

(84

)

 

 

95

 

 

nm

 

Net income (loss)

 

$

(18,641

)

 

$

5,905

 

 

$

(24,546

)

 

nm

 

References below as "nm" (not meaningful).to 2021 and 2020 refer to the three months ended March 31, 2021 and 2020, respectively.

Consolidated

 

 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

 

 

2020

 

 

2019

 

 

Amount

 

 

Percent

 

New project awards

 

$

141,566

 

 

$

45,824

 

 

$

95,742

 

 

nm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

78,555

 

 

$

67,605

 

 

$

10,950

 

 

 

16.2

%

Cost of revenue

 

 

78,809

 

 

 

67,052

 

 

 

(11,757

)

 

 

(17.5

)%

Gross profit (loss)

 

 

(254

)

 

 

553

 

 

 

(807

)

 

 

(145.9

)%

Gross profit (loss) percentage

 

 

-0.3

%

 

 

0.8

%

 

 

 

 

 

 

 

 

General and administrative expense

 

 

3,744

 

 

 

3,834

 

 

 

90

 

 

 

2.3

%

Impairments and (gain) loss on assets held for sale

 

 

 

 

 

(70

)

 

 

(70

)

 

 

(100.0

)%

Other (income) expense, net

 

 

(9,934

)

 

 

71

 

 

 

10,005

 

 

nm

 

Operating income (loss)

 

 

5,936

 

 

 

(3,282

)

 

 

9,218

 

 

nm

 

Interest (expense) income, net

 

 

53

 

 

 

262

 

 

 

(209

)

 

 

(79.8

)%

Net income (loss) before income taxes

 

 

5,989

 

 

 

(3,020

)

 

 

9,009

 

 

nm

 

Income tax (expense) benefit

 

 

(84

)

 

 

(22

)

 

 

(62

)

 

nm

 

Net income (loss)

 

$

5,905

 

 

$

(3,042

)

 

$

8,947

 

 

 

 

 

 

New Project Awards – New project awards for 2021 and 2020 and 2019 were $141.6$27.0 million and $45.8$141.6 million, respectively.  Significant new project awards for 2021 include:

A change order associated with our towing, salvage and rescue ship projects within our Shipyard Division, and

Offshore services work within our Fabrication & Services Division.

Significant new project awards for 2020 relate toinclude the exercise of options by the U.S. Navy for the construction of two additional towing, salvagea fourth and rescue ships within our Shipyard Division.  Significant new project awards for 2019 relate to our offshore jacket and deck and subsea components projects within our Fabrication & Services Division.  

Revenue - Revenue for 2020 and 2019 was $78.6 million and $67.6 million, respectively, representing an increase of 16.2%. The increase was primarily due to:

Increased revenue for our Shipyard Division of $8.1 million, primarily due to ourfifth towing, salvage and rescue ship projects associated with increased construction activitieswithin our Shipyard Division.

Revenue – Revenue for 2021 and procurement progress on engineered equipment manufactured by vendors, offset partially by lower revenue for our harbor tug projects as we had fewer vessels under construction;2020 was $59.0 million and $78.6 million, respectively, representing a decrease of 25.0%. The decrease was primarily due to:

IncreasedDecreased revenue for our Fabrication & Services Division of $2.9$14.4 million, primarily due toattributable to:

No revenue for our paddlewheel river boat project and offshore jacket and deck project that were completed in the first quarter 2020 and third quarter 2020, respectively,

Lower revenue for our material supply project, and

Reduced onshore services activity and small-scale fabrication project activity, offset partially by,

Higher revenue for our marine docking structures project, offshore modules project and a subsea structures project.

Decreased revenue for our offshore jacket and deck project, offset partially by lower offshore services activity.  Shipyard Division of $5.3 million, primarily attributable to:

Lower revenue for our harbor tug projects as the last vessel was completed in the first quarter 2021,

Lower revenue for our research vessel projects due to construction delays associated with the temporary suspension of construction activities on the projects until engineering achieves further completion, and

Lower revenue for our two forty-vehicle ferry projects due to reduced procurement and construction activities, offset partially by,

Higher revenue for our towing, salvage and rescue ship projects associated with the cumulative effect impact of the change order entered into in the first quarter 2021 and increased construction activities (offset partially by reduced procurement activities), and

Higher revenue for our seventy-vehicle ferry project associated with increased construction activities and procurement progress on engineered equipment.

- 25 -


 

Gross profit (loss) - Gross profit (loss) for 2020 and 20192021 was $7.6 million (12.9% of revenue) compared to a gross loss of $0.3 million (0.3% of revenue) for 2020. Gross profit for 2021 was primarily impacted by:

Project improvements of $7.7 million for our Shipyard Division (project improvements of $8.4 million, offset partially by project charges of $0.7 million), and

Project improvements of $0.6 million for our Fabrication & Services Division, offset partially by,

A low margin backlog for our Shipyard Division and low revenue volume for our Fabrication & Services Division, and

The partial under-recovery of overhead costs, primarily associated with the under-utilization of our facilities and resources within our Fabrication & Services Division, and to a lesser extent within our Shipyard Division.

The gross profit of $0.6 million (0.8% of revenue), respectively. Grossfor 2021 relative to the gross loss for 2020 was primarily due to:

A low margin backlog and the under recovery of overhead costs, primarily associated with the underutilization of our facilities within our Fabrication & Services Division, and to a lesser extent within our Shipyard Division; and

The aforementioned project improvements of $7.7 million and $0.6 million for our Shipyard Division and Fabrication & Services Division, respectively,

A higher margin mix relative to 2020 for our Fabrication & Services Division, and

Project charges of $1.2 million for 2020 for our Shipyard Division, offset partially by,

Project improvements of $0.9 million for 2020 for our Fabrication & Services Division, and

Lower revenue for our Fabrication & Services Division.

Project charges of $1.2 million for our Shipyard Division, offset partially by project improvements of $0.9 million for our Fabrication & Services Division. See Operating Segments” below and Note 2 of our Financial Statements in Item 1 for further discussion of our project impacts.

The gross loss for 2020 relative to gross profit for 2019 was primarily due to:

A lower margin mix for our Fabrication & Services Division inclusive of the aforementioned project improvements; and

A lower margin mix and the aforementioned project charges for our Shipyard Division, offset partially by,

Higher revenue and increased recoveries of overhead costs due to higher activity, primarily for our Shipyard Division.

 

- 23 -


General and administrative expense - – General and administrative expense for 2021 and 2020 was $3.1 million (5.3% of revenue) and 2019 was $3.7 million (4.8% of revenue) and $3.8 million (5.7% of revenue), respectively, representing a decrease of 2.3%16.5%. The decrease was primarily due to:

Lower legal and advisory fees related primarily to customer disputes,

Cost reduction initiatives including combining our former Fabrication Division and Services Division in the first quarter 2020, and

Other cost savings including reductions in board size and the salaries of our executive officers in the second quarter 2020, offset partially by,

Higher incentive plan and insurance costs.

Lower incentive plan costs

General and other costs savings, primarily within our Corporate and Fabrication & Services Divisions; offset partially by,

Higheradministrative expense includes legal and advisory fees related to customer disputes.

The customer disputes relate primarily toa contract dispute for a completed project that was settled during the first quarter 2020 and a dispute associated with our MPSV projectscontracts which are subject to purported termination and for which construction has been suspended.  Legal and advisory fees related to such disputes totaled $0.2 million and $0.6 million for 2021 and $0.1 million for 2020, and 2019, respectively, and are reflected within our Corporate Segment.Division. See Note 1 of our Financial Statements in Item 1 for further discussion of our settlement of the contractcompleted project dispute and Note 5 for further discussion of our MPSV dispute.  

 

Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2019 was a gain of $0.1 million. See Note 3 of our Financial Statements in Item 1 for further discussion of our assets held for sale.

Other (income) expense, net – Other (income) expense, net for 20202021 and 20192020 was income of $9.9$0.5 million and expense of $0.1$9.9 million, respectively. Other (income) expense, net generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items.  TheOther income for 2021 was primarily related to a gain of $0.4 million associated with the settlement of a property tax dispute. Other income for 2020 was dueprimarily related to a gain of approximately $10.0 million associated with the settlement of a contract dispute, referenced above, for a project completed in 2015. See Note 1 of our Financial Statements in Item 1 for further discussion of our settlement of the contract dispute.

 

Interest (expense) income, net - – Interest (expense) income, net for 2021 and 2020 was expense of $0.2 million and 2019, was income of $0.1 million, and $0.3 million, respectively.  TheInterest (expense) income, net interest income for both periods was primarily due toconsists of interest earned on our cash and short-term investment balances, offset partially by interest incurred on our PPP Loan and the unused portion of our Credit AgreementLC Facility, and interest amortization associated with our long-term lease liability.liability and deferred financing costs on our LC Facility. The decrease in interestexpense for 2021 relative to income for 2020 was primarily due to a decreasethe write-off of deferred financing costs in connection with the amendment of our LC Facility, interest rates.on our PPP Loan, and lower interest rates and lower average cash and short-term investment balances for the 2021 period.

 

Income tax (expense) benefit – Income tax (expense) benefit for 20202021 and 2019, was expense of $0.1 million and $22,000, respectively. Our income tax expense for both periods2020 represents state income taxes. No federal income tax benefit was recorded for our 2021 loss as a full valuation allowance was recorded against our net deferred tax assets generated during the period. No federal income tax expense was recorded for our 2020 net income as it was fully offset by the reversal of valuation allowance on our net deferred tax assets.    No federal income tax benefit was recorded for our 2019 net loss as a full valuation allowance was recorded against our net deferred tax assets generated during the period.

 

Segments- 26 -

Shipyard Division(1)

 

 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

 

 

2020

 

 

2019

 

 

Amount

 

 

Percent

 

New project awards

 

$

128,919

 

 

$

2,795

 

 

$

126,124

 

 

nm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

45,559

 

 

$

37,411

 

 

$

8,148

 

 

 

21.8

%

Gross loss

 

 

(1,224

)

 

 

(280

)

 

 

(944

)

 

 

(337.1

)%

Gross loss percentage

 

 

-2.7

%

 

 

-0.7

%

 

 

 

 

 

 

 

 

General and administrative expense

 

 

575

 

 

 

624

 

 

 

49

 

 

 

7.9

%

Other (income) expense, net

 

 

100

 

 

 

 

 

 

(100

)

 

nm

 

Operating loss

 

 

(1,899

)

 

 

(904

)

 

 

(995

)

 

 

(110.1

)%


 

Operating Segments

(1)

In the first quarter 2020, management and project execution responsibility for our two, forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division.  Accordingly, revenue of $0.8 million associated with these projects for 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020 (the projects had no significant gross profit for 2019).  See Note 7 of our Financial Statements in Item 1 for further discussion of our realigned operating divisions.

Fabrication & Services Division

 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percent

 

New project awards

 

$

11,547

 

 

$

12,647

 

 

$

(1,100

)

 

 

(8.7

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

19,060

 

 

$

33,443

 

 

$

(14,383

)

 

 

(43.0

)%

Gross profit

 

 

1,042

 

 

 

970

 

 

 

72

 

 

 

7.4

%

Gross profit percentage

 

 

5.5

%

 

 

2.9

%

 

 

 

 

 

 

 

 

General and administrative expense

 

 

667

 

 

 

839

 

 

 

172

 

 

 

20.5

%

Other (income) expense, net

 

 

(606

)

 

 

(10,034

)

 

 

(9,428

)

 

 

(94.0

)%

Operating income

 

 

981

 

 

 

10,165

 

 

 

(9,184

)

 

 

(90.3

)%

 

References below to 2021 and 2020 refer to the three months ended March 31, 2021 and 2020, respectively.

New Project Awards – New project awards for 2021 and 2020 and 2019 were $128.9$11.5 million and $2.8$12.6 million, respectively.  Significant new project awards for both 2021 and 2020 primarily relate to the exercise of options by the U.S. Navy for the construction of two additional towing, salvage and rescue ships.    include offshore services work.  

 

- 24 -


Revenue Revenue for 2021 and 2020 and 2019 was $45.6$19.1 million and $37.4$33.4 million, respectively, representing an increasea decrease of 21.8%43.0%. The increasedecrease was primarily due to:

Our towing, salvage and rescue ship projects associated with increased construction activities and procurement progress on engineered equipment manufactured by vendors, offset partially by,

No revenue for our paddlewheel river boat and offshore jacket and deck project that were completed in the first quarter 2020 and third quarter 2020, respectively,

Lower revenue for our material supply project, and

Lower revenue for our harbor tug projects as we had fewer vessels under construction.

Reduced onshore services activity and small-scale fabrication project activity, offset partially by,

Higher revenue for our marine docking structures project, offshore modules project and a subsea structures project.

 

Gross loss profit Gross lossprofit for 2021 and 2020 and 2019 was $1.2$1.0 million (2.7%(5.5% of revenue) and $0.3$1.0 million (0.7%(2.9% of revenue), respectively. Gross profit for 2021 was primarily impacted by:

Project improvements of $0.6 million related to cost decreases and favorable resolution of change orders for our offshore modules project, offset partially by,

Low revenue volume due to low backlog levels, and

The partial under-recovery of overhead costs primarily due to the under-utilization of our facilities and resources due to low work hours.

The comparable gross lossprofit for 2021 relative to 2020 was primarily due to:

The aforementioned project improvements of $0.6 million for 2021, and

A higher margin mix relative to 2020, offset partially by,

Lower revenue volume, and

Project improvements of $0.9 million for 2020 on our paddlewheel riverboat project and subsea components project.

A low margin backlogThe Fabrication & Services Division utilization for 2021 and the under recovery of overhead costs primarily due2020 benefited by $0.4 million and $0.2 million, respectively, from providing resources and facilities to construction delaysour Shipyard Division for our three research vessel projects associated with the previously disclosed temporary suspension of construction activities on the projects until engineering achieves further completion;seventy-vehicle ferry project and

Project charges of $1.2 million related to forecast cost increases and forecast liquidated damages on our two forty-vehicle ferry projects. The impacts were primarily associated with the first vessel and construction activities performed by our former Fabrication Division prior to transferring management and project execution responsibility of the vessels to our Shipyard Division in the first quarter 2020. See Note 2 of our Financial Statements in Item 1 for further discussion of our project impacts.

The increase in gross loss for 2020 relative to 2019 was primarily due to:

The aforementioned project charges of $1.2 million; and

A lower margin mix, offset partially by,

Higher revenue and increased recoveries of overhead costs due to higher activity.

 

General and administrative expense General and administrative expense for 2021 and 2020 and 2019 was $0.6$0.7 million (1.9%(3.5% of revenue) and $0.6$0.8 million (2.0%(2.5% of revenue), respectively, representing a decrease of 7.9%20.5%. The decrease was primarily due to our cost reduction initiatives including combining our former Fabrication Division and Services Division during the first quarter 2020.

 

Other (income) expense, netOther (income) expense, net for 2021 and 2020 was expenseincome of $0.1 million.$0.6 million and $10.0 million, respectively. Other income for 2021 was primarily related to a gain of $0.4 million associated with the settlement of a property tax dispute. Other income for 2020 was primarily related to a gain of $10.0 million associated with the settlement of a contract dispute, referenced above, for a project completed in 2015.  

- 27 -


Shipyard Division

 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

 

 

2021

 

 

2020

 

 

Amount

 

 

Percent

 

New project awards

 

$

15,469

 

 

$

128,919

 

 

$

(113,450

)

 

 

(88.0

)%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

40,296

 

 

$

45,559

 

 

$

(5,263

)

 

 

(11.6

)%

Gross profit (loss)

 

 

6,539

 

 

 

(1,224

)

 

 

7,763

 

 

nm

 

Gross profit (loss) percentage

 

 

16.2

%

 

 

-2.7

%

 

 

 

 

 

 

 

 

General and administrative expense

 

 

471

 

 

 

575

 

 

 

104

 

 

 

18.1

%

Impairments and (gain) loss on assets held for sale

 

 

23,428

 

 

 

 

 

 

(23,428

)

 

nm

 

Other (income) expense, net

 

 

90

 

 

 

100

 

 

 

10

 

 

nm

 

Operating loss

 

 

(17,450

)

 

 

(1,899

)

 

 

(15,551

)

 

nm

 

 

Fabrication & Services Division(1)

 

 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

 

 

2020

 

 

2019

 

 

Amount

 

 

Percent

 

New project awards

 

$

12,647

 

 

$

43,029

 

 

$

(30,382

)

 

nm

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue

 

$

33,443

 

 

$

30,593

 

 

$

2,850

 

 

 

9.3

%

Gross profit

 

 

970

 

 

 

969

 

 

 

1

 

 

 

0.1

%

Gross profit percentage

 

 

2.9

%

 

 

3.2

%

 

 

 

 

 

 

 

 

General and administrative expense

 

 

839

 

 

 

1,219

 

 

 

380

 

 

 

31.2

%

Impairments and (gain) loss on assets held for sale

 

 

 

 

 

(70

)

 

 

(70

)

 

 

(100.0

)%

Other (income) expense, net

 

 

(10,034

)

 

 

71

 

 

 

10,105

 

 

nm

 

Operating income (loss)

 

 

10,165

 

 

 

(251

)

 

 

10,416

 

 

nm

 

(1)

In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, segment results (including the effects of eliminations) for our Fabrication and Services Divisions for 2019 have been combined to conform to the presentation of our reportable segments for 2020.  In addition, in the first quarter 2020, management and project execution responsibility for our two, forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division.  Accordingly, revenue of $0.8 million associated with these projects for 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020 (the projects had no significant gross profit for 2019).  See Note 7 of our Financial Statements in Item 1 for further discussion of our realigned operating divisions.

References below to 2021 and 2020 refer to the three months ended March 31, 2021 and 2020, respectively.

New Project Awards – New project awards for 2021 and 2020 and 2019 were $12.6$15.5 million and $43.0$128.9 million, respectively.  Significant new project awards for 2019 relate to2021 include a change order associated with our offshore jackettowing, salvage and deckrescue ship projects. Significant new project awards for 2020 include the exercise of options by the U.S. Navy for the construction of a fourth and subsea components projects.  

fifth towing, salvage and rescue ship.

Revenue – Revenue for 2021 and 2020 and 2019 was $33.4$40.3 million and $30.6$45.6 million, respectively, representing an increasea decrease of 9.3%11.6%. The increasedecrease was primarily due to progress on our offshore jacket and deck project, offset partially by lower offshore services activity.to:

Lower revenue for our harbor tug projects as the last vessel was completed in the first quarter 2021,

Lower revenue for our research vessel projects due to construction delays associated with the temporary suspension of construction activities on the projects until engineering achieves further completion, and

Lower revenue for our two forty-vehicle ferry projects due to reduced procurement and construction activities, offset partially by,

Higher revenue for our towing, salvage and rescue ship projects associated with the cumulative effect of a change order entered into in the first quarter 2021 and increased construction activities (offset partially by reduced procurement activities), and

Higher revenue for our seventy-vehicle ferry project associated with increased construction activities and procurement progress on engineered equipment.

 

- 25 -


Gross profit (loss) – Gross profit for 2020 and 20192021 was $1.0$6.5 million (2.9%(16.2% of revenue) and $1.0compared to a loss of $1.2 million (3.2%(2.7% of revenue), respectively. for 2020. The gross profit for 2021 was primarily impacted by:

Project improvements of $8.4 million related to the cumulative effect of a change order (offset partially by forecast cost increases), on our towing, salvage and rescue ship projects, offset partially by,

Project charges of $0.7 million related to forecast cost increases and liquidated damages on our seventy-vehicle ferry project,

A backlog for our Shipyard Division that is generally at, or near, break-even or in a loss position, and accordingly, results in revenue with low or no gross profit, and

The partial under-recovery of overhead costs primarily due to the partial under-utilization of our facilities and resources due to construction delays for our three research vessel projects.

The gross profit for 2021 relative to the gross loss for 2020 was primarily due to:

The aforementioned net project improvements of $7.7 million for 2021, and

Project charges of $1.2 million for 2020 on our forty-vehicle ferry projects.

Project improvements of $0.9 million related to cost decreases and increased contract price for our paddlewheel riverboat and subsea components projects which were completed in the first quarter 2020.See Note 2 of our Financial Statements in Item 1 for further discussion of our project impacts; offset partially by,impacts.

A low margin backlog and the under recovery of overhead cost primarily due to low backlog levels.

The comparable gross profit for 2020 relative to 2019 was primarily due to:

The aforementioned project improvements of $0.9 million, offset partially by,

A lower margin mix.

 

General and administrative expense - – General and administrative expense for 2021 and 2020 and 2019 was $0.8$0.5 million (2.5%(1.2% of revenue) and $1.2$0.6 million (4.0%(1.3% of revenue), respectively, representing a decrease of 31.2%18.1%.  The decrease was primarily due to our cost reductions associated with combining our former Fabrication and Services Divisions.reduction initiatives.  

 

Impairments and (gain) loss on assets held for sale Impairments and (gain) loss on assets held for sale for 2019 was a gain of $0.1 million. See Note 3 of our Financial Statements in Item 1 for further discussion of our assets held for sale.

Other (income) expense, net - Other (income) expense, net for both 2021 and 2020 and 2019 was income of $10.0 million and expense of $0.1 million respectively. The income for 2020 was primarily due to a gain of approximately $10.0 million associated with the settlement of a contract dispute for a project completed in 2015. See Note 1 of our Financial Statements in Item 1 for further discussion of our settlement of the contract dispute..

Corporate Division

- 28 -


 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

Corporate Division

 

Three Months Ended

March 31,

 

 

Favorable (Unfavorable)

Change

 

 

2020

 

 

2019

 

 

Amount

 

 

Percent

 

 

2021

 

 

2020

 

 

Amount

 

 

Percent

 

Revenue (eliminations)

 

$

(447

)

 

$

(399

)

 

$

(48

)

 

 

(12.0

)%

 

$

(405

)

 

$

(447

)

 

$

42

 

 

 

9.4

%

Gross loss

 

 

 

 

 

(136

)

 

 

136

 

 

 

100.0

%

 

 

 

 

 

 

 

 

 

 

nm

 

Gross loss percentage

 

n/a

 

 

n/a

 

 

 

 

 

 

 

 

 

 

n/a

 

 

n/a

 

 

 

 

 

 

 

 

 

General and administrative expense

 

 

2,330

 

 

 

1,991

 

 

 

(339

)

 

 

(17.0

)%

 

 

1,989

 

 

 

2,330

 

 

 

341

 

 

 

14.6

%

Operating loss

 

 

(2,330

)

 

 

(2,127

)

 

 

(203

)

 

 

(9.5

)%

 

 

(1,989

)

 

 

(2,330

)

 

 

341

 

 

 

14.6

%

 

Gross loss Gross loss for 2019 was $0.1 millionReferences below to 2021 and represents costs incurred by2020 refer to the Corporate Division to support our operating divisions.  Such costs were reflected within the operating divisions in 2020.three months ended March 31, 2021 and 2020, respectively.

 

General and administrative expense General and administrative expense for 2021 and 2020 and 2019 was $2.3$2.0 million (3.0% of consolidated revenue) and $2.0$2.3 million (2.9%(3.0% of consolidated revenue), respectively, representing an increasea decrease of 17.0%14.6%. The increasedecrease was primarily due to:

Lower legal and advisory fees related primarily to customer disputes, and

Cost savings including reductions in board size and the salaries of our executive officers in the second quarter 2020, offset partially by,

Higher incentive plan and insurance costs.

Higher

General and administrative expense includes legal and advisory fees related to customer disputes; offset partially by,

Lower incentive plan costs and other cost savings including headcount reductions.

The customer disputes relate primarily toa contract dispute for a completed project that was settled during the first quarter 2020 and a dispute associated with our MPSV projectscontracts which are subject to purported termination and for which construction has been suspended.  Legal and advisory fees related to such disputes totaled $0.2 million and $0.6 million for 2021 and $0.1 million for 2020, and 2019, respectively. See Note 1 of our Financial Statements in Item 1 for further discussion of our settlement of the contractcompleted project dispute and Note 5 for further discussion of our MPSV dispute.

 

- 26 -


Liquidity and Capital Resources

 

Available Liquidity

 

Our primary sources of liquidity are our cash, and cash equivalents, restricted cash and scheduled maturities of our short-term investments, and availability under our Credit Agreement.investments. At March 31, 2020,2021, our cash, cash equivalents, restricted cash and short-term investments totaled $68.6 million, and availability under our Credit Agreement was $30.2$51.0 million as follows (in thousands):

 

 

March 31, 2020

 

Cash and cash equivalents

 

$

48,562

 

Short-term investments (1)

 

 

19,993

 

Total cash, cash equivalents and short-term investments

 

$

68,555

 

 

 

 

 

 

Credit Agreement total capacity

 

$

40,000

 

Outstanding letters of credit

 

 

(9,820

)

Credit Agreement available capacity

 

$

30,180

 

 

 

March 31, 2021

 

Cash and cash equivalents

 

$

32,653

 

Short-term investments (1)

 

 

8,000

 

Available cash, cash equivalents and short-term investments

 

 

40,653

 

Restricted cash, current

 

 

9,937

 

Restricted cash, noncurrent

 

 

406

 

Total cash, cash equivalents, restricted cash and short-term investments

 

$

50,996

 

_______________

 

(1)

Includes U.S. Treasuries with original maturities of more than three months, but less than six months.

Working Capital

Our available liquidity is impacted by changes in our working capital and our capital expenditure requirements. At March 31, 2020, our working capital was $72.3 million and included $68.6 million of cash, cash equivalents and short-term investments and $8.1 million of assets held for sale. Excluding cash, cash equivalents, short-term investments and assets held for sale, our working capital at March 31, 2020 was negative $4.4 million, and consisted of net contract assets and contract liabilities (collectively, "Contracts in Progress") of $53.3 million; contracts receivable and retainage of $16.2 million; inventory, prepaid expenses and other current assets of $4.7 million; and accounts payable, accrued expenses and other current liabilities of $78.6 million.  The components of our working capital (excluding cash, cash equivalents, short-term investments and assets held for sale) at March 31, 2020 and December 31, 2019, and changes in such amounts during 2020, was as follows (in thousands):

 

 

March 31,

2020

 

 

December 31,

2019

 

 

Change(3)

 

Contract assets

 

$

64,905

 

 

$

52,128

 

 

$

12,777

 

Contract liabilities(1)

 

 

(11,571

)

 

 

(26,271

)

 

 

14,700

 

Contracts in progress, net(2)

 

 

53,334

 

 

 

25,857

 

 

 

27,477

 

Contracts receivable and retainage, net

 

 

16,178

 

 

 

26,095

 

 

 

(9,917

)

Prepaid expenses, inventory and other current assets

 

 

4,728

 

 

 

6,624

 

 

 

(1,896

)

Accounts payable, accrued expenses and other current liabilities(4)

 

 

(78,619

)

 

 

(71,573

)

 

 

(7,046

)

Total

 

$

(4,379

)

 

$

(12,997

)

 

$

8,618

 

(1)

Contract liabilities at March 31, 2020 and December 31, 2019, include accrued contract losses of $4.6 million and $6.4 million, respectively.

(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 bad debt expense, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures.

(4)

Accounts payable includes progress accruals associated with engineered equipment manufactured by vendors, and services provided by subcontractors, that is not contractually billable or has not been billed by the vendors and subcontractors.  Such accruals totaled $44.6 million and $34.7 million at March 31, 2020 and December 31, 2019, respectively, and result in an increase in percentage of completion on our projects and an increase in our contract assets.  

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 contracts receivable collections and accounts payable payments on our projects.

At March 31, 2021, our working capital was $52.5 million and included $50.6 million of cash, cash equivalents, current restricted cash and short-term investments, $8.2 million of assets held for sale and $7.2 million of current maturities of long-term debt. Excluding cash, cash equivalents, current restricted cash, short-term investments, assets held for sale and current maturities of long-term debt, our working capital at March 31, 2021 was $0.9 million, and consisted of: net contract assets and contract liabilities (collectively, "Contracts in Progress") of $59.6 million; contracts receivable and retainage of $18.2 million; inventory, prepaid expenses and other current assets of $4.9 million; and accounts payable, accrued expenses and other current liabilities of $81.8 million.  The components of our working capital (excluding cash, cash equivalents, current restricted cash, short-term investments, assets held for sale and current maturities of long-term debt) at March 31, 2021 and December 31, 2020, and changes in such amounts during the first quarter 2021, was as follows (in thousands):

- 2729 -


 

 

 

March 31,

2021

 

 

December 31,

2020

 

 

Change(3)

 

Contract assets

 

$

71,372

 

 

$

67,521

 

 

$

3,851

 

Contract liabilities(1)

 

 

(11,812

)

 

 

(15,129

)

 

 

3,317

 

Contracts in progress, net(2)

 

 

59,560

 

 

 

52,392

 

 

 

7,168

 

Contract receivables and retainage, net

 

 

18,173

 

 

 

15,393

 

 

 

2,780

 

Prepaid expenses, inventory and other current assets

 

 

4,922

 

 

 

5,077

 

 

 

(155

)

Accounts payable, accrued expenses and other current liabilities(4)

 

 

(81,782

)

 

 

(77,784

)

 

 

(3,998

)

Total

 

$

873

 

 

$

(4,922

)

 

$

5,795

 

(1)

Contract liabilities at March 31, 2021 and December 31, 2020, include accrued contract losses of $5.1 million and $8.6 million, respectively.

(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 bad debt expense, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures.

(4)

Accounts payable includes progress accruals associated with engineered equipment manufactured by vendors, and services provided by subcontractors, that are not contractually billable or have not been billed by the vendors and subcontractors. Such accruals totaled $52.4 million and $48.5 million at March 31, 2021 and December 31, 2020, respectively, and result in an increase in the percentage-of-completion on our projects and an increase in our contract assets.  

Cash Flow Activity

 

 

Three Months Ended March 31,

 

 

 

2021

 

 

2020

 

Net cash provided by operating activities

 

$

358

 

 

$

7

 

Net cash used in investing activities

 

$

(421

)

 

$

(1,044

)

Net cash used in financing activities

 

$

(100

)

 

$

(104

)

Operating Activities - Cash provided by operating activities for the three months ended March 31, 2021 and 2020 was $7,000,$0.4 million and cash used in operating activities for the three months ended March 31, 2019 was $8.5$0.0 million, respectively, and was primarily due to the net impacts of the following:

20202021 Activity

Operating income excluding depreciation and amortization of $2.2 million and stock-based compensation expense of $0.1 million. Operating income includes a gain of $10.0 million associated with the settlement of a contract dispute for a previously completed project;

Increase in contract assets of $12.8 million related to the timing of billings on projects, primarily due to increased unbilled positions on projects in our Shipyard Division (due to increased unbilled positions for our research vessel projects and towing, salvage and rescue ship projects, offset partially by decreased unbilled positions for our harbor tug projects);

Operating income excluding depreciation and amortization of $1.9 million, asset impairments of $22.8 million and stock-based compensation expense of $0.3 million;

 

Increase in contract assets of $3.9 million related to the timing of billings on projects, primarily due to increased unbilled positions on our research vessel projects and towing, salvage and rescue ship projects within our Shipyard Division, offset partially by decreased unbilled positions on our final harbor tug project within our Shipyard Division;

Decrease in contract liabilities of $3.3 million, primarily due to a decrease in accrued contract losses on our towing, salvage and rescue ship projects within our Shipyard Division attributable to a change order entered into in the first quarter 2021. See Note 2 of our Financial Statements in Item 1 for further discussion of the change order;

Increase in contract receivables and retainage of $2.8 million related to the timing of billings and collections on projects, primarily due to an increase in billings on various projects within our Shipyard Division and Fabrication & Services Division;

Decrease in prepaid expenses, inventory and other assets of $0.2 million, primarily due to inventory;

Increase in accounts payable, accrued expenses and other current liabilities of $4.1 million, primarily due to increased procurement activity and progress accruals for engineered equipment manufactured by vendors for projects within our Shipyard Division, offset partially by decreased accounts payable positions for projects within our Fabrication & Services Division; and

Change in noncurrent assets and liabilities, net of $0.4 million.


- 30 -


2020 Activity

Operating income excluding depreciation and amortization of $2.2 million and stock-based compensation expense of $0.1 million;

Increase in contract assets of $12.8 million related to the timing of billings on projects, primarily due to increased unbilled positions on our research vessel projects and towing, salvage and rescue ship projects within our Shipyard Division, offset partially by decreased unbilled positions for our harbor tug projects within our Shipyard Division;

Decrease in contract liabilities of $14.7 million, primarily due to the unwind of advance payments on projects in our Fabrication & Services Division (for our offshore jacket and deck project and material supply project)project within our Fabrication & Services Division and projects in our Shipyard Division (for our towing, salvage and rescue ship projects);projects within our Shipyard Division;

Decrease in contracts receivable and retainage of $9.9 million related to the timing of billings and collections on projects, primarily due to collections on two projects in our Fabrication & Services Division;

Decrease in contracts receivable and retainage of $9.9 million related to the timing of billings and collections on projects, primarily due to collections on two projects within our Fabrication & Services Division;

Decrease in prepaid expenses, inventory and other assets of $1.8 million, primarily due to prepaid expenses and the associated timing of certain prepayments;

Decrease in prepaid expenses, inventory and other assets of $1.8 million, primarily due to prepaid expenses and the associated timing of certain prepayments;

Increase in accounts payable, accrued expenses and other current liabilities of $7.7 million, primarily due to increased procurement activity and progress accruals for engineered equipment manufactured by vendors for projects in our Shipyard Division (for our research vessel projects and towing, salvage and rescue ship projects); and

Increase in accounts payable, accrued expenses and other current liabilities of $7.7 million, primarily due to increased procurement activity and progress accruals for engineered equipment manufactured by vendors for our research vessel projects and towing, salvage and rescue ship projects within our Shipyard Division; and

Change in noncurrent assets and liabilities, net of $0.2 million.

2019 Activity

Operating loss excluding net gains from asset sales of $0.3 million, bad debt expense of $53,000, depreciation and amortization of $2.6 million, asset impairments of $0.3 million, and stock-based compensation expense $0.6 million;

Increase in contract assets of $8.7 million, primarily due to increased unbilled positions on two projects in our Shipyard Division;

Decrease in contract liabilities of $7.6 million, primarily due to the partial unwind of advance payments on two separate projects in our Shipyard Division and Fabrication & Services Division;

Decrease in contracts receivable and retainage of $0.8 million, primarily due to the timing of billings and collections on our projects;

Decrease in prepaid expenses, inventory and other assets of $1.1 million, primarily due to inventory and prepaid expenses;

Increase in accounts payable, accrued expenses and other current liabilities of $6.0 million, primarily due to increased project activity for projects in our Shipyard Division; and

Change in noncurrent assets and liabilities, net of $0.2 million.

Change in noncurrent assets and liabilities, net of $0.2 million.

Investing Activities – Cash used in investing activities for the three months ended March 31, 2021 and 2020 and 2019 was $1.0$0.4 million and $11.4$1.0 million, respectively. Cash used in investing activities during the2021 was primarily due to capital expenditures of $0.5 million. Cash used in investing activities during 2020 period was primarily due to capital expenditures of $2.1 million, (primarily related to enhancements to our Shipyard Division facilities to execute our backlog), offset partially by proceeds from the sale of assets held for sale of $1.1 million. Cash used in investing activities during the 2019 period was primarily due to the net purchase of short-term investments of $11.5 million and capital expenditures of $0.3 million, offset partially by proceeds from the sale of equipment of $0.4 million.

Financing Activities – Cash used in financing activities for the three months ended March 31, 20202021 and 20192020 was $0.1 million and $0.7$0.1 million, respectively, and was primarily due to tax payments made on behalf of employees from vested stock withholdings.

- 28 -


Credit Facilities

Credit Agreement Facilities and Debt

LC Facility We have a $40.0 million On March 26, 2021, we amended our revolving credit facility (“Credit Agreement”) with Hancock Whitney Bank ("(“Whitney Bank"Bank”) that can be used, which previously provided for up to $40.0 million of borrowings or letters of credit, that matureshad a maturity date of June 9, 2021. On February 28, 2020, we amended our Credit Agreement to amend our financial covenants. Our amended30, 2022, included certain quarterly financial covenants at March 31, 2020, and for the remaining term of the Credit Agreement, are as follows:

Ratio of current assets to current liabilities of not less than 1.25:1.00;

Minimum tangible net worth of at least the sum of $130.0 million, plus 100% of the proceeds from any issuance of stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering;

Minimum cash, cash equivalents and short-term investments of $40.0 million; and

Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Our Credit Agreement also includes restrictions regardingon our ability to: (i) grant liens; (ii) maketo take certain loans or investments; (iii) incur additional indebtedness or guarantee other indebtedness in excess of specified levels; (iv) make any material change to the nature of our business or undergo a fundamental change; (v) make any material dispositions; (vi) acquire another company or all oractions, and was secured by substantially all of its assets; (vii) enter intoour assets with a merger, consolidation, or sale leaseback transaction; or (viii) declarenegative pledge on our real property.  In connection with the amendment, the revolving credit facility was modified to remove our ability to make cash borrowings and pay dividends if any potential default or eventprovides for up to $20.0 million of default occurs.

Interestletters of credit (“LC Facility”), subject to our cash securitization of the letters of credit.  The LC Facility has a maturity date of June 30, 2023 and removed all financial covenants and other restrictions, as well as the pledge of all our assets and the negative pledge on borrowings under the Credit Agreement may be designated, at our option, as either the Wall Street Journal published Prime Rate (3.3% at March 31, 2020) or LIBOR (1.0% at March 31, 2020) plus 2.0% per annum.real property.  Commitment fees on the unused portion of the Credit AgreementLC Facility are 0.4% per annum and interest on outstanding letters of credit is 2.0% per annum. The Credit Agreement is secured by substantially all of our assets (with a negative pledge on our real property).

At March 31, 2020,2021, we had no outstanding borrowings under our Credit Agreement and $9.8$10.3 million of outstanding letters of credit to support our projects, providing $30.2 million of available capacity. At March 31, 2020, we were in compliance with all of our financial covenants, with a tangible net worth of $159.3 million (as defined byoutstanding under the Credit Agreement); total cash, cash equivalents and short-term investments of $68.6 million; a ratio of current assets to current liabilities of 1.80 to 1.00; and a ratio of funded debt to tangible net worth of 0.06:1.00.  LC Facility.

Surety Bonds – We issue surety bonds in the ordinary course of business to support our projects.  At March 31, 2020, we had $411.8 million of outstanding surety bonds.  Although we believe there is sufficient bonding capacity available to us from one or more financial institutions, such capacity is uncommitted, and accordingly, we can provide no assurances that necessary bonding capacity will be available to support our future bonding requirements.

Loan AgreementOn April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (the “PPP(“PPP Loan”) with Whitney Bank for proceeds of $10.0 million pursuant to the PayrollPaycheck Protection Program (“PPP”), which is sponsored by the Small Business Administration (“SBA”) and is part of under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”).  The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “permissible expenses”).  The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum, and is payable in monthly installments commencing on November 17, 2020.  The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties.  The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met.  

The most significantPPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum and is payable in monthly installments commencing on the earlier of the conditions are:

Only amounts expended for permissible expenses duringdate on which the amount of loan forgiveness is determined or March 17, 2021. During the eight-week period following April 17, 2020 (the “covered period”) are eligible for loan forgiveness;

Of the total amount of permissible expenses for which forgiveness can be granted, at least 75% must be for payroll costs, or a proportionate reduction of the maximum loan forgiveness amount will occur; and

If there are reductions in employee headcount (or employee compensation is reduced by more than 25%) during the covered period, a further reduction of the maximum loan forgiveness amount will occur.

In order to obtain full forgivenessdate of the PPP Loan (“the Covered Period”), the loan proceeds were used only for expenses which may be paid using proceeds from the PPP Loan (“Permissible Expenses”), of which approximately 93% was related to payroll costs. On September 29, 2020, we must requestsubmitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million.  Whitney Bank approved our application for forgiveness on December 14, 2020, and provide satisfactory documentation in accordance with applicable SBA guidelines.  We will be obligatedour application was forwarded to repay any portionthe Small Business Administration (“SBA”) for review.  As of the principalfiling of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made no loan payments. Because the amount borrowed exceeded $2.0 million, the PPP Loan and our loan forgiveness application is subject to audit by the SBA. Any portion of the PPP Loan that is not forgiven, together with accrued interest. We intend to useinterest, will be repaid based on the terms and conditions of the PPP Loan and in accordance with the PPP, as amended, unless the SBA were to determine that we were not eligible to participate in the PPP, in which case the SBA could seek immediate repayment of the PPP Loan. While we believe we are a qualifying business and have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds only for only permissible purposes; however,Permissible Expenses, we can provide

- 31 -


no assurances that we will be eligible for forgiveness of the PPP Loan, in whole or in part. We received a consent from Whitney Bank that allowsAccordingly, we have recorded the full amount of the PPP Loan as debt, which is included in long-term debt, current and long-term debt, noncurrent on our Balance Sheet at March 31, 2021 and at December 31, 2020.  The current and noncurrent debt classification is based on the terms and conditions of the PPP Loan and in accordance with the PPP, as amended, and timing of required repayment absent any loan forgiveness.  We intend to be included as permitted debt underreflect the benefit of any loan forgiveness if, and when, our debt covenantsloan forgiveness application is approved by the SBA and after we have reasonable assurance from the SBA that we have met the eligibility and loan forgiveness requirements of the PPP.

Surety Bonds – We issue surety bonds in the ordinary course of business to support our Credit Agreementprojects.  At March 31, 2021, we had $230.2 million of outstanding surety bonds, of which $50.0 million relates to our MPSV projects which are subject to purported termination and is subjectfor which construction has been suspended.  It has been increasingly difficult to obtain additional bonding capacity and identify potential financing sources, due to, among other things, compliancelosses from our operations in recent years, including recent project charges, and given a majority of our backlog is at, or near, break-even or is in a loss position.  We can provide no assurances that necessary bonding capacity will be available to support our future bonding requirements. In connection with the CARES Act and useShipyard Transaction, $119.4 million of surety bonds attributable to the PPP Loan proceeds only for permissible purposes and in a manner intended to maximize our entitlement to forgiveness of the PPP Loan.Divested Shipyard Contracts were terminated. See Note 4 and Note 75 of our Financial Statements in Item 1 for further discussion of our surety bonds and MPSV dispute, Note 8 for further discussion of the PPP Loan.  Shipyard Transaction, and Note 8 and “Mortgage Agreement and Restrictive Covenant Agreement” below for discussion of our entry into agreements with one of our Sureties relating to the Retained Shipyard Contracts.

- 29 -


Mortgage Agreement and Restrictive Covenant Agreement – On April 19, 2021, and in connection with the receipt of a consent for the Shipyard Transaction from our Surety that has outstanding surety bond obligations for our MPSV projects and two seventy-vehicle ferry projects, we entered into a multiple indebtedness mortgage (the “Mortgage Agreement”) and a restrictive covenant arrangement (the “Restrictive Covenant Agreement”) with the Surety to secure our obligations and liabilities under our general indemnity agreement with the Surety associated with its outstanding surety bonds for the contracts. The Mortgage Agreement encumbers all remaining real estate that was not sold in connection with the Shipyard Transaction and includes certain covenants and events of default.  Further, the Restrictive Covenant Agreement precludes us from making dividends or repurchasing shares of our common stock. The Mortgage Agreement and Restrictive Covenant Agreement will terminate when the obligations and liabilities of the Surety associated with the outstanding surety bonds are discharged, or any judgment against us or the Surety arising out of litigation related to such contracts is satisfied by us.

Liquidity Outlook

As discussed in our Overview, we continue to focus on securing profitable new project awards and backlog in the near-term and generating operating income and cash flows in the longer-term. We have made significant progress in our efforts to preserve and improve our liquidity, including cost reductions (including reducing the size of our board and reducing the compensation of our directors and executive officers in 2020), the sale of underutilizedunder-utilized assets and facilities, and an improved overall cashflowcash flow position on our projects in backlog.backlog and the completion of the Shipyard Transaction. In addition, at March 31, 2020,2021, we continue to have $8.1$8.2 million of assets held for sale;sale ($6.2 million excluding assets included in the Shipyard Transaction); however, we can provide no assurances that we will successfully sell these assets or that we will recover their carrying value. Further, as discussed above, we received the PPP Loan in the second quarter 2020, which provided funding necessary to offset the immediate and anticipated impacts of COVID-19.  It also provided us important additional liquidity, which is important because as a strong balance sheet is required to execute our backlog and compete for new project awards, and we experience significant monthly fluctuations in our working capital.The primary uses of our liquidity for 20202021 and the foreseeable future are to fund:

Overhead costs associated with the underutilization of our facilities within our Shipyard Division and Fabrication & Services Division, until we secure and/or begin to execute sufficient backlog to fully recover our overhead costs;

Overhead costs associated with the under-utilization of our facilities within our Fabrication & Services Division, until we secure sufficient backlog to fully recover our overhead costs;

Capital expenditures (including enhancements to our Shipyard Division facilities to execute our backlog);

Capital expenditures;

Accrued contract losses recorded at March 31, 2020;

Accrued contract losses recorded at March 31, 2021 (including accrued contract losses on the Retained Shipyard Contracts);

Working capital requirements for our projects (including the unwind of advance payments and potential additional projects for the U.S. Navy if the aforementioned options are exercised); and

Working capital requirements for our projects, including the unwind of advance payments on projects (including advance payments on the Retained Shipyard Contracts);

Legal and other costs associated with our MPSV dispute; and

Corporate administrative expenses and initiatives to diversify and enhance our business.

Corporate administrative expenses and initiatives to diversify and enhance our business.

 

We anticipate capital expenditures of $10.0$1.0 million to $12.0$2.0 million for the remainder of 2020, of which approximately $8.0 million represents capital investments required by our contracts for the construction of our five towing, salvage and rescue ships.  The expenditures relate to the construction of vessel erection sites and a warehouse for storage.  While the capital investment is required by the contracts, the assets will benefit our construction operations going forward, including supporting our execution of any further towing, salvage and rescue ships if our customer exercises its options for additional vessels as discussed in “New Awards and Backlog” above.2021.  Further investments in facilities may be required to win and execute potential new project awards, which are not included in these estimates.

 


- 32 -


We believe that our cash, cash equivalents and short-term investments at March 31, 2020, and availability under our Credit Agreement,2021, will be sufficient to enable us to fund our 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 date of this Report. Our evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecast for 20202021 and 2021,2022, which is impacted by our existing backlog and estimates of future new project awards.awards and may be further impacted by the ongoing effects of COVID-19 and volatile oil prices. We can provide no assurances that our financial forecast will be achieved or that we will have sufficient cash or availability under our Credit Agreementand short-term investments to meet planned operating expenses and other 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.

Item 4. Controls and Procedures.

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or 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 management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934)Act) as of the end of the period covered by this 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.

During the first quarter 2020,2021, there were no changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II. OTHER INFORMATION

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 lawsuits, legal proceedings and claims 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 cash flows.

On October 2, 2018, we filed a lawsuit against our customer to enforce our rights and remedies under the applicable construction contracts for two MPSVs. The lawsuit was 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. The customer responded to our lawsuit by denying many of the allegations in the lawsuit and asserting a counterclaim against us. We filed a response to the counterclaim denying all of the customer'scustomer’s claims. The customer subsequently filed an amendment to its counterclaim to add claims by the customer against the Surety. The customer also filed a motion for partial summary judgment with the trial court seeking, among other things, to obtain possession of the vessels. A hearing on the motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels, which was denied by the trial court. The customer subsequently filed a second motion for partial summary judgment re-urging its previously denied request to obtain possession of the vessels.  A hearing on the second motion was held on November 9, 2019, and the customer’s request to obtain possession of the vessels, which was again denied by the trial court. Thereafter, the customer requested that the appellate court exercise its discretion and review and reverse the trial court’s denial of the customer’s second motion.  We have opposedmotion, which was denied.

On May 19, 2020, the discretionary appellate review requestcustomer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The customer’s prepackaged Chapter 11 plan of reorganization was subsequently confirmed by the bankruptcy court and that plan of reorganization is effective. In connection with its bankruptcy case, on June 3, 2020, the customer filed a separate bankruptcy adversary proceeding against us in which it again sought to obtain possession of the vessels; however, the bankruptcy court’s decision was ultimately delayed to allow the parties an opportunity to mediate the dispute. The parties engaged in mediation until January 26, 2021 when the customer unilaterally and voluntarily dismissed its adversary proceeding seeking possession of the appellate mattervessels. The mediation between the parties was not successful.

The lawsuit was temporarily stayed during the pendency of the customer’s Chapter 11 bankruptcy case; however, the lawsuit is pending.no longer stayed and will proceed in the ordinary course. Discovery in connection with the lawsuit is ongoing.ongoing and no trial date or other deadlines have been scheduled. We are conferring with the Surety regarding the lawsuit. See Note 5 of our Financial Statements in Item 1for1 for further discussion of this litigation.the MPSV dispute.

 

Item 1A. Risk Factors.

 

The following risk factor represents aThere have been no material change in our risk factorschanges from those disclosedthe information included under “Risk Factors” in Part I, Item 1A of our 20192020 Annual Report. ToReport, except for the extent COVID-19 adversely affects our business, financial condition, results of operation and liquidity, it may also have the effect of heightening many of the other risks described in Item 1A.“Risk Factors” included in our 2019 Annual Report.following risk factor.

 

The recent outbreak of COVID-19 and certain developments in the global oil markets have had and may continuefinancial benefits we expect to have a negative impact on our operations.

COVID-19 is a widespread public health crisis that is adversely affecting global economies and financial markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and the U.S. President has announced a national emergency relating to COVID-19.  National, state and local authorities have recommended social distancing and imposed, or are considering, quarantine and isolation measures on large portions of the population, including mandatory business closures. These measures, while intended to protect human life, have had and are expected to continue to have a serious adverse impact on domestic and foreign economies of uncertain severity and duration. Due to these COVID-19 related measures, there has been a decline in the demand for, and thus market prices of, oil and these declines have been exacerbated by the production dispute between Russia and the member of OPEC, particularly Saudi Arabia, and the subsequent actions taken by such countries as a result thereof. The effectiveness of economic stabilization efforts, including proposed government payments to affected citizens and industries, is uncertain. Some economists are predicting the United States may enter a recession of unknown durationreceive as a result of the COVID-19 pandemic combined with the weak commodity price environment. Any such prolonged period of economic slowdown or recession could have a significant adverse effect on our financial condition and financial condition of our customers, subcontractors and other counterparties.Shipyard Transaction may not be realized.

 

We operateplan to use the net cash proceeds realized from the Shipyard Transaction to fund net working capital liabilities associated with the Retained Shipyard Contracts and other Shipyard Division liabilities and to support the wind down of the Shipyard Division operations, which is anticipated to occur by mid-2022.  We may from time to time going forward continue to find our liquidity position to be challenging, and our use of the proceeds from the Shipyard Transaction may not improve our results of operations, financial condition or cash flows or enhance the trading value of our common stock.  In addition, we will receive $2.2 million of the Transaction Price upon Bollinger’s collection of certain customer payments associated with the Shipyard Divested Contracts. In the event Bollinger fails to achieve certain contractual milestones and collect such amounts from the customer, we may not realize the full economic value we expect to derive from the Shipyard Transaction. In addition, the sale of our Shipyard Division assets and a majority of our long-term construction contracts results in a critical infrastructure industry, as definedless diversified business portfolio, and we will have a greater dependency on the performance of our remaining operating division, Fabrication & Services, for our financial results.

In connection with the Shipyard Transaction, we also entered a transition services agreement with Bollinger, pursuant to which each party will provide certain transition services to the other party. In the course of performing our obligations under the transition services agreement, we have agreed to make available to Bollinger certain operational assets and support at a contracted price, including assets, facilities, equipment and the time and attention of our management, which may from time to time interfere with our efficient performance of our responsibilities with respect to our remaining operations. Further, we must successfully complete the Retained Shipyard Contracts and we can provide no assurances that the execution of such projects will not be impacted by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date,Shipyard Transaction or that we currently continue to operate acrosswill be able complete such projects within our footprint. Notwithstanding our continued operations, the progression of and global response to COVID-19, and related contraction in oil demand, combined with depressed crude oil prices have had and may continue to have negative impacts on our operations, which include but are not limited to:

Delays, Suspension or Termination of Backlog; Reduced Bidding Activity; Deterioration of Customer Financial Condition.  Certain of our customers have requested to renegotiate pricing and suspended contracts in our backlog and bidding activities for several new project opportunities have been suspended.  We may have additional delays, suspensions or terminations of contracts in our backlog and further reduced bidding activity for new project awards.forecast cost estimates.  In addition, financial strain on our customers could impact their ability pay or otherwise perform on their obligations to us.the Transaction Price and

Reduced availability of workforce.We have seen an increase in employee absenteeism, and we have implemented COVID-19 related mitigation measures to ensure the safety and well-being of our employees and contractors, both of which have impacted our project execution.  The ability of our employees to work may be further impacted by COVID-19 (including,

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but not limited to, the temporary inability of the workforce to work due to illness, quarantine following illness, or absenteeism for fear of contracting COVID-19), which may further impact our progress on projects.

Performance by Subcontractors. COVID-19 has also had an impact on our suppliers and subcontractors. Failure of suppliers and subcontractors, on which we rely,Closing Adjustment for the Shipyard Transaction are subject to deliver materials and provide services, or perform under their contracts on a timely basis or at all due to their own financial or operational difficulties or inability to fulfill their contractual obligations due to the reduced availability of their workforce, has had and may continue to have an adverse impact on our operations. The inability of our suppliers or subcontractors to perform could result in the need to transition to alternative suppliers or subcontractors,Closing Adjustment True-Up calculation, which could result in significant incremental cost and delay, ortotal proceeds that are ultimately lower than we have anticipated related to the need for us to provide other supplemental means to support our existing suppliers and subcontractors.Shipyard Transaction.

 

The extent which COVID-19 andAll of the related contraction in oil demand andabove factors associated with the depressed crude oil pricesShipyard Transaction, among others, may adverselynegatively impact our business, prospects,results of operations and financial condition, operating resultscondition.

Item 5. Other Information.

On March 30, 2021, we filed our 2020 Annual Report disclosing that on March 26, 2021, we amended our revolving credit facility with Hancock Whitney Bank (“Whitney Bank”), which previously provided for up to $40.0 million of borrowings or letters of credit, had a maturity date of June 30, 2022, included certain quarterly financial covenants and restrictions on our ability to take certain actions, and was secured by substantially all of our assets with a negative pledge on our real property.  In connection with the amendment, the facility was modified to remove our ability to make cash flows depends on future developments that are highly uncertainborrowings and unpredictable.  This current levelprovides for up to $20.0 million of uncertainty overletters of credit (“LC Facility”), subject to our cash securitization of the economicletters of credit.  The LC Facility has a maturity date of June 30, 2023 and operational impactsremoved all financial covenants and other restrictions, as well as the pledge of COVID-19all our assets and the related contractionnegative pledge on our real property.  Commitment fees on the unused portion of the LC Facility are 0.4% per annum and interest on outstanding letters of credit is 2.0% per annum. At March 31, 2021, we had $10.3 million of letters of credit outstanding under the LC Facility. See “Risk Factors” in oil demandPart I, Item 1A, “Management’s Discussion and the depressed crude oil prices means the related businessAnalysis of Financial Condition and financial impacts cannot be reasonably estimated at this time.  Results of Operations” in Part I, Item 7, and Note 5 and Note 8 of our Financial Statements in Part II, Item 8 of our 2020 Annual Report for further discussion of our LC Facility.

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Item 6. Exhibits.

 

Exhibit

Number

 

Description of Exhibit

 

 

2.1

Asset Purchase Agreement by and among Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C., as purchasers, and Gulf Island Fabrication, Inc., Gulf Island Shipyards, LLC and Gulf Island, L.L.C., as sellers, dated April 19, 2021, incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed with the SEC on April 19, 2021.

3.1

Amended and Restated Articles of Incorporation of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the SEC on May 13, 201922, 2020 (SEC File No. 001-34279).

3.2

Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.1 of the Company’s Form 8-K filed with the SEC on May 13, 2019November 10, 2020 (SEC File No. 001-34279).

10.1

 

FifthWaiver and Seventh Amendment to Credit Agreement dated February 28, 2020,March 26, 2021, incorporated by reference to Exhibit 10.2110.22 of the Company’s Annual Report on Form 10-K for the year ended December 31, 20192020 filed with the SEC on March 5, 2020.30, 2021.

10.2

 

Promissory Note, dated April 17, 2020,Employment Agreement by and between Hancock Whitney Bank and Gulf Island Fabrication, Inc.* and Christian G. Vaccari, dated April 16, 2021, incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed with the SEC on April 19, 2021. †

10.3

 

Restrictive Covenant Regarding Restrictive Payments by and among Gulf Island Fabrication, Inc., Gulf Island, L.L.C., Gulf Island Shipyards, L.L.C., Fidelity and Deposit Company of Maryland and Zurich American Insurance Company, dated April 19, 2021, incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed with the SEC on April 19, 2021.

10.4

Multiple Indebtedness Mortgage by and among Fidelity and Deposit Company of Retention Bonus AgreementMaryland 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 March 3, 2020. *†April 19, 2021, incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K filed with the SEC on April 19, 2021.

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. *

 

 

 

101101.INS

 

Attached as Exhibit 101 to this reportInline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the following items formatted inInline XBRL (Extensible Business Reporting Language):document. *

101.SCH

 

(i)

Consolidated Balance Sheets,Inline XBRL Taxonomy Extension Schema Linkbase Document. *

101.CAL

 

(ii)

Consolidated Statements of Operations,Inline XBRL Taxonomy Extension Calculation Linkbase Document. *

101.DEF

 

(iii)

Consolidated Statement of Changes in Shareholders’ Equity,Inline XBRL Taxonomy Extension Definition Linkbase Document. *

101.LAB

 

(iv)

Consolidated Statements of Cash Flows, andInline XBRL Taxonomy Extension Label Linkbase Document. *

101.PRE

 

(v)Inline XBRL Taxonomy Extension Presentation Linkbase Document. *

104

Notes to Consolidated Financial Statements.

The cover page for the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, has been formatted in Inline XBRL and is contained in Exhibit 101. *

 

*

Filed or furnished herewith.

Management Contract or Compensatory Plan.

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SIGNATURES

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

 

GULF ISLAND FABRICATION, INC.

 

BY:

/s/ Westley S. Stockton

 

Westley S. Stockton

 

Executive Vice President, Chief Financial

Officer, Secretary and Treasurer

(Principal Financial Officer)

 

Date: May 6, 202011, 2021

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