UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
or
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from
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Commission File Number
(Exact name of registrant as specified in its charter)
Louisiana |
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(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Securities registered pursuant to 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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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.
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).
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 |
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Accelerated filer |
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Smaller reporting company |
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Emerging Growth Company |
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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
The number of shares of the registrant’s common stock, no par value per share, outstanding as of April 30, 2021, was
- i -
GULF ISLAND FABRICATION, INC.
I N D E X
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PART I |
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1 |
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Item 1. |
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1 |
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Consolidated Balance Sheets at March 31, 2021 (unaudited) and December 31, 2020 |
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1 |
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Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited) |
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2 |
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3 |
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Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited) |
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5 |
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Item 2. |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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18 |
Item 4. |
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33 |
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PART II |
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34 |
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Item 1. |
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34 |
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Item 1A. |
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34 |
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Item 6. |
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36 |
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37 |
- ii -
GLOSSARY OF TERMS
As used in this report on Form 10-Q for the quarter ended March 31, 2021 (“this 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.
2020 Annual Report |
Our annual report for the year ended December 31, 2020, filed with the SEC on Form 10-K on March 30, 2021. |
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ASU |
Accounting Standards Update. |
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Balance Sheet |
Our Consolidated Balance Sheets, as filed in this Report. |
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CARES Act |
The Coronavirus Aid, Relief and Economic Security Act, as amended. |
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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. |
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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. |
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Closing Date |
The closing date of the Shipyard Transaction of April 19, 2021. |
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COVID-19 |
The ongoing global coronavirus pandemic. |
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contract assets |
Costs and estimated earnings recognized to date in excess of cumulative billings. |
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contract liabilities |
Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses. |
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Covered Period |
The eight-week period following the date of the PPP Loan of April 17, 2020. |
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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. |
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Divested Shipyard Contracts |
Contracts and related obligations for our three research vessel projects and five towing, salvage and rescue ship projects that were included in the Shipyard Transaction. |
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DTA(s) |
Deferred Tax Asset(s). |
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EPC |
Engineering, procurement and construction phases of a complex project that requires project management and coordination of these significant activities. |
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ESG |
Environmental, Social and Governance. |
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Exchange Act |
Securities Exchange Act of 1934, as amended. |
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F&S Facility |
Our Fabrication & Services Division’s facility located in Houma, Louisiana. |
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Fabrication & Services |
Our Fabrication & Services Division (also referred to herein as F&S). |
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FASB |
Financial Accounting Standards Board. |
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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. |
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GAAP |
Generally Accepted Accounting Principles in the U.S. |
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GOM |
Gulf of Mexico. |
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Gulf Coast |
Along the coast of the Gulf of Mexico. |
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- ii -
Incentive Plans |
Long-term incentive plans under which equity or cash-based awards may be made to eligible employees and non-employee directors. |
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inland |
Typically, bays, lakes and marshy areas. |
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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. |
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Jennings Facility |
Our Shipyard Division's facility located near Jennings, Louisiana, which was closed in the fourth quarter 2020. |
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labor hours |
Hours worked by employees directly involved in the production of our products. |
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Lake Charles Facility |
Our Shipyard Division's facility located near Lake Charles, Louisiana, which was closed in the fourth quarter 2020. |
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LC Facility |
Our $20.0 million letter of credit facility with Whitney Bank maturing June 30, 2023, as amended. |
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LIBOR |
London Inter-Bank Offered Rate. |
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LNG |
Liquified Natural Gas. |
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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. |
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Mortgage 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. |
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MPSV(s) |
Multi-Purpose Support Vessel(s). |
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NOL(s) |
Net operating loss(es) that are available to offset future taxable income, subject to certain limitations. |
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offshore |
In unprotected waters outside coastlines. |
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onshore |
Inside the coastline on land. |
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OPEC |
Organization of Petroleum Exporting Countries. |
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OSV |
Offshore Support Vessel. |
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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. |
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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. |
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piles |
Rigid tubular pipes that are driven into the seabed to support platforms. |
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PPP |
Paycheck Protection Program administered by the SBA under the CARES Act. |
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PPP Loan |
Our $10.0 million loan from Whitney Bank issued pursuant to the PPP. |
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platform |
A structure from which offshore oil and gas development drilling and production are conducted. |
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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. |
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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. |
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SBA |
Small Business Administration. |
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SEC |
U.S. Securities and Exchange Commission. |
- iii -
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Shipyard |
Our Shipyard Division. |
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Shipyard Facility |
Our Shipyard Division’s facility located in Houma, Louisiana. |
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Shipyard Transaction |
The sale of our Shipyard Division’s assets and certain construction contracts on April 19, 2021. |
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Statement of Cash Flows |
Our Consolidated Statements of Cash Flows, as filed in this Report. |
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Statement of Operations |
Our Consolidated Statements of Operations, as filed in this Report. |
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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. |
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T&M |
Work performed and billed to the customer generally at contracted time and material rates, cost plus or other variable fee arrangements. |
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Topic 606 |
The revenue recognition criteria prescribed under ASU 2014-09, Revenue from Contracts with Customers. |
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Transaction Price |
The sales price of $28.6 million associated with the Shipyard Transaction. |
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U.S. |
The United States of America. |
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Whitney Bank |
Hancock Whitney Bank. |
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- iv -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
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March 31, 2021 |
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December 31, 2020 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash, current |
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— |
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Short-term investments |
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Contract receivables and retainage, net |
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Contract assets |
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Prepaid expenses and other assets |
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Inventory |
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Assets held for sale |
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Total current assets |
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Property, plant and equipment, net |
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Restricted cash, noncurrent |
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— |
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Other noncurrent assets |
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Total assets |
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$ |
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$ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Contract liabilities |
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Accrued expenses and other liabilities |
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Long-term debt, current |
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Total current liabilities |
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Long-term debt, noncurrent |
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Other noncurrent liabilities |
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Total liabilities |
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Shareholders’ equity: |
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Preferred stock, issued and outstanding |
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Common stock, and outstanding at March 31, 2021 and |
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Additional paid-in capital |
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Retained earnings (accumulated deficit) |
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( |
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Total shareholders’ equity |
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Total liabilities and shareholders’ equity |
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$ |
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$ |
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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)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Revenue |
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$ |
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$ |
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Cost of revenue |
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Gross profit (loss) |
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General and administrative expense |
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Impairments and (gain) loss on assets held for sale |
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— |
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Other (income) expense, net |
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( |
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( |
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Operating income (loss) |
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( |
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Interest (expense) income, net |
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( |
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Income (loss) before income taxes |
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( |
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Income tax (expense) benefit |
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Net income (loss) |
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$ |
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$ |
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Per share data: |
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Basic and diluted income (loss) per common share |
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$ |
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$ |
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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)
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Common Stock |
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Additional Paid-In |
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Retained |
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Total Shareholders’ |
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Shares |
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Amount |
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Capital |
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Earnings |
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Equity |
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Balance at December 31, 2019 |
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$ |
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$ |
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$ |
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$ |
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Net income |
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— |
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— |
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— |
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Vesting of restricted stock |
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( |
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( |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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Balance at March 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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Common Stock |
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Additional Paid-In |
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Retained |
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Total Shareholders’ |
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Shares |
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Amount |
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Capital |
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Earnings |
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Equity |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
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$ |
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Net loss |
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— |
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— |
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— |
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( |
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Vesting of restricted stock |
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( |
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( |
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— |
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( |
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Stock-based compensation expense |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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The accompanying notes are an integral part of these financial statements.
- 3 -
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)
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Three Months Ended March 31, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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Net income (loss) |
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$ |
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$ |
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Adjustments to reconcile net income (loss) to net cash provided by operating activities: |
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Depreciation and lease asset amortization |
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Other amortization, net |
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Asset impairments |
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— |
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(Gain) loss on sale of fixed assets and other assets, net |
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( |
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( |
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Stock-based compensation expense |
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Changes in operating assets and liabilities: |
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Contract receivables and retainage, net |
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( |
) |
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Contract assets |
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( |
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( |
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Prepaid expenses, inventory and other current assets |
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Accounts payable |
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Contract liabilities |
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( |
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( |
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Accrued expenses and other current liabilities |
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( |
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Noncurrent assets and liabilities, net (including long-term retainage) |
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( |
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( |
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Net cash provided by operating activities |
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Cash flows from investing activities: |
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Capital expenditures |
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( |
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( |
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Proceeds from sale of property, plant and equipment |
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Net cash used in investing activities |
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( |
) |
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( |
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Cash flows from financing activities: |
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Payment of financing cost |
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— |
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( |
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Tax payments for vested stock withholdings |
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( |
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( |
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Net cash used in financing activities |
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( |
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( |
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Net decrease in Cash, cash equivalents and restricted cash |
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( |
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( |
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Cash, cash equivalents and restricted cash, beginning of period |
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Cash, cash equivalents and restricted cash, end of period |
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$ |
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$ |
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The accompanying notes are an integral part of these financial statements.
- 4 -
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(Unaudited)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Gulf Island Fabrication, Inc. (together with its subsidiaries, “Gulf Island,” “the Company,” “we,” “us” and “our”) is a leading fabricator of complex steel structures and modules and provider of project management, hookup, commissioning, repair, maintenance and civil construction services. Our customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and EPC companies. We currently operate and manage our business through
Basis of Presentation
The accompanying unaudited Consolidated Financial Statements (“Financial 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”) 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”). 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, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021.
Our Consolidated Balance Sheet (“Balance Sheet”) at December 31, 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 2020 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 under-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 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 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, 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.
Operating Cycle
The duration 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.
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Use of Estimates
General – The preparation of our Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We believe our most significant estimates and judgments are associated with:
|
• |
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 and Volatile Oil Prices – COVID-19 is a widespread public health crisis that continues to adversely affect global economies and financial markets. Additionally, the National Bureau of Economic Research indicated on June 8, 2020 that the U.S. economy 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, state and local authorities on large portions of the population, and mandatory business closures 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 serious adverse impact on domestic and foreign economies of uncertain severity and duration.
This continued level of uncertainty means the ultimate business and financial impacts of COVID-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 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. Management’s estimates in future periods will be revised for any events and changes in circumstances arising after the date of this Report for the impacts of COVID-19 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 $
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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, 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 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 collectability 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 (“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 (“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
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 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.
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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:
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• |
Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets. |
|
• |
Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market. |
|
• |
Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques. |
The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair values. Our fair value assessments for determining 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 from our contracts in accordance with Accounting Standards Update (“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers” (“Topic 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, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to 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
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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, 2021 and 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 for our projects.
Additional Disclosures – Topic 606 also requires disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. See Note 2 for required disclosures under Topic 606.
Pre-Contract Costs
Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At March 31, 2021 and December 31, 2020, we had
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 $
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 state income tax laws related to the apportionment of revenue for our projects, judgment is required to estimate the effective tax rate expected to apply to tax differences that are 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.
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Financial instruments – In June 2016, the Financial 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.
2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS
As discussed in Note 1, we recognize revenue from our contracts in accordance with Topic 606. Summarized below are required disclosures under Topic 606 and other relevant guidance.
Disaggregation of Revenue
The following tables summarize revenue for each of our operating segments, disaggregated by contract type, for the three months ended March 31, 2021 and 2020 (in thousands):
|
|
Three Months Ended March 31, 2021 |
|
|||||||||||||
Contract Type |
|
Shipyard |
|
|
F&S |
|
|
Eliminations |
|
|
Total |
|
||||
Fixed-price and unit-rate(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
T&M(2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Other |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Three Months Ended March 31, 2020 |
|
|||||||||||||
Contract Type |
|
Shipyard |
|
|
F&S |
|
|
Eliminations |
|
|
Total |
|
||||
Fixed-price and unit-rate(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
T&M(2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
|
|
Other |
|
|
— |
|
|
|
|
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
(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. |
Future Performance Obligations Required Under Contracts
The following table summarizes our remaining performance obligations by operating segment at March 31, 2021 (in thousands):
Segment |
|
Performance Obligations |
|
|
Shipyard(1) |
|
$ |
|
|
Fabrication & Services |
|
|
|
|
Total |
|
$ |
|
|
|
(1) |
In connection with the Shipyard Transaction, performance obligations associated with the Divested Shipyard Contracts totaling $ |
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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.
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2021 |
|
|
2020 |
|
||
Contract assets(1) |
|
$ |
|
|
|
$ |
|
|
Contract liabilities(2), (3), (4) |
|
|
( |
) |
|
|
( |
) |
Contracts in progress, net |
|
$ |
|
|
|
$ |
|
|
|
(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, 2020, was 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 “Changes in Project Estimates” below for further discussion of the change order. |
|
(3) |
Revenue recognized during the three months ended March 31, 2021 and 2020, related to amounts included in our contract liabilities balance at December 31, 2020 and 2019, was $ |
|
(4) |
Contract liabilities at March 31, 2021 and December 31, 2020, includes accrued contract losses of $ |
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, 2021 and 2020, and our allowance for doubtful accounts at March 31, 2021 and December 31, 2020, were not significant.
Variable Consideration
For the three months ended March 31, 2021 and 2020, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at March 31, 2021 and December 31, 2020, certain projects reflected a reduction to our estimated contract price for liquidated damages of $
Changes in Project Estimates
Changes in Estimates for 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 $
Shipyard Division
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• |
Towing, Salvage and Rescue Ship Projects – Positive impact for 2021 of $ |
|
– |
Contract Price Increase – The increase in contract price was attributable to a change order of $ |
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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
|
• |
Seventy-Vehicle Ferry Project – Negative impact for 2021 of $ |
Fabrication & Services Division
|
• |
Offshore Facility Modules Project – Positive impact for 2021 of $ |
Changes in Estimates for 2020 – For the three months ended March 31, 2020, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $
Shipyard Division
|
• |
Forty-Vehicle Ferry Projects – Negative impact for 2020 of $ |
Fabrication & Services Division
|
• |
Paddle Wheel Riverboat and Subsea Components Projects – Positive impact for 2020 of $ |
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 attributable to a reassessment of our asset groups within our Shipyard Division as well as revisions to our probability assessment of net future cash flows of the applicable asset group based on the likelihood, that existed as of March 31, 2021, of the Shipyard 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 an impairment charge of $
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approximately $
Assets Held for Sale – Our assets held for sale at March 31, 2021, primarily consisted of
|
|
March 31, 2021 |
|
|
December 31, 2020 |
|
||||||||||||||||||
Assets Held for Sale |
|
Shipyard |
|
|
F&S |
|
|
Total |
|
|
Shipyard |
|
|
F&S |
|
|
Total |
|
||||||
Machinery and equipment |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
During the three months ended March 31, 2020, we received proceeds of $
4. CREDIT FACILITIES AND DEBT
LC Facility
On March 26, 2021, we amended our revolving credit facility with Whitney Bank, which previously provided for up to $
Loan Agreement
On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $
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Surety Bonds
We issue surety bonds in the ordinary course of business to support our projects. At March 31, 2021, we had $
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
On October 2, 2018, we filed a lawsuit against our customer to enforce our rights and remedies under the applicable construction contracts for the two MPSVs. The customer responded to our lawsuit 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’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, 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, 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, which was denied.
On May 19, 2020, the customer 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 vessels. 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 no longer stayed and will proceed in the ordinary course. Discovery in connection with the lawsuit is 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, 2021 and December 31, 2020, other noncurrent assets on our Balance Sheet included a net contract asset of $
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.
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Letters of Credit and Surety Bonds
We obtain letters of credit under our LC Facility or surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. Letters of credit under our LC Facility are subject to cash securitization of the full amount of the outstanding letters of credit. In the event of non-performance under a contract, our cash securitization with respect to the letter of credit supporting such contract would become 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. 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 LC Facility and surety bonds.
Environmental Matters
Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the laws of other countries that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of hazardous substances and wastes. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. In connection with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation. We believe we are in compliance, in all material respects, with environmental laws and regulations and maintain insurance coverage to mitigate exposure to environmental liabilities. We do not believe any environmental matters will have a material adverse effect on our financial condition, results of operations or cash flow.
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, 2021 and 2020 (in thousands, except per share data):
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Three Months Ended March 31, |
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2021 |
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2020 |
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Net income (loss) attributable to common shareholders |
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$ |
( |
) |
|
$ |
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|
Weighted-average shares(1) |
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|
|
|
|
|
|
Basic and diluted income (loss) per common share |
|
$ |
( |
) |
|
$ |
|
|
__________________
(1) We have
7. OPERATING SEGMENTS
We currently operate and manage our business through
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 F&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 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, 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.
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Three Months Ended March 31, 2021 |
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F&S |
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Shipyard |
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Corporate |
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Consolidated |
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Revenue |
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$ |
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|
|
$ |
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|
|
$ |
( |
) |
|
$ |
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|
Gross profit |
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|
|
|
|
|
|
|
|
|
— |
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|
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Operating income (loss) |
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|
|
|
( |
) |
|
|
( |
) |
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|
( |
) |
Depreciation and amortization expense |
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|
|
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|
|
|
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|
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Capital expenditures |
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|
|
|
|
|
|
|
|
|
— |
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|
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Total assets(1) |
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Three Months Ended March 31, 2020 |
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F&S |
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|
Shipyard |
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Corporate |
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Consolidated |
|
||||
Revenue |
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
Gross profit (loss) |
|
|
|
|
|
|
( |