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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

June 30, 2021

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.

(Exact name of registrant as specified in its charter)

 

 

Louisiana

 

72-1147390

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

 

16225 Park Ten Place, Suite 300

Houston, 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

Gifi

Nasdaq

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    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 August 10, 2021, was 15,535,225.

 

 

 


- 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 June 30, 2021 (unaudited) and December 31, 2020

 

1

 

 

Consolidated Statements of Operations for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

 

2

 

 

Consolidated Statements of Changes in Shareholders' Equity for the Three and Six Months Ended June 30, 2021 and 2020 (unaudited)

 

3

 

 

Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020 (unaudited)

 

4

 

 

Notes to Consolidated Financial Statements (unaudited)

 

5

Item 2.

 

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

 

21

Item 4.

 

Controls and Procedures

 

41

 

 

 

 

 

PART II

 

Other Information

 

41

Item 1.

 

Legal Proceedings

 

41

Item 1A.

 

Risk Factors

 

41

Item 6.

 

Exhibits

 

42

Signatures

 

43

 

- ii -


 

 

GLOSSARY OF TERMS

 

As used in this report on Form 10-Q for the quarter ended June 30, 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.

 

 

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.

 

 

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.

 

 

contracts in progress

Net contract assets and contract liabilities on projects.

 

 

Covered Period

The eight-week period following the date of the PPP Loan of April 17, 2020.

 

 

COVID-19

The ongoing global coronavirus pandemic.

 

 

deck

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

 

 

Deferred Transaction Price

The portion of the Transaction Price totaling $2.2 million that will be received upon Bollinger's collection of certain customer payments associated with the Divested Shipyard Contracts.

 

 

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.

 

 

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.

 

 

Exchange Act

Securities Exchange Act of 1934, as amended.

 

 

F&S Facility

Our Fabrication & Services 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.

 

 

GOM

Gulf of Mexico.

 

 

- ii -


 

Gulf Coast

Along the coast of the Gulf of Mexico.

 

 

inland

Typically, 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 Facility

Our Shipyard Division's leased facility located near Jennings, 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 leased 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.

 

 

LNG

Liquified Natural Gas.

 

 

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.

 

 

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.

 

 

MPSV(s)

Multi-Purpose Support Vessel(s).

 

 

offshore

In unprotected waters outside coastlines.

 

 

onshore

Inside the coastline on land.

 

 

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 from 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.

 

 

Shipyard

Our Shipyard Division.

 

 

Shipyard Facility

Our Shipyard Division’s owned facility located in Houma, Louisiana that was sold in connection with the Shipyard Transaction.

 

 

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.

- iii -


 

 

 

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

 

 

U.S.

The United States of America.

 

 

Whitney Bank

Hancock Whitney Bank.

 

 

 

 

 

 

 

- iv -


 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

June 30,

2021

 

 

December 31,

2020

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,834

 

 

$

43,159

 

Restricted cash, current

 

 

9,637

 

 

 

 

Short-term investments

 

 

 

 

 

7,998

 

Contract receivables and retainage, net

 

 

13,737

 

 

 

14,089

 

Contract assets

 

 

2,371

 

 

 

5,098

 

Prepaid expenses and other assets

 

 

5,962

 

 

 

2,545

 

Inventory

 

 

1,772

 

 

 

2,157

 

Assets held for sale

 

 

1,800

 

 

 

6,200

 

Current assets of discontinued operations

 

 

2

 

 

 

66,116

 

Total current assets

 

 

100,115

 

 

 

147,362

 

Property, plant and equipment, net

 

 

29,720

 

 

 

31,178

 

Restricted cash, noncurrent

 

 

406

 

 

 

 

Noncurrent assets of discontinued operations

 

 

 

 

 

39,169

 

Other noncurrent assets

 

 

13,438

 

 

 

13,634

 

Total assets

 

$

143,679

 

 

$

231,343

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,427

 

 

$

12,362

 

Contract liabilities

 

 

8,206

 

 

 

10,262

 

Accrued expenses and other liabilities

 

 

8,197

 

 

 

6,682

 

Long-term debt, current

 

 

1,050

 

 

 

5,499

 

Current liabilities of discontinued operations

 

 

771

 

 

 

63,607

 

Total current liabilities

 

 

27,651

 

 

 

98,412

 

Long-term debt, noncurrent

 

 

8,950

 

 

 

4,501

 

Other noncurrent liabilities

 

 

1,739

 

 

 

2,068

 

Total liabilities

 

 

38,340

 

 

 

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, 15,535 shares issued

   and outstanding at June 30, 2021 and 15,359 at December 31, 2020

 

 

11,281

 

 

 

11,223

 

Additional paid-in capital

 

 

104,583

 

 

 

104,072

 

Retained earnings (accumulated deficit)

 

 

(10,525

)

 

 

11,067

 

Total shareholders’ equity

 

 

105,339

 

 

 

126,362

 

Total liabilities and shareholders’ equity

 

$

143,679

 

 

$

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

June 30,

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

 

2021

 

 

2020

 

Revenue

 

$

24,268

 

 

$

31,988

 

 

$

48,053

 

 

$

69,667

 

Cost of revenue

 

 

23,164

 

 

 

32,716

 

 

 

47,028

 

 

 

70,863

 

Gross profit (loss)

 

 

1,104

 

 

 

(728

)

 

 

1,025

 

 

 

(1,196

)

General and administrative expense

 

 

3,093

 

 

 

3,370

 

 

 

5,880

 

 

 

6,681

 

Other (income) expense, net

 

 

(380

)

 

 

1

 

 

 

(909

)

 

 

(10,033

)

Operating income (loss)

 

 

(1,609

)

 

 

(4,099

)

 

 

(3,946

)

 

 

2,156

 

Interest (expense) income, net

 

 

(95

)

 

 

(89

)

 

 

(289

)

 

 

(36

)

Income (loss) before income taxes

 

 

(1,704

)

 

 

(4,188

)

 

 

(4,235

)

 

 

2,120

 

Income tax (expense) benefit

 

 

4

 

 

 

(22

)

 

 

15

 

 

 

(106

)

Income (loss) from continuing operations

 

 

(1,700

)

 

 

(4,210

)

 

 

(4,220

)

 

 

2,014

 

Loss from discontinued operations, net of taxes

 

 

(1,251

)

 

 

(1,327

)

 

 

(17,372

)

 

 

(1,646

)

Net income (loss)

 

$

(2,951

)

 

$

(5,537

)

 

$

(21,592

)

 

$

368

 

Per share data:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted income (loss) from continuing operations

 

$

(0.11

)

 

$

(0.28

)

 

$

(0.27

)

 

$

0.13

 

Basic and diluted loss from discontinued operations

 

 

(0.08

)

 

 

(0.09

)

 

 

(1.12

)

 

 

(0.11

)

Basic and diluted income (loss) per share

 

$

(0.19

)

 

$

(0.36

)

 

$

(1.40

)

 

$

0.02

 

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, 2019

 

 

15,263

 

 

$

11,119

 

 

$

103,124

 

 

$

38,442

 

 

$

152,685

 

Net income

 

 

 

 

 

 

 

 

 

 

 

5,905

 

 

 

5,905

 

Vesting of restricted stock

 

 

27

 

 

 

(8

)

 

 

(65

)

 

 

 

 

 

(73

)

Stock-based compensation expense

 

 

 

 

 

10

 

 

 

85

 

 

 

 

 

 

95

 

Balance at March 31, 2020

 

 

15,290

 

 

 

11,121

 

 

 

103,144

 

 

 

44,347

 

 

 

158,612

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,537

)

 

 

(5,537

)

Vesting of restricted stock

 

 

19

 

 

 

 

 

 

(1

)

 

 

 

 

 

(1

)

Stock-based compensation expense

 

 

 

 

 

34

 

 

 

311

 

 

 

 

 

 

345

 

Balance at June 30, 2020

 

 

15,309

 

 

$

11,155

 

 

$

103,454

 

 

$

38,810

 

 

$

153,419

 

 

 

 

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

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(2,951

)

 

 

(2,951

)

Vesting of restricted stock

 

 

18

 

 

 

(1

)

 

 

(7

)

 

 

 

 

 

(8

)

Stock-based compensation expense

 

 

 

 

 

37

 

 

 

327

 

 

 

 

 

 

364

 

Balance at June 30, 2021

 

 

15,535

 

 

$

11,281

 

 

$

104,583

 

 

$

(10,525

)

 

$

105,339

 

 

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

 

- 3 -


 

 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

Six Months Ended

June 30,

 

 

 

2021

 

 

2020

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net income (loss)

 

$

(21,592

)

 

$

368

 

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

 

 

 

 

 

 

 

 

Depreciation and lease asset amortization

 

 

3,215

 

 

 

4,287

 

Other amortization, net

 

 

15

 

 

 

31

 

Asset impairments

 

 

22,750

 

 

 

 

Loss on Shipyard Transaction

 

 

2,581

 

 

 

 

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

 

 

45

 

 

 

(5

)

Stock-based compensation expense

 

 

677

 

 

 

440

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Contract receivables and retainage, net

 

 

1,654

 

 

 

12,704

 

Contract assets

 

 

(4,561

)

 

 

(25,732

)

Prepaid expenses, inventory and other current assets

 

 

(676

)

 

 

668

 

Accounts payable

 

 

(11,020

)

 

 

2,081

 

Contract liabilities

 

 

(5,324

)

 

 

702

 

Accrued expenses and other current liabilities

 

 

1,330

 

 

 

(1,840

)

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

 

 

(463

)

 

 

2,538

 

Net cash used in operating activities

 

 

(11,369

)

 

 

(3,758

)

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(921

)

 

 

(7,745

)

Proceeds from Shipyard Transaction, net of transaction costs

 

 

31,677

 

 

 

 

Proceeds from sale of property and equipment

 

 

4,439

 

 

 

1,080

 

Purchases of short-term investments

 

 

 

 

 

(19,991

)

Maturities of short-term investments

 

 

8,000

 

 

 

20,000

 

Net cash provided by (used in) investing activities

 

 

43,195

 

 

 

(6,656

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Proceeds from borrowings

 

 

 

 

 

10,000

 

Payment of financing cost

 

 

 

 

 

(31

)

Tax payments for vested stock withholdings

 

 

(108

)

 

 

(74

)

Net cash provided by (used in) financing activities

 

 

(108

)

 

 

9,895

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

 

31,718

 

 

 

(519

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

43,159

 

 

 

49,703

 

Cash, cash equivalents and restricted cash, end of period

 

$

74,877

 

 

$

49,184

 

Supplemental cash flow information:

 

 

 

 

 

 

 

 

    Deferred Transaction Price receivable from Shipyard Transaction

 

$

2,200

 

 

$

 

 

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

 

- 4 -


 

 

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, 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 two operating divisions (“Fabrication & Services” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in Houston, Texas and our operating facilities are located in Houma, Louisiana. On April 19, 2021, we sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”) and intend to wind down our remaining Shipyard Division operations by mid-2022.  See “Basis of Presentation” below and Note 3 for further discussion of the Shipyard Transaction.

 

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 and six months ended June 30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021. Our Consolidated 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.

We determined the Shipyard Division assets, liabilities and operations associated with the Shipyard Transaction, and associated with certain previously closed Shipyard Division facilities, to be discontinued operations in the second quarter 2021. Accordingly, such assets and liabilities at June 30, 2021, and operating results for the three and six months ended June 30, 2021, have been classified as discontinued operations on our Consolidated Balance Sheet (“Balance Sheet”) and Consolidated Statement of Operations (“Statement of Operations”), respectively. Our classification of these operations as discontinued requires retrospective application to financial information for all prior periods presented.  Therefore, such assets and liabilities at December 31, 2020, and operating results for the three and six months ended June 30, 2020, have been recast and classified as discontinued operations on our Balance Sheet and Statement of Operations, respectively.  Discontinued operations are not presented separately on our Consolidated Statement of Cash Flows (“Statement of Cash Flows”).  Unless otherwise noted, the amounts presented throughout the notes to our Financial Statements relate to our continuing operations.  See Note 3 for further discussion of the Shipyard Transaction and our discontinued operations.

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.

 


- 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 ongoing global coronavirus pandemic (“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.

Volatile Oil Prices and COVID-19 – For the last several years, the price of oil has been at depressed levels and/or experienced significant volatility, resulting in 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 have been negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing, significant under-utilization of our operating facilities and resources and losses on certain projects. Additionally, COVID-19 has added another layer of pressure and uncertainty on oil prices and our end markets, which has further impacted our operations. COVID-19 (including its new and emerging strains and variants) is a widespread public health crisis that continues to adversely affect global economies and financial markets.

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 of vaccines, hesitancy or resistance to the vaccines among certain groups, as well as uncertainty about their long-term efficacy or effectiveness against new COVID-19 strains and variants, remain. 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 or deadly strains and variants 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 serious adverse impact on domestic and foreign economies of uncertain severity and duration. 

The 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 7 for calculations of our basic and diluted income (loss) per share.

 


- 6 -


 

 

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 June 30, 2021, we had $10.0 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”). In July 2021, $7.0 million of outstanding letters of credit expired and the associated cash restriction was released. 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 no restricted cash at December 31, 2020. See Note 5 for further discussion of our cash security requirements under our LC Facility.  

Short-Term Investments – We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. We had no short-term investments at June 30, 2021. At December 31, 2020, our short-term investments included U.S. Treasuries with original maturities of less than six months that were held until their maturity.

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 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 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 4 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.

 


- 7 -


 

 

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 within our discontinued operations.

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 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 4 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

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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 our Financial Statements and related disclosures. See Note 2 for further discussion of projects with significant changes in estimated margins during the three and six months ended June 30, 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 June 30, 2021 and December 31, 2020, we had no deferred pre-contract costs.

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 six months ended June 30, 2020, other (income) expense also included a gain of $10.0 million associated with the settlement of a contract dispute in the first quarter 2020 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 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 no federal benefit was recorded for losses during the three and six months ended June 30, 2021 and three months ended June 30, 2020, as a full valuation allowance was recorded against our federal deferred tax assets generated during the periods, and as no federal expense was recorded for income during the six months ended June 30, 2020, as it was fully offset by the reversal of valuation allowance on our net deferred tax assets. Income taxes recorded for the three and six months ended June 30, 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.  

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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.

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 and six months ended June 30, 2021 and 2020 (in thousands):

 

 

 

Three Months Ended June 30, 2021

 

Contract Type

 

F&S

 

 

Shipyard

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate(1)

 

$

11,041

 

 

$

3,129

 

 

$

 

 

$

14,170

 

T&M(2)

 

 

9,254

 

 

 

 

 

 

 

 

 

9,254

 

Other

 

 

932

 

 

 

 

 

 

(88

)

 

 

844

 

Total

 

$

21,227

 

 

$

3,129

 

 

$

(88

)

 

$

24,268

 

 

 

 

Six Months Ended June 30, 2021

 

Contract Type

 

F&S

 

 

Shipyard

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate(1)

 

$

22,198

 

 

$

8,259

 

 

$

(8

)

 

$

30,449

 

T&M(2)

 

 

15,523

 

 

 

 

 

 

 

 

 

15,523

 

Other

 

 

2,566

 

 

 

 

 

 

(485

)

 

 

2,081

 

Total

 

$

40,287

 

 

$

8,259

 

 

$

(493

)

 

$

48,053

 

 

 

 

Three Months Ended June 30, 2020

 

Contract Type

 

F&S

 

 

Shipyard

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate(1)

 

$

20,853

 

 

$

5,902

 

 

$

(239

)

 

$

26,516

 

T&M(2)