gifi-10q_20210930.htm

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging Growth Company

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

September 30, 2021

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

For the transition period from

Commission File Number 001-34279

Gulf Island Fabrication, Inc.

(Exact name of registrant as specified in its charter)

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.

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 November 9, 2021, was 15,551,891.

GULF ISLAND FABRICATION, INC.

I N D E X


		Page

PART I	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Consolidated Balance Sheets at September 30, 2021 (unaudited) and December 31, 2020	1
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	2
	Consolidated Statements of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2021 and 2020 (unaudited)	3
	Consolidated Statements of Cash Flows for the Nine Months Ended September 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	22
Item 4.	Controls and Procedures	43

PART II	Other Information	43
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 6.	Exhibits	44
Signatures		45

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GLOSSARY OF TERMS

As used in this report on Form 10-Q for the quarter ended September 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.

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.

Gulf Coast	Along the coast of the Gulf of Mexico.

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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.

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 paying 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.

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.

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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.

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.

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PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

	September 30, 2021			December 31, 2020
	(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	71,667		$	43,159
Restricted cash, current		1,736			—
Short-term investments		—			7,998
Contract receivables and retainage, net		8,229			14,089
Contract assets		2,246			5,098
Prepaid expenses and other assets		6,361			2,545
Inventory		1,673			2,157
Assets held for sale		1,800			6,200
Current assets of discontinued operations		—			66,116
Total current assets		93,712			147,362
Property, plant and equipment, net		28,377			31,178
Restricted cash, noncurrent		406			—
Noncurrent assets of discontinued operations		—			39,169
Other noncurrent assets		13,381			13,634
Total assets	$	135,876		$	231,343
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	7,396		$	12,362
Contract liabilities		7,188			10,262
Accrued expenses and other liabilities		8,372			6,682
Long-term debt, current		—			5,499
Current liabilities of discontinued operations		176			63,607
Total current liabilities		23,132			98,412
Long-term debt, noncurrent		—			4,501
Other noncurrent liabilities		1,590			2,068
Total liabilities		24,722			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, 15,552 shares issued and outstanding at September 30, 2021 and 15,359 at December 31, 2020		11,331			11,223
Additional paid-in capital		105,036			104,072
Retained earnings (accumulated deficit)		(5,213	)		11,067
Total shareholders’ equity		111,154			126,362
Total liabilities and shareholders’ equity	$	135,876		$	231,343

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

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GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2021			2020			2021			2020
Revenue	$	19,587		$	25,306		$	67,640		$	94,973
Cost of revenue		19,785			25,941			66,813			96,804
Gross profit (loss)		(198	)		(635	)		827			(1,831	)
General and administrative expense		3,224			2,748			9,104			9,429
Impairments and (gain) loss on assets held for sale, net		—			72			—			72
Other (income) expense, net		260			749			(649	)		(9,284	)
Operating loss		(3,682	)		(4,204	)		(7,628	)		(2,048	)
Gain on extinguishment of debt		9,061			—			9,061			—
Interest (expense) income, net		(58	)		(118	)		(347	)		(154	)
Income (loss) before income taxes		5,321			(4,322	)		1,086			(2,202	)
Income tax (expense) benefit		(9	)		20			6			(86	)
Income (loss) from continuing operations		5,312			(4,302	)		1,092			(2,288	)
Loss from discontinued operations, net of taxes		—			(8,035	)		(17,372	)		(9,681	)
Net income (loss)	$	5,312		$	(12,337	)	$	(16,280	)	$	(11,969	)
Per share data:
Basic and diluted income (loss) from continuing operations	$	0.34		$	(0.28	)	$	0.07		$	(0.15	)
Basic and diluted loss from discontinued operations		—			(0.52	)		(1.12	)		(0.63	)
Basic and diluted income (loss) per share	$	0.34		$	(0.81	)	$	(1.05	)	$	(0.78	)

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

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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
Net loss		—		—			—			(12,337	)		(12,337	)
Vesting of restricted stock		16		—			—			—			—
Stock-based compensation expense		—		34			307			—			341
Balance at September 30, 2020		15,325	$	11,189		$	103,761		$	26,473		$	141,423

	Common Stock					Additional Paid-In			Retained Earnings (Accumulated			Total Shareholders’
	Shares		Amount			Capital			Deficit)			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
Net income		—		—			—			5,312			5,312
Vesting of restricted stock		17		—			—			—			—
Stock-based compensation expense		—		50			453			—			503
Balance at September 30, 2021		15,552	$	11,331		$	105,036		$	(5,213	)	$	111,154

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

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GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

	Nine Months Ended September 30,
	2021			2020
Cash flows from operating activities:
Net loss	$	(16,280	)	$	(11,969	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and lease asset amortization		4,282			6,463
Other amortization, net		15			48
Asset impairments		22,750			—
Loss on Shipyard Transaction		2,581			—
(Gain) loss on sale of assets held for sale, net		—			72
(Gain) loss on sale of fixed assets and other assets, net		45			(5	)
Gain on extinguishment of debt		(9,061	)		—
Stock-based compensation expense		1,180			781
Changes in operating assets and liabilities:
Contract receivables and retainage, net		7,164			1,659
Contract assets		(4,436	)		(20,232	)
Prepaid expenses, inventory and other current assets		(471	)		1,713
Accounts payable		(13,261	)		18,900
Contract liabilities		(6,342	)		(6,094	)
Accrued expenses and other current liabilities		1,206			(656	)
Noncurrent assets and liabilities, net		(600	)		2,043
Net cash used in operating activities		(11,228	)		(7,277	)
Cash flows from investing activities:
Capital expenditures		(1,080	)		(10,191	)
Proceeds from Shipyard Transaction, net of transaction costs		31,677			—
Proceeds from sale of property and equipment		4,439			1,679
Purchases of short-term investments		—			(19,992	)
Maturities of short-term investments		8,000			20,000
Net cash provided by (used in) investing activities		43,036			(8,504	)
Cash flows from financing activities:
Proceeds from borrowings		—			10,000
Repayment of borrowings		(1,050	)		—
Payment of financing cost		—			(70	)
Tax payments for vested stock withholdings		(108	)		(74	)
Net cash provided by (used in) financing activities		(1,158	)		9,856
Net increase (decrease) in cash, cash equivalents and restricted cash		30,650			(5,925	)
Cash, cash equivalents and restricted cash, beginning of period		43,159			49,703
Cash, cash equivalents and restricted cash, end of period	$	73,809		$	43,778
Supplemental cash flow information:
Deferred Transaction Price receivable from Shipyard Transaction	$	2,200		$	—
Forgiveness of principal and interest of PPP Loan	$	9,061		$	—

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

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GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 the third quarter 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 nine months ended September 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 September 30, 2021, and operating results for the three and nine months ended September 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 nine months ended September 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.

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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;

•

costs and insurance recoveries associated with damage to our operating facilities in Houma, Louisiana resulting from Hurricane Ida discussed further below; 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 experienced significant volatility, resulting in reductions in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, our operating results and cash flows have been negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing, under-utilization of our operating facilities and resources, and losses on certain projects. COVID-19 added another layer of pressure and uncertainty on oil prices and our end markets, which further impacted our operations during 2020 and 2021. In addition, 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.

The ultimate business and financial impacts of oil price volatility and COVID-19 on our business and results of operations continues to be uncertain, but the impacts have included, or may include, among other things, reduced bidding activity, suspension or termination of backlog, deterioration of customer financial condition, potential supply interruptions, and unanticipated project costs due to project disruptions and schedule delays, material price increases, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, lack of performance by subcontractors and suppliers, and contract disputes. Our 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 oil price volatility and COVID-19.

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.

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 September 30, 2021, we had $2.1 million of restricted cash as security for letters of credit issued under our letter of credit facility (“LC Facility”) with Hancock Whitney Bank (“Whitney Bank”). Our restricted cash is held in an interest-bearing money market account with Whitney Bank. The classification of the restricted cash as current and noncurrent is determined by the contractual maturity dates of the letters of credit being secured, with letters of credit having maturity dates of twelve months or less from the balance sheet date classified as current, and letters of credit having maturity dates of longer than twelve months from the balance sheet date classified as noncurrent. We had no restricted cash at December 31, 2020. See Note 5 for further discussion of our cash security requirements under our LC Facility.

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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. We had no short-term investments at September 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.

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 2 for discussion of our long-lived asset impairments associated with Hurricane Ida and Note 3 for discussion of our long-lived asset impairments within discontinued operations.

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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. We recognize expense on a straight-line basis for leases with escalations over the life of the lease.

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.

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

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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