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)
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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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(Registrant’s telephone number, including area code)
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 November 9, 2021, was
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 September 30, 2021 (unaudited) and December 31, 2020 |
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2 |
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3 |
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4 |
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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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22 |
Item 4. |
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43 |
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PART II |
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43 |
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Item 1. |
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43 |
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Item 1A. |
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43 |
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Item 6. |
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44 |
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45 |
- i -
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. |
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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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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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contracts in progress |
Net contract assets and contract liabilities on projects. |
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COVID-19 |
The ongoing global coronavirus pandemic. |
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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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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. |
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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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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 -
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 leased 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 leased 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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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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offshore |
In unprotected waters outside coastlines. |
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onshore |
Inside the coastline on land. |
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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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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 paying 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. |
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Shipyard |
Our Shipyard Division. |
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Shipyard Facility |
Our Shipyard Division’s owned facility located in Houma, Louisiana that was sold in connection with the Shipyard Transaction. |
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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. |
- iii -
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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 base sales price of $28.6 million associated with the Shipyard Transaction. |
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U.S. |
The United States of America. |
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Whitney Bank |
Hancock Whitney Bank. |
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- iv -
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
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September 30, 2021 |
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December 31, 2020 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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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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— |
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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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Current assets of discontinued operations |
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— |
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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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Noncurrent assets of discontinued operations |
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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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— |
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Current liabilities of discontinued operations |
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Total current liabilities |
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Long-term debt, noncurrent |
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— |
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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 September 30, 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 September 30, |
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Nine Months Ended September 30, |
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2021 |
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2020 |
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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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$ |
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$ |
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Cost of revenue |
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Gross profit (loss) |
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( |
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( |
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( |
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General and administrative expense |
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Impairments and (gain) loss on assets held for sale, net |
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— |
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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 loss |
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( |
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( |
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( |
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( |
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Gain on extinguishment of debt |
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— |
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— |
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Interest (expense) income, net |
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( |
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( |
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( |
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( |
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Income (loss) before income taxes |
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( |
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( |
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Income tax (expense) benefit |
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( |
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( |
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Income (loss) from continuing operations |
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( |
) |
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( |
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Loss from discontinued operations, net of taxes |
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— |
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( |
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( |
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( |
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Net income (loss) |
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$ |
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$ |
( |
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$ |
( |
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$ |
( |
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Per share data: |
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Basic and diluted income (loss) from continuing operations |
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$ |
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$ |
( |
) |
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$ |
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$ |
( |
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Basic and diluted loss from discontinued operations |
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— |
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( |
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( |
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( |
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Basic and diluted income (loss) per share |
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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.
- 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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Net loss |
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— |
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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 June 30, 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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( |
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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 September 30, 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 Earnings (Accumulated |
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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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Deficit) |
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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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( |
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Vesting of restricted stock |
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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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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 June 30, 2021 |
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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 September 30, 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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Nine Months Ended September 30, |
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2021 |
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2020 |
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Cash flows from operating activities: |
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|
|
|
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and lease asset amortization |
|
|
|
|
|
|
|
|
Other amortization, net |
|
|
|
|
|
|
|
|
Asset impairments |
|
|
|
|
|
|
— |
|
Loss on Shipyard Transaction |
|
|
|
|
|
|
— |
|
(Gain) loss on sale of assets held for sale, net |
|
|
— |
|
|
|
|
|
(Gain) loss on sale of fixed assets and other assets, net |
|
|
|
|
|
|
( |
) |
Gain on extinguishment of debt |
|
|
( |
) |
|
|
— |
|
Stock-based compensation expense |
|
|
|
|
|
|
|
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Contract receivables and retainage, net |
|
|
|
|
|
|
|
|
Contract assets |
|
|
( |
) |
|
|
( |
) |
Prepaid expenses, inventory and other current assets |
|
|
( |
) |
|
|
|
|
Accounts payable |
|
|
( |
) |
|
|
|
|
Contract liabilities |
|
|
( |
) |
|
|
( |
) |
Accrued expenses and other current liabilities |
|
|
|
|
|
|
( |
) |
Noncurrent assets and liabilities, net |
|
|
( |
) |
|
|
|
|
Net cash used in operating activities |
|
|
( |
) |
|
|
( |
) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Capital expenditures |
|
|
( |
) |
|
|
( |
) |
Proceeds from Shipyard Transaction, net of transaction costs |
|
|
|
|
|
|
— |
|
Proceeds from sale of property and equipment |
|
|
|
|
|
|
|
|
Purchases of short-term investments |
|
|
— |
|
|
|
( |
) |
Maturities of short-term investments |
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
|
|
|
|
|
|
( |
) |
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
|
— |
|
|
|
|
|
Repayment of borrowings |
|
|
( |
) |
|
|
— |
|
Payment of financing cost |
|
|
— |
|
|
|
( |
) |
Tax payments for vested stock withholdings |
|
|
( |
) |
|
|
( |
) |
Net cash provided by (used in) financing activities |
|
|
( |
) |
|
|
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash |
|
|
|
|
|
|
( |
) |
Cash, cash equivalents and restricted cash, beginning of period |
|
|
|
|
|
|
|
|
Cash, cash equivalents and restricted cash, end of period |
|
$ |
|
|
|
$ |
|
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
Deferred Transaction Price receivable from Shipyard Transaction |
|
$ |
|
|
|
$ |
— |
|
Forgiveness of principal and interest of PPP Loan |
|
$ |
|
|
|
$ |
— |
|
The accompanying notes are an integral part of these financial statements.
- 4 -
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
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.
- 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:
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• |
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; |
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• |
fair value and recoverability assessments that must be periodically performed with respect to long-lived assets and our assets held for sale; |
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• |
determination of deferred income tax assets, liabilities and related valuation allowances; |
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• |
reserves for bad debts; |
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• |
liabilities related to self-insurance programs; |
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• |
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 $
- 6 -
Short-Term Investments – We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. We had
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
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.
- 7 -
Leases
We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our lease payments for leases with an original term of longer than twelve months. We do not record an asset or liability for leases with an original term of twelve months or less and we do not separate lease and non-lease components for our leases. Our lease assets are reflected within other noncurrent assets, and the current and noncurrent portions of our lease liabilities are reflected within accrued expenses and other liabilities, and other noncurrent liabilities, respectively, on our Balance Sheet. 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:
|
• |
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