false 2022 Q1 0001031623 --12-31 2022 0001031623 2022-01-01 2022-03-31 xbrli:shares 0001031623 2022-04-30 iso4217:USD 0001031623 2022-03-31 0001031623 2021-12-31 iso4217:USD xbrli:shares 0001031623 2021-01-01 2021-03-31 0001031623 us-gaap:CommonStockMember 2020-12-31 0001031623 us-gaap:AdditionalPaidInCapitalMember 2020-12-31 0001031623 us-gaap:RetainedEarningsMember 2020-12-31 0001031623 2020-12-31 0001031623 us-gaap:RetainedEarningsMember 2021-01-01 2021-03-31 0001031623 us-gaap:CommonStockMember 2021-01-01 2021-03-31 0001031623 us-gaap:AdditionalPaidInCapitalMember 2021-01-01 2021-03-31 0001031623 us-gaap:CommonStockMember 2021-03-31 0001031623 us-gaap:AdditionalPaidInCapitalMember 2021-03-31 0001031623 us-gaap:RetainedEarningsMember 2021-03-31 0001031623 2021-03-31 0001031623 us-gaap:CommonStockMember 2021-12-31 0001031623 us-gaap:AdditionalPaidInCapitalMember 2021-12-31 0001031623 us-gaap:RetainedEarningsMember 2021-12-31 0001031623 us-gaap:RetainedEarningsMember 2022-01-01 2022-03-31 0001031623 us-gaap:CommonStockMember 2022-01-01 2022-03-31 0001031623 us-gaap:AdditionalPaidInCapitalMember 2022-01-01 2022-03-31 0001031623 us-gaap:CommonStockMember 2022-03-31 0001031623 us-gaap:AdditionalPaidInCapitalMember 2022-03-31 0001031623 us-gaap:RetainedEarningsMember 2022-03-31 gifi:segment 0001031623 gifi:LCFacilityMember 2022-03-31 0001031623 gifi:LCFacilityMember 2021-12-31 0001031623 gifi:LCFacilityMember gifi:BalanceSheetDateClassifiedAsCurrentMember 2021-01-01 2021-03-31 0001031623 gifi:LCFacilityMember gifi:BalanceSheetDateClassifiedAsNoncurrentMember 2021-01-01 2021-03-31 0001031623 srt:MinimumMember 2022-01-01 2022-03-31 0001031623 srt:MaximumMember 2022-01-01 2022-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:IntersegmentEliminationMember 2022-01-01 2022-03-31 0001031623 us-gaap:FixedPriceContractMember 2022-01-01 2022-03-31 0001031623 us-gaap:TimeAndMaterialsContractMember us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:TimeAndMaterialsContractMember us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:TimeAndMaterialsContractMember 2022-01-01 2022-03-31 0001031623 gifi:OtherBasisOfPricingMember us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2022-01-01 2022-03-31 0001031623 gifi:OtherBasisOfPricingMember us-gaap:IntersegmentEliminationMember 2022-01-01 2022-03-31 0001031623 gifi:OtherBasisOfPricingMember 2022-01-01 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember 2022-01-01 2022-03-31 0001031623 us-gaap:IntersegmentEliminationMember 2022-01-01 2022-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:FixedPriceContractMember us-gaap:IntersegmentEliminationMember 2021-01-01 2021-03-31 0001031623 us-gaap:FixedPriceContractMember 2021-01-01 2021-03-31 0001031623 us-gaap:TimeAndMaterialsContractMember us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:TimeAndMaterialsContractMember us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:TimeAndMaterialsContractMember 2021-01-01 2021-03-31 0001031623 gifi:OtherBasisOfPricingMember us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2021-01-01 2021-03-31 0001031623 gifi:OtherBasisOfPricingMember us-gaap:IntersegmentEliminationMember 2021-01-01 2021-03-31 0001031623 gifi:OtherBasisOfPricingMember 2021-01-01 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember 2021-01-01 2021-03-31 0001031623 us-gaap:IntersegmentEliminationMember 2021-01-01 2021-03-31 0001031623 gifi:ServicesSegmentMember us-gaap:OperatingSegmentsMember 2022-03-31 0001031623 gifi:FabricationSegmentMember us-gaap:OperatingSegmentsMember 2022-03-31 0001031623 gifi:ShipyardSegmentMember us-gaap:OperatingSegmentsMember 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember 2022-03-31 0001031623 gifi:SecondFortyVehicleFerryMember 2022-01-01 2022-03-31 gifi:Vechicle 0001031623 gifi:FortyVehicleFerryMember 2020-01-01 2020-12-31 xbrli:pure 0001031623 gifi:FortyVehicleFerryVesselTwoMember 2022-03-31 0001031623 gifi:FortyVehicleFerryVesselOneMember 2022-03-31 0001031623 gifi:FortyVehicleFerryMember 2022-03-31 0001031623 gifi:FabricationSegmentMember 2021-01-01 2021-03-31 0001031623 gifi:ShipyardSegmentMember 2021-01-01 2021-03-31 0001031623 gifi:OffshoreFacilityModulesMember 2021-01-01 2021-03-31 0001031623 gifi:SeventyVehicleFerryMember 2021-01-01 2021-03-31 0001031623 gifi:SeventyVehicleFerryMember 2021-03-31 0001031623 gifi:HurricaneIdaMember 2022-01-01 2022-03-31 0001031623 gifi:HurricaneIdaMember 2021-01-01 2021-12-31 0001031623 gifi:HurricaneIdaMember 2022-03-31 0001031623 gifi:SecondFortyVehicleFerryMember gifi:HurricaneIdaMember 2022-01-01 2022-03-31 0001031623 gifi:SecondFortyVehicleFerryMember gifi:HurricaneIdaMember srt:MinimumMember 2022-01-01 2022-03-31 0001031623 gifi:SecondFortyVehicleFerryMember gifi:HurricaneIdaMember srt:MaximumMember 2022-01-01 2022-03-31 0001031623 gifi:BollingerMember gifi:ShipyardTransactionsMember 2021-04-19 0001031623 gifi:BollingerMember gifi:ShipyardTransactionsMember 2021-04-19 2021-04-19 0001031623 gifi:BollingerMember gifi:ShipyardTransactionsMember 2021-01-01 2021-12-31 0001031623 gifi:BollingerMember gifi:ShipyardTransactionsMember 2021-04-01 2021-06-30 gifi:vessel 0001031623 gifi:ShipyardTransactionsMember 2021-04-19 2021-04-19 gifi:Ship_project gifi:drydock 0001031623 gifi:ShipyardTransactionsMember gifi:FortyVehicleFerryMember 2021-04-19 2021-04-19 0001031623 gifi:ShipyardTransactionsMember 2021-01-01 2021-03-31 0001031623 gifi:ShipyardTransactionsMember gifi:RetainedShipyardContractsAndOtherShipyardDivisionLiabilitiesMember 2022-03-31 0001031623 gifi:ShipyardTransactionsMember gifi:RetainedShipyardContractsAndOtherShipyardDivisionLiabilitiesMember 2021-12-31 0001031623 gifi:ShipyardTransactionsMember 2022-01-01 2022-03-31 0001031623 gifi:ShipyardTransactionsMember 2022-03-31 0001031623 gifi:ShipyardTransactionsMember 2021-12-31 0001031623 gifi:TowingSalvageAndRescueShipMember 2021-01-01 2021-03-31 0001031623 gifi:DSSAcquisitionMember 2021-12-01 2021-12-01 0001031623 gifi:DSSAcquisitionMember 2021-12-01 0001031623 gifi:DSSAcquisitionMember us-gaap:CustomerRelationshipsMember 2021-12-01 2021-12-01 0001031623 srt:MaximumMember gifi:DSSAcquisitionMember us-gaap:CustomerRelationshipsMember 2022-03-31 0001031623 gifi:DSSAcquisitionMember us-gaap:CustomerRelationshipsMember 2021-12-01 0001031623 gifi:DSSAcquisitionMember us-gaap:CustomerRelationshipsMember 2022-03-31 0001031623 gifi:DSSAcquisitionMember gifi:BaseCashPurchasePriceMember 2021-12-01 2021-12-01 0001031623 gifi:DSSAcquisitionMember gifi:AssumedEmployeeVacationObligationsMember 2021-12-01 2021-12-01 0001031623 gifi:DSSAcquisitionMember 2021-01-01 2021-03-31 gifi:crane 0001031623 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember 2022-01-01 2022-03-31 0001031623 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember gifi:ShipyardSegmentMember 2022-03-31 0001031623 us-gaap:DisposalGroupHeldforsaleNotDiscontinuedOperationsMember gifi:ShipyardSegmentMember 2021-12-31 0001031623 gifi:LCFacilityMember 2022-01-01 2022-03-31 0001031623 us-gaap:LetterOfCreditMember 2022-03-31 0001031623 gifi:PPPLoanMember 2020-04-17 0001031623 gifi:PPPLoanMember 2021-07-28 2021-07-28 0001031623 gifi:PPPLoanMember 2021-07-01 2021-09-30 0001031623 2018-03-31 0001031623 us-gaap:SuretyBondMember 2018-01-01 2018-03-31 0001031623 2021-01-01 2021-12-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-01-01 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-01-01 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-01-01 2022-03-31 0001031623 us-gaap:CorporateNonSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-01-01 2022-03-31 0001031623 us-gaap:SegmentContinuingOperationsMember 2022-01-01 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-03-31 0001031623 us-gaap:CorporateNonSegmentMember us-gaap:SegmentContinuingOperationsMember 2022-03-31 0001031623 us-gaap:SegmentContinuingOperationsMember 2022-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-01-01 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-01-01 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-01-01 2021-03-31 0001031623 us-gaap:CorporateNonSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-01-01 2021-03-31 0001031623 us-gaap:SegmentContinuingOperationsMember 2021-01-01 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ServicesSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:FabricationSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-03-31 0001031623 us-gaap:OperatingSegmentsMember gifi:ShipyardSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-03-31 0001031623 us-gaap:CorporateNonSegmentMember us-gaap:SegmentContinuingOperationsMember 2021-03-31 0001031623 us-gaap:SegmentContinuingOperationsMember 2021-03-31

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

 

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

For the quarterly period ended

March 31, 2022

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 April 30, 2022, was 15,775,304.

 

 

 

 

 


 

 

GULF ISLAND FABRICATION, INC.

I N D E X

 

 

 

 

 

Page

 

 

 

PART I

 

FINANCIAL INFORMATION

 

1

Item 1.

 

Financial Statements

 

1

 

 

Consolidated Balance Sheets at March 31, 2022 (unaudited) and December 31, 2021

 

1

 

 

Consolidated Statements of Operations for the Three Months Ended March 31, 2022 and 2021 (unaudited)

 

2

 

 

Consolidated Statements of Changes in Shareholders' Equity for the Three Months Ended March 31, 2022 and 2021 (unaudited)

 

3

 

 

Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (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

 

36

 

 

 

 

 

PART II

 

Other Information

 

36

Item 1.

 

Legal Proceedings

 

36

Item 1A.

 

Risk Factors

 

36

Item 6.

 

Exhibits

 

37

Signatures

 

38

 

i

 


 

 

GLOSSARY OF TERMS

As used in this report filed on Form 10-Q for the quarter ended March 31, 2022 (“this Report”), the following abbreviations and terms have the meanings 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.

 

2021 Annual Report

Our annual report for the year ended December 31, 2021, filed with the SEC on Form 10-K on March 22, 2022.

 

 

Acquisition Date

The closing date of the DSS Acquisition of December 1, 2021.

 

 

Active Retained    Shipyard Contracts

Contracts and related obligations for our seventy-vehicle ferry and two forty-vehicle ferry projects that are under construction, which were excluded from the Shipyard Transaction.

 

 

AHFS

Assets Held for Sale.

 

 

ASC

Accounting Standards Codification.

 

 

ASU

Accounting Standards Update.

 

 

Balance Sheet

Our Consolidated Balance Sheets, as filed in this Report.

 

 

Bollinger

Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C.

 

 

CARES Act

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

 

 

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.

 

 

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 $0.9 million that is to 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.

 

 

DSS Acquisition

The acquisition of the DSS Business from Dynamic on December 1, 2021.

 

 

DSS Business

The services and industrial staffing businesses of Dynamic, which were acquired on December 1, 2021 in connection with the DSS Acquisition.

 

 

DTA(s)

Deferred Tax Asset(s).

 

 

Dynamic

Dynamic Industries, Inc.

 

 

EPC

Engineering, Procurement and Construction.

 

 

Exchange Act

Securities Exchange Act of 1934, as amended.

 

 

Facilities

Our Houma Facilities, Ingleside Facility, Harvey Facility and other facilities that support our operations.

 

 

Fabrication Division

Our Fabrication reportable segment.

 

 

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.

 

 

Harvey Facility

Our leased facility located in Harvey, Louisiana assumed in connection with the DSS Acquisition that is subject to the Harvey Option.

 

 

Harvey Option

Purchase option entered into in connection with the DSS Acquisition that enables us to buy the Harvey Facility prior to December 2, 2022 for a nominal amount.

 

 

Houma Facilities

Our owned facilities located in Houma, Louisiana that support our Fabrication Division and Services Division and represent our primary operating facilities.

 

 

Ingleside Facility

Our owned facility located in Ingleside, Texas acquired in connection with the DSS Acquisition.

 

 

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 leased facility located near Jennings, Louisiana, which was closed in the fourth quarter 2020 that previously supported our Shipyard Division.

 

 

labor hours

Hours worked by employees directly involved in the fabrication of our products or delivery of our services.

 

 

Lake Charles Facility

Our leased facility located near Lake Charles, Louisiana, which was closed in the fourth quarter 2020 that previously supported our Shipyard Division.

 

 

LC Facility

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

 

 

LNG

Liquified Natural Gas.

 

 

Mortgage Agreement

Multiple indebtedness mortgage arrangement with one of our Sureties, to secure our obligations and liabilities under our general indemnity agreement with the Surety associated with outstanding surety bonds for certain contracts, which encumbers the real estate associated with our Houma Facilities and includes certain covenants and events of default.

 

 

modules

Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a refining, petrochemical, LNG or industrial system.

 

 

MPSV(s)

Multi-Purpose Supply Vessel(s).

 

 

NOL(s)

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

 

 

offshore

In unprotected waters outside coastlines.

 

 

onshore

Inside the coastline on land.

 

 

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.

 

 

platform

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

 

 

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.

 

 

Pro Forma Information

The condensed combined financial information that gives effect to the DSS Acquisition as if it had occurred on January 1, 2021.

 

 

Purchase Price

The purchase price of $7.6 million associated with the DSS Acquisition.

 

 

Restrictive Covenant Agreement

Restrictive covenant arrangement with one of our Sureties, 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.

 

 

iii

 


 

Retained Shipyard Contracts

Contracts and related obligations for the Active Retained Shipyard Contracts and two MPSV projects that are subject to dispute, which were excluded from the Shipyard Transaction.

 

 

SAB

Staff Accounting Bulletin.

 

 

SBA

Small Business Administration.

 

 

SEC

U.S. Securities and Exchange Commission.

 

 

Services Division

Our Services reportable segment.

 

 

Shipyard Division

Our Shipyard reportable segment.

 

 

Shipyard Facility

Our owned facility located in Houma, Louisiana, which was sold in connection with the Shipyard Transaction that previously supported our Shipyard Division.

 

 

Shipyard Transaction

The sale of our Shipyard Division’s operating assets and certain construction contracts on April 19, 2021, which included the Divested Shipyard Contracts and our Shipyard Facility.

 

 

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.

 

 

Statement of Shareholders’ Equity

Our Consolidated Statements of Changes in Shareholders’ Equity, as filed in this Report.

 

 

Surety or Sureties

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 which can include a mark-up.

 

 

Topic 606

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

 

 

Transaction Date

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

 

 

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.

 

 

Working Capital True-Up

The $7.8 million received in the second quarter 2021 in connection with the Shipyard Transaction associated with changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Transaction Date.

 

 

 

 

 

iv

 


 

 

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)

 

 

 

March 31,

2022

 

 

December 31,

2021

 

 

 

(Unaudited)

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

41,061

 

 

$

52,886

 

Restricted cash, current

 

 

1,703

 

 

 

1,297

 

Contract receivables and retainage, net

 

 

23,643

 

 

 

15,986

 

Contract assets

 

 

2,694

 

 

 

4,759

 

Prepaid expenses and other assets

 

 

9,120

 

 

 

6,971

 

Inventory

 

 

1,700

 

 

 

1,779

 

Assets held for sale

 

 

1,800

 

 

 

1,800

 

Total current assets

 

 

81,721

 

 

 

85,478

 

Restricted cash, noncurrent

 

 

 

 

 

406

 

Property, plant and equipment, net

 

 

32,057

 

 

 

32,866

 

Goodwill

 

 

2,217

 

 

 

2,217

 

Other intangibles, net

 

 

949

 

 

 

984

 

Other noncurrent assets

 

 

13,261

 

 

 

13,322

 

Total assets

 

$

130,205

 

 

$

135,273

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Accounts payable

 

$

9,531

 

 

$

9,280

 

Contract liabilities

 

 

4,198

 

 

 

6,648

 

Accrued expenses and other liabilities

 

 

15,831

 

 

 

14,026

 

Total current liabilities

 

 

29,560

 

 

 

29,954

 

Other noncurrent liabilities

 

 

1,252

 

 

 

1,411

 

Total liabilities

 

 

30,812

 

 

 

31,365

 

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, 15,775 shares issued

   and outstanding at March 31, 2022 and 15,622 at December 31, 2021

 

 

11,435

 

 

 

11,384

 

Additional paid-in capital

 

 

105,972

 

 

 

105,511

 

Accumulated deficit

 

 

(18,014

)

 

 

(12,987

)

Total shareholders’ equity

 

 

99,393

 

 

 

103,908

 

Total liabilities and shareholders’ equity

 

$

130,205

 

 

$

135,273

 

 

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

- 1 -


 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

 

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Revenue

 

$

28,686

 

 

$

23,785

 

Cost of revenue

 

 

29,106

 

 

 

23,760

 

Gross profit (loss)

 

 

(420

)

 

 

25

 

General and administrative expense

 

 

4,110

 

 

 

2,787

 

Other (income) expense, net

 

 

452

 

 

 

(529

)

Operating loss

 

 

(4,982

)

 

 

(2,233

)

Interest (expense) income, net

 

 

(40

)

 

 

(194

)

Loss before income taxes

 

 

(5,022

)

 

 

(2,427

)

Income tax (expense) benefit

 

 

(5

)

 

 

11

 

Loss from continuing operations

 

 

(5,027

)

 

 

(2,416

)

Loss from discontinued operations, net of taxes

 

 

 

 

 

(16,121

)

Net loss

 

$

(5,027

)

 

$

(18,537

)

Per share data:

 

 

 

 

 

 

 

 

Basic and diluted loss from continuing operations

 

$

(0.32

)

 

$

(0.15

)

Basic and diluted loss from discontinued operations

 

 

 

 

 

(1.05

)

Basic and diluted loss per share

 

$

(0.32

)

 

$

(1.20

)

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 Earnings

(Accumulated

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Equity

 

Balance at December 31, 2020

 

 

15,359

 

 

$

11,223

 

 

$

104,072

 

 

$

9,181

 

 

$

124,476

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(18,537

)

 

 

(18,537

)

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

 

 

$

(9,356

)

 

$

106,152

 

 

 

 

Common Stock

 

 

Additional

Paid-In

 

 

Retained Earnings

(Accumulated

 

 

Total

Shareholders’

 

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit)

 

 

Equity

 

Balance at December 31, 2021

 

 

15,622

 

 

$

11,384

 

 

$

105,511

 

 

$

(12,987

)

 

$

103,908

 

Net loss

 

 

 

 

 

 

 

 

 

 

 

(5,027

)

 

 

(5,027

)

Vesting of restricted stock

 

 

153

 

 

 

(6

)

 

 

(53

)

 

 

 

 

 

(59

)

Stock-based compensation expense

 

 

 

 

 

57

 

 

 

514

 

 

 

 

 

 

571

 

Balance at March 31, 2022

 

 

15,775

 

 

$

11,435

 

 

$

105,972

 

 

$

(18,014

)

 

$

99,393

 

 

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

 

- 3 -


 

 

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

Three Months Ended March 31,

 

 

 

2022

 

 

2021

 

Cash flows from operating activities:

 

 

 

 

 

 

 

 

Net loss

 

$

(5,027

)

 

$

(18,537

)

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

1,251

 

 

 

1,940

 

Asset impairments

 

 

 

 

 

22,750

 

(Gain) loss on sale of fixed assets, net

 

 

(25

)

 

 

9

 

Stock-based compensation expense

 

 

571

 

 

 

313

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

 

Contract receivables and retainage, net

 

 

(7,657

)

 

 

(2,779

)

Contract assets

 

 

2,065

 

 

 

(3,851

)

Prepaid expenses, inventory and other current assets

 

 

(2,070

)

 

 

228

 

Accounts payable

 

 

346

 

 

 

1,756

 

Contract liabilities

 

 

(2,450

)

 

 

(3,317

)

Accrued expenses and other current liabilities

 

 

1,792

 

 

 

2,199

 

Noncurrent assets and liabilities, net

 

 

(147

)

 

 

(353

)

Net cash provided by (used in) operating activities

 

 

(11,351

)

 

 

358

 

Cash flows from investing activities:

 

 

 

 

 

 

 

 

Capital expenditures

 

 

(440

)

 

 

(460

)

Proceeds from sale of property and equipment

 

 

25

 

 

 

39

 

Net cash used in investing activities

 

 

(415

)

 

 

(421

)

Cash flows from financing activities:

 

 

 

 

 

 

 

 

Tax payments for vested stock withholdings

 

 

(59

)

 

 

(100

)

Net cash used in financing activities

 

 

(59

)

 

 

(100

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(11,825

)

 

 

(163

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

54,589

 

 

 

43,159

 

Cash, cash equivalents and restricted cash, end of period

 

$

42,764

 

 

$

42,996

 

 

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

 

- 4 -


 

 

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2022

(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 specialty services, including project management, hookup, commissioning, repair, maintenance, scaffolding, coatings, civil construction and staffing services to the industrial and energy sectors. 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 three operating divisions (“Services”, “Fabrication” and “Shipyard”) and one non-operating division (“Corporate”), which represent our reportable segments. Our corporate headquarters is located in Houston, Texas and our primary operating facilities are located in Houma, Louisiana (“Houma Facilities”). See Note 9 for discussion of our realigned reportable segments.

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.

On December 1, 2021, we acquired (“DSS Acquisition”) the services and industrial staffing businesses (“DSS Business”) of Dynamic Industries, Inc. (“Dynamic”). The operating results of the DSS Business are included within our Services Division. See Note 4 for further discussion of the DSS Acquisition.

Basis of Presentation

 

The accompanying unaudited Consolidated Financial Statements (“Financial Statements”) reflect all wholly owned subsidiaries.  Intercompany balances and transactions have been eliminated in consolidation. The Financial Statements have been prepared in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial statements, the instructions to Form 10-Q and Article 10 of Regulation S-X of the U.S. Securities and Exchange Commission (the “SEC”). Accordingly, the Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022. Our Consolidated Balance Sheet (“Balance Sheet”) at December 31, 2021, 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 2021 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 operating results for the three months ended March 31, 2021 have been classified as discontinued operations on our Consolidated Statements of Operations (“Statement of Operations”). We had no material operating results of discontinued operations for the three months ended March 31, 2022, and had no material assets and liabilities of discontinued operations at March 31, 2022 or December 31, 2021. Discontinued operations are not presented separately on our Consolidated Statements of Cash Flows (“Statement of Cash Flows”) or our Consolidated Statements of Changes in Shareholders’ Equity (“Statement of Shareholders’ Equity”). 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.

Revision of Previously Issued Financial Statements

During the fourth quarter 2021, we determined that we had immaterial errors in our previously issued financial statements. The adjustments required to reflect the corrections attributable to our previously issued financial statements for the three months ended March 31, 2021, were summarized in the footnotes to our Financial Statements in our 2021 Annual Report. Our results for the three months ended March 31, 2021 in this Report reflect the aforementioned corrections.

- 5 -


 

Operating Cycle

The duration of our contracts vary, but may 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.

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;

 

Determination of fair value with respect to acquired tangible and intangible assets;

 

Fair value and recoverability assessments that must be periodically performed with respect to long-lived tangible assets, assets held for sale, goodwill and other intangible assets;

 

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 Houma Facilities resulting from Hurricane Ida discussed further below; and

 

The impacts of volatile oil prices, the ongoing global coronavirus pandemic (“COVID-19”) and Russia’s invasion of Ukraine 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, COVID-19 and Russia’s Invasion of Ukraine – Since 2008, the price of oil has experienced significant volatility, including depressed prices over extended periods, 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 and under-utilization of our operating facilities and resources. Beginning in 2020, COVID-19 added another layer of pressure and uncertainty on oil prices (with oil prices reaching a twenty-year low), which further negatively impacted our end markets during 2021 and the first quarter 2022. This volatility in oil prices has been compounded by Russia’s invasion of Ukraine in February 2022, and the U.S. and other countries actions in response (with oil prices reaching an eight-year high), which may positively impact our end markets during 2022; however, the duration and broader consequences of this conflict are difficult to predict at this time.

In addition to the impacts on our end markets, our operations, as well as the operations of our customers, subcontractors and counterparties, were negatively impacted in 2020 and 2021 by physical distancing, quarantine and isolation measures and mandatory business closures that were enacted in an attempt to control the spread of COVID-19, and which could be reenacted in response to new and emerging strains and variants of COVID-19 or any future major public health crisis.

The ultimate business and financial impacts of oil price volatility, COVID-19 and Russia’s invasion of Ukraine 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; supply chain 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. We continue to monitor the impacts of oil price volatility, COVID-19 and Russia’s invasion of Ukraine on our operations, and our estimates in future periods will be revised for any events and changes in circumstances arising after the date of this Report.

- 6 -


 

Income (Loss) Per Share

Basic income (loss) per share is calculated by dividing net income or 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 in periods in which income is reported. See Note 8 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 both March 31, 2022 and December 31, 2021, we had $1.7 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. See Note 6 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 March 31, 2022 or December 31, 2021.

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 and graded vesting methods 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 5 for further discussion of our assets held for sale.

Depreciation and Amortization 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. Intangible assets are amortized on a straight-line basis over 7 years and amortization expense is reflected within general and administrative expense on our Statement of Operations.  

- 7 -


 

Long-Lived Assets

Goodwill Our goodwill is associated with the DSS Acquisition. Goodwill is not amortized, but instead is reviewed for impairment at least annually at a reporting unit level, absent any indicators of impairment or when other actions require an impairment assessment (such as a change in reporting units). Our Services Division includes one reporting unit associated with our DSS Acquisition. We perform our annual impairment assessment during the fourth quarter of each year based upon balances as of October 1. In evaluating goodwill for impairment, we have the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of our reporting unit is greater than its carrying value. If we determine that it is more likely than not that the carrying value of the reporting unit is greater than its fair value, we perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing it to the carrying value of the reporting unit, and we recognize an impairment charge to the extent its carrying value exceeds its fair value. We had no indicators of impairment during the three months ended March 31, 2022. If, based on future assessments, our goodwill is deemed to be impaired, the impairment would result in a charge to our operating results in the year of impairment. See Note 4 for discussion of the DSS Acquisition and related goodwill.

Other Long-Lived Assets Our property, plant and equipment, lease assets (included within other noncurrent assets), and finite-lived intangible assets (associated with the DSS Acquisition) 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. We had no indicators of impairment during the three months ended March 31, 2022. See Note 2 for discussion of our long-lived asset impairments associated with Hurricane Ida, Note 3 for discussion of our long-lived asset impairments within discontinued operations, and Note 4 for discussion of the DSS Acquisition and related long-lived assets.

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, accounts receivable and accounts payable approximate their fair values. Our fair value assessments for determining the impairments of goodwill, 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 discussion of the fair value measurements associated with the DSS Acquisition and Note 5 for further discussion of our assets held for sale.

 


- 8 -


 

 

Revenue Recognition

General – Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate and T&M. Our contracts primarily relate to the fabrication and construction of steel structures, modules and marine vessels, and project management services and other service arrangements. We recognize revenue from our contracts in accordance with Accounting Standards Update (“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers” (“Topic 606”).

Topic 606 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Additionally, provisions of Topic 606 specify which goods and services are distinct and represent separate performance obligations (representing the unit of account in Topic 606) within a contract and which goods and services (which could include multiple contracts or agreements) should be aggregated. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue for performance obligations satisfied over time are recognized as the work progresses. Revenue for performance obligations that do not meet the criteria for over time recognition are recognized at a point-in-time when a performance obligation is complete and a customer has obtained control of a promised asset.

Fixed-Price and Unit-Rate Contracts Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method based on contract costs incurred to date compared to total estimated contract costs (an input method). Contract costs include direct costs, such as materials and labor, and indirect costs attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred. Revenue and gross profit for contracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to change, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for the work performed to date. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which could result in material changes to our Financial Statements and related disclosures. See Note 2 for further discussion of projects with significant changes in estimated margins during the three months ended March 31, 2022 and 2021.

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

Variable Consideration Revenue and gross profit for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims, incentives and liquidated damages that may not be resolved until the later stages of the contract or after the contract has been completed. We estimate variable consideration based on the amount we expect to be entitled and include estimated amounts in transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. See Note 2 for further discussion of unapproved change orders, claims, incentives and liquidated damages for our projects.  

Additional Disclosures Topic 606 also requires disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. See Note 2 for required disclosures under Topic 606.

Pre-Contract Costs

Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At March 31, 2022 and December 31, 2021, 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.

- 9 -


 

Income Taxes

Income taxes have been provided for 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 for the three months ended March 31, 2022 and 2021, as no federal benefit was recorded for our losses as a full valuation allowance was recorded against our federal deferred tax assets generated during the respective periods. Income taxes recorded for the three months ended March 31, 2022 and 2021 represent state income taxes.

Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense.

 

New Accounting Standards

Financial Instruments – In June 2016, the 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 evaluating the effect that the new standard will have on our financial position, results of operations and related disclosures.

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

As discussed in Note 1, we recognize revenue from our contracts in accordance with Topic 606.  Summarized below are required disclosures under Topic 606 and other relevant guidance.

Disaggregation of Revenue

 

The following tables summarize revenue for each of our operating segments, disaggregated by contract type, for the three months ended March 31, 2022 and 2021 (in thousands):

 

 

 

Three Months Ended March 31, 2022

 

 

 

Services

 

 

Fabrication

 

 

Shipyard

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate(1)

 

$

1,609

 

 

$

5,044

 

 

$

2,497

 

 

$

(1

)

 

$

9,149

 

T&M(2)

 

 

18,463

 

 

 

573

 

 

 

 

 

 

 

 

 

19,036

 

Other

 

 

592

 

 

 

 

 

 

 

 

 

(91

)

 

 

501

 

Total

 

$

20,664

 

 

$

5,617

 

 

$

2,497

 

 

$

(92

)

 

$

28,686

 

 

 

 

Three Months Ended March 31, 2021

 

 

 

Services

 

 

Fabrication

 

 

Shipyard

 

 

Eliminations

 

 

Total

 

Fixed-price and unit-rate(1)

 

$

321

 

 

$

11,018

 

 

$

5,130

 

 

$

(190

)

 

$

16,279

 

T&M(2)

 

 

5,551

 

 

 

718

 

 

 

 

 

 

 

 

 

6,269

 

Other

 

 

1,634

 

 

 

 

 

 

 

 

 

(397

)

 

 

1,237

 

Total

 

$

7,506

 

 

$

11,736

 

 

$

5,130

 

 

$

(587

)

 

$

23,785

 

 

 

(1)

Revenue is recognized as the contract is progressed over time.

 

(2)

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

 


- 10 -


 

 

Future Performance Obligations

The following table summarizes our remaining performance obligations by operating segment at March 31, 2022 (in thousands):

 

 

 

Performance

Obligations

 

Services

 

$

1,237

 

Fabrication

 

 

7,027

 

Shipyard

 

 

7,611

 

Total

 

$

15,875

 

 

Contracts Assets and Liabilities

Revenue recognition and customer invoicing for our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed in Note 1; however, customer invoicing is generally dependent upon contractual billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet, or to the extent we have an unconditional right to the consideration, is reflected as contract receivables on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Information with respect to contracts that were incomplete at March 31, 2022 and December 31, 2021, is as follows (in thousands):

 

 

 

March 31,

 

 

December 31,

 

 

 

2022

 

 

2021

 

Contract assets(1), (2)

 

$

2,694

 

 

$

4,759

 

Contract liabilities(3), (4), (5)

 

 

(4,198

)

 

 

(6,648

)

Contracts in progress, net

 

$

(1,504

)

 

$

(1,889

)

 

 

(1)

The decrease in contract assets compared to December 31, 2021, was primarily due to decreased unbilled positions on various projects within our Fabrication Division.

 

(2)

Contract assets at March 31, 2022 and December 31, 2021, excludes $4.3 million and $2.3 million, respectively, associated with revenue recognized in excess of amounts billed for which we have an unconditional right to the consideration. Such amounts are reflected within contract receivables.

 

(3)

The decrease in contract liabilities compared to December 31, 2021, was primarily due to a decrease in accrued contract losses and the unwind of advance payments on our forty-vehicle ferry projects within our Shipyard Division.

 

(4)

Revenue recognized during the three months ended March 31, 2022 and 2021, related to amounts included in our contract liabilities balance at December 31, 2021 and 2020, was $2.1 million and $1.8 million, respectively.

 

(5)

Contract liabilities at March 31, 2022 and December 31, 2021, includes accrued contract losses of $2.9 million and $3.9 million, respectively. See “Changes in Project Estimates” below for further discussion of our accrued contract losses.

Allowance for Doubtful Accounts

Our provision for bad debts is included in other (income) expense, net on our Statement of Operations. Our provision for bad debts for the three months ended March 31, 2022 and 2021, and our allowance for doubtful accounts at March 31, 2022 and December 31, 2021, were not significant.

Variable Consideration

For the three months ended March 31, 2022 and 2021, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at March 31, 2022 and December 31, 2021, certain projects reflected a reduction to our estimated contract price for liquidated damages of $1.3 million and $1.2 million, respectively.  

 


- 11 -


 

 

Changes in Project Estimates

We determine the impact of changes in estimated margins on projects for a given period by calculating the amount of revenue recognized in the period that would have been recognized in a prior period had such estimated margins been forecasted in the prior period. The total impact of changes in estimated margins for a project as disclosed on a quarterly basis may be different from the applicable year-to-date impact due to the application of the percentage-of-completion method and the changing progress of the project at each period end. Such impacts may also be different when a project is commenced and completed within the applicable year-to-date period but spans multiple quarters.

Changes in Estimates for 2022 – For the three months ended March 31, 2022, individual projects with significant changes in estimated margins did not have a material net impact on our operating results.

Shipyard Division

 

Forty-Vehicle Ferry Projects – During sea trials in January 2022 for our second forty-vehicle ferry project, one of the propulsion systems unexpectedly shutdown, causing the vessel to veer off course and run aground, resulting in damage to the hull. During the three months ended March 31, 2022, we recorded a charge of $0.1 million associated with our deductible for our insurance coverage for such an incident. Our current estimate of the cost to repair the damage is $0.4 million; however, we believe any amounts incurred in excess of our deductible are covered by our insurance coverage. Further, we are working with the customer to determine the corrective actions required associated with the propulsion system. While such actions and associated costs are currently unknown, we believe the propulsion system shutdown was due to design deficiencies and are the responsibility of the customer as discussed further below.

As discussed in our 2021 Annual Report, during 2020 we experienced rework and construction challenges on our two forty-vehicle ferry projects, resulting in increases in forecast costs and liquidated damages and the need to fabricate a new hull for the first vessel. We believe these impacts are the result of deficiencies in design of the vessels. Further, we believe the impacts of the design deficiencies are the responsibility of the customer, and accordingly, during 2021 we submitted claims to our customer, and subsequently filed a lawsuit, to extend our project schedules and recover the previous forecast cost increases associated with the impacts of the design deficiencies. However, we can provide no assurance that we will be successful recovering these costs. Our forecasts at March 31, 2022 do not reflect potential future benefits, if any, from the favorable resolution of the lawsuit.

At March 31, 2022, the second vessel was approximately 96% complete and is forecast to be completed in the second quarter 2022 and the first vessel was approximately 77% complete and is forecast to be completed in the third quarter 2022. The projects were in a loss position at March 31, 2022 and our reserve for estimated losses was $2.2 million. Our forecast costs and schedule completion dates for the vessels are based on the current vessel design and reflect our best estimates; however, such estimates may be impacted by future challenges with, and resolution of, the vessel design deficiencies. While we continue to believe such impacts are the responsibility of the customer, we can provide no assurances that we will be successful recovering any future costs incurred associated with the design deficiencies. If future craft labor productivity and subcontractor costs differ from our current estimates, we are unable to achieve our progress estimates, our schedules are further extended or we incur additional schedule liquidated damages, we incur additional costs on the second vessel related to the damage caused during sea trials, we experience further challenges during sea trials or commissioning of either vessel or other challenges associated with the design deficiencies and are unable to recover associated costs from our customer, the projects would experience further losses.

Changes in Estimates for 2021 For the three months ended March 31, 2021, significant changes in estimated margins on projects positively impacted operating results for our Fabrication Division by $0.6 million and negatively impacted operating results for our Shipyard Division by $0.7 million. The changes in estimates were associated with the following:

Fabrication Division

 

Offshore Facility Modules Project – Positive impact for the three months ended March 31, 2021 of $0.6 million for our offshore modules project, resulting from reduced forecast costs, primarily associated with reduced craft labor and subcontracted services costs and contingency associated with schedule related liquidated damages. The impacts were primarily due to better than anticipated labor productivity and favorable resolution of change orders with the customer associated with schedule related liquidated damages.  The project was complete at March 31, 2022.


- 12 -


 

 

Shipyard Division

 

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

Other Operating and Project Matters

Hurricane IdaOn August 29, 2021, Hurricane Ida made landfall near Houma, Louisiana as a high-end Category 4 hurricane, with high winds, heavy rains and storm surge causing significant damage and power outages throughout the region. Our Houma Facilities did not experience significant flood damage; however, the high winds and heavy rain damaged multiple buildings and equipment and resulted in significant debris throughout the facility. As a result of the storm, certain buildings and equipment were damaged and were determined to be complete losses. Accordingly, during 2021, we recorded impairments of $0.5 million associated with the damaged assets. The impairments were offset by corresponding insurance recoveries, as we have determined it is probable that we will receive insurance proceeds to replace the damaged assets up to the amount of impairments recognized. In addition, multiple other buildings and equipment were partially damaged by the storm. We expect to incur future repair costs in excess of our deductibles for such assets; however, we believe that recovery of insurance proceeds for such costs is probable, and accordingly, we have not accrued for any future repair costs related to the partially damaged assets at March 31, 2022. We continue to work with our insurance providers and advisors to assess the full extent of damage to buildings and equipment, and applicable insurance coverage amounts, and restoration efforts are ongoing. During the three months ended March 31, 2022, we incurred actual costs of $1.9 million associated with ongoing clean-up and restoration efforts. We recorded charges of $0.3 million associated with such amounts attributable to deductibles and estimated unrecoverable amounts, and we recorded insurance recoveries of $1.6 million for the remaining amounts as we believe such costs are probable of recovery under our insurance policies. At March 31, 2022, we had total insurance receivables on our Balance Sheet of $2.7 million, net of a $1.0 million advance payment from our insurance carriers. The charges are included in other (income) expense, net on our Statement of Operations. The insurance receivable amounts, net of the advance payment, are included in prepaid expenses and other assets on our Balance Sheet.

In addition to damage to our Houma Facilities, the storm resulted in damage to our second forty-vehicle ferry project, the MPSVs (and associated equipment) that are in our possession and subject to dispute, and certain bulkheads where the vessels were moored. We have retained advisors to evaluate the extent to which any damage was the result of third-party vessels that broke free from their mooring during the storm and struck the ferry, MPSVs and bulkheads. During the three months ended March 31, 2022, we recorded charges of less than $0.1 million related to actual costs incurred associated with our insurance coverages, without giving consideration to potential recoveries from the third-parties associated with damage caused by their vessels, as we expect these deductibles to be met absent such recoveries. The charges are included in other (income) expense, net on our Statement of Operations. We are working with our insurance providers and advisors to assess the full extent of damage to the MPSVs and bulkheads and applicable insurance coverage amounts, which may be subject to further deductibles associated with our insurance coverages that range from $0.5 million to $1.0 million. See Note 7 for further discussion of our MPSV dispute.


- 13 -


 

 

3. SHIPYARD TRANSACTION AND DISCONTINUED OPERATIONS

Shipyard Transaction 

Transaction Summary On April 19, 2021 (“Transaction Date”), we entered into a definitive agreement and sold our Shipyard Division operating assets and certain construction contracts (“Shipyard Transaction”) to Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C. (collectively, “Bollinger”) for approximately $28.6 million (“Transaction Price”) ($26.1 million, net of transaction and other costs). We received $27.7 million of the Transaction Price during 2021 and the remaining $0.9 million (“Deferred Transaction Price”) will be received upon Bollinger’s collection of certain customer payments associated with the Divested Shipyard Contracts (defined below). The Deferred Transaction Price is anticipated to be received in the second quarter 2022, and has been reflected within prepaid expenses and other assets on our Balance Sheet at March 31, 2022. We also received $7.8 million during the second quarter 2021 associated with changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Transaction Date (“Working Capital True-Up”).

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

 

Shipyard Facility and inventory and equipment in Houma, Louisiana;

 

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

 

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

 

Four drydocks (three of which previously supported our Shipyard Division operations in our Lake Charles Facility and Jennings Facility).

Bollinger offered employment to most of the employees of our Shipyard Division associated with the Divested Shipyard Contracts.

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

 

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

 

Contracts and related obligations for our seventy-vehicle ferry project and two forty-vehicle ferry projects that are under construction (“Active Retained Shipyard Contracts”) and two multi-purpose supply vessel (“MPSV”) projects that are subject to dispute (collectively with the Active Retained Shipyard Contracts, the “Retained Shipyard Contracts”), together with the associated accounts receivable, accounts payable and other accrued liabilities;

 

Lake Charles Facility and Jennings Facility (which were closed in the fourth quarter 2020) and related lease obligations; and

 

Remaining assets and liabilities of the Shipyard Division.

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

Impairment and Transaction Loss – During the first quarter 2021, events and changes in circumstances indicated that the carrying amount of our Shipyard Division’s long-lived assets may not be recoverable. These changes in circumstances were primarily attributable to a reassessment of our asset groups within our Shipyard Division as well as revisions to our probability assessment of net future cash flows of the applicable asset group based on the likelihood, that existed as of March 31, 2021, of the Shipyard Transaction occurring. Based on these assessments, we determined that an impairment of our Shipyard Division’s property, plant and equipment had occurred during the first quarter 2021. We measured the impairment by comparing the carrying amount of the applicable asset group at March 31, 2021 to an estimate of its fair value (which represents a Level 3 fair value measurement), resulting in an impairment charge of $22.8 million during three months ended March 31, 2021. We based our fair value estimate on the Transaction Price, inclusive of an estimate of the Working Capital True-Up, associated with the Shipyard Transaction. In addition, we incurred transaction costs of $0.7 million during the three months ended March 31, 2021 associated with the Shipyard Transaction.

Other At March 31, 2022 and December 31, 2021, the net liabilities on our Balance Sheet associated with the Retained Shipyard Contracts and other retained Shipyard Division operations totaled $6.2 million and $8.7 million, respectively. We are completing construction of the Active Retained Shipyard Contracts within our Houma Facilities and are winding down our Shipyard Division operations, which is anticipated to occur by the third quarter 2022.


- 14 -


 

 

Discontinued Operations

The Shipyard Transaction (which included, among other things, our owned Shipyard Facility, Divested Shipyard Contracts and drydocks), and the fourth quarter 2020 closures of our leased Lake Charles Facility and Jennings Facility, represented the disposal and closure of a substantial portion of our Shipyard Division operations and the culmination of a strategic shift that will have a major effect on our ongoing operations and financial results. Therefore, we determined the assets, liabilities and operations associated with the Shipyard Transaction, and associated with the previously closed Shipyard Division facilities, to be discontinued operations in the second quarter 2021. Accordingly, such operating results for the three months ended March 31, 2021 have been classified as discontinued operations on our Statement of Operations. We had no material operating results of discontinued operations for the three months ended March 31, 2022, and no material assets and liabilities of discontinued operations at March 31, 2022 or December 31, 2021. The assets, liabilities and operating results attributable to the Retained Shipyard Contracts and remaining assets and liabilities of our Shipyard Division operations that were excluded from the Shipyard Transaction, and are not associated with the previously closed facilities, represent our Shipyard Division and are classified as continuing operations on our Balance Sheet and Statement of Operations. Discontinued operations are presented separately from continuing operations on our Balance Sheet and Statement of Operations; however, they are not presented separately on our Statement of Cash Flows.

 

A summary of the operating results and cash flows from discontinued operations for the three months ended March 31, 2021, is as follows (in thousands):

 

 

Three Months Ended March 31, 2021

 

Revenue

 

$

35,166

 

Cost of revenue

 

 

27,506

 

Gross profit(1)

 

 

7,660

 

General and administrative expense

 

 

340

 

Impairments and (gain) loss on assets held for sale, net(2)

 

 

23,428

 

Other (income) expense, net

 

 

13

 

Operating loss

 

 

(16,121

)

Income tax (expense) benefit(3)

 

 

 

Loss from discontinued operations, net of taxes

 

$

(16,121

)

 

 

 

Three Months Ended March 31, 2021

 

Operating cash flows from discontinued operations

 

$

4,774

 

Investing cash flows from discontinued operations

 

$

(261

)

 

 

(1)

Gross profit was positively impacted by changes in estimated margins on projects of $8.4 million for our towing, salvage and rescue ship projects.

 

(2)

Includes impairments of $22.8 million and transaction and other costs of $ 0.7 million associated with the Shipyard Transaction (see discussion above).   

 

(3)

Income taxes attributable to discontinued operations were not material.

4. ACQUISITION

Acquisition Summary – On December 1, 2021 (“Acquisition Date”), we entered into a definitive agreement and acquired (“DSS Acquisition”) the services and industrial staffing businesses (“DSS Business”) of Dynamic Industries, Inc. (“Dynamic”) for $7.6 million (“Purchase Price”). We also hired substantially all of the employees of the DSS Business.   

Preliminary Purchase Price Allocation – The Purchase Price was allocated to the major categories of assets and liabilities acquired based upon preliminary estimates of their fair values at the Acquisition Date, which were based, in part, upon outside appraisals for certain assets, including property, machinery and equipment and specifically-identifiable intangible assets. The excess of the Purchase Price over the estimated fair value of the net tangible and identifiable intangible assets acquired was recorded as goodwill. The factors contributing to the goodwill (which is all deductible for tax purposes) include the acquired established workforce, estimated future cost savings and revenue synergies associated with the DSS Business.

 


- 15 -


 

 

The following table summarizes our preliminary purchase price allocation at the Acquisition Date:

Tangible assets and liabilities:

 

 

 

 

Land and buildings (1)

 

$

475

 

Machinery and equipment (2)

 

 

2,557

 

Right-of-use asset (3)

 

 

2,000

 

Accrued expenses and other liabilities

 

 

(672

)

Net tangible assets and liabilities

 

 

4,360

 

Intangible assets - customer relationships (4)

 

 

996

 

Goodwill

 

 

2,217

 

Purchase Price (5)

 

$

7,573

 

 

 

(1)

Land and buildings – Represents an acquired operating facility located in Ingleside, Texas (“Ingleside Facility”). The fair value of the facility was estimated based on a third-party appraisal.  

 

(2)

Machinery and equipment – Represents acquired machinery, equipment and vehicles. The fair values of the assets were estimated based on third-party appraisals.

 

(3)

Right-of-use asset – Represents a fabrication and operating facility located in Harvey, Louisiana (“Harvey Facility”) that is subject to a lease arrangement with Dynamic that expires on June 30, 2022. The Harvey Facility is also subject to a separate purchase option that enables us to buy the facility from Dynamic prior to December 2, 2022, for a nominal amount (“Harvey Option”). We believe it is probable we will exercise the Harvey Option, and accordingly, have concluded that the arrangement represents a finance lease under the guidance of ASC 842,“Leases”, due to the Harvey Option representing a bargain purchase option. We have reflected the estimated fair value of the Harvey Facility plus future lease payment obligations as a right-of-use asset in our preliminary purchase price allocation, with the estimated fair value based on a combination of a third-party appraisal, third-party indications of interest for the facility, and indications of value communicated by and between us and Dynamic during the due diligence process. The corresponding lease liability is not material.

 

(4)

Customer relationships – Represents the estimated fair value of existing underlying customer relationships with estimated lives of 7 years. The fair value was estimated based on a multi-period excess earnings method which incorporated Level 3 inputs. The significant assumptions used in estimating fair value included revenue and income projections for the DSS Business and the estimated discount rate that reflects the level of risk associated with receiving future cash flows. For the three months ended March 31, 2022, amortization expense for our intangible assets was less than $0.1 million, and our amortization expense is estimated to be $0.1 million to $0.2 million for each of 2022, 2023, 2024, 2025 and 2026, and $0.3 million thereafter.

 

(5)

Purchase Price – Represents a base cash purchase price of $8.0 million, less $0.4 million attributable to assumed employee vacation obligations.

The purchase price allocation and related amortization periods are based on preliminary information and are subject to change when additional information concerning final asset and liability valuations is obtained. We have not completed our final assessment of the fair value of the right-of-use asset. Our final purchase price allocation may result in adjustments to such asset, including the residual amount allocated to goodwill.

Supplemental Pro Forma Financial Information – The following unaudited pro forma condensed combined financial information (“Pro Forma Information”) gives effect to the DSS Acquisition, accounted for as a business combination using the purchase method of accounting. The Pro Forma Information reflects the DSS Acquisition and related events as if they occurred on January 1, 2021, and gives effect to pro forma events that are directly attributable to the DSS Acquisition, factually supportable and expected to have a continuing impact on the combined results of the Company and the DSS Business following the DSS Acquisition. The Pro Forma Information for the three months ended March 31, 2021, reflects adjustments to include: (1) incremental intangibles amortization and depreciation expense of $0.1 million associated with fair value adjustments related to the DSS Acquisition and (2) the historical results of the DSS Business for the period. Revenue and net loss attributable to the DSS Business for the three months ended March 31, 2021 were $10.7 million and $0.2 million, respectively. The Pro Forma Information has been presented for illustrative purposes only and is not necessarily indicative of the operating results that would have been achieved had the pro forma events taken place on the dates indicated. Further, the Pro Forma Information does not purport to project the future operating results of the combined Company following the DSS Acquisition.

 

 

Three Months Ended March 31, 2021

 

Pro forma revenue from continuing operations

 

$

34,463

 

Pro forma net loss from continuing operations

 

 

(2,590

)

Per share data:

 

 

 

 

Basic and diluted loss from continuing operations

 

$

(0.17

)

 

 

- 16 -


 

 

5. ASSETS HELD FOR SALE

At March 31, 2022, our assets held for sale consisted of one 660-ton crawler crane within our Fabrication Division. A summary of our assets held for sale at March 31, 2022 and December 31, 2021, is as follows (in thousands):  

 

 

 

March 31,

2022

 

 

December 31,

2021

 

Machinery and equipment

 

$

4,587

 

 

$

4,587

 

Accumulated depreciation

 

 

(2,787

)

 

 

(2,787

)

Total

 

$

1,800

 

 

$

1,800

 

 

6. CREDIT FACILITIES AND DEBT