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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(I.R.S. Employer Identification No.) |
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(Address of principal executive offices) |
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Securities registered pursuant to 12(b) of the Act:
Title of each class |
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Name of each exchange on which registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
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Accelerated filer |
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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 July 31, 2022, 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 June 30, 2022 (unaudited) and December 31, 2021 |
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1 |
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2 |
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3 |
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Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (unaudited) |
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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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44 |
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Item 1. |
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44 |
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Item 1A. |
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44 |
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Item 6. |
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45 |
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46 |
i
GLOSSARY OF TERMS
As used in this report filed on Form 10-Q for the quarter ended June 30, 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. |
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Acquisition Date |
The closing date of the DSS Acquisition of December 1, 2021. |
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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. |
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AHFS |
Assets Held for Sale. |
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ASC |
Accounting Standards Codification. |
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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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Bollinger |
Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C. |
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CARES Act |
The Coronavirus Aid, Relief and Economic Security Act, as amended. |
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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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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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Divested Shipyard Contracts |
Contracts and related obligations for our three research vessel projects and five towing, salvage and rescue ship projects, which were included in the Shipyard Transaction. |
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DSS Acquisition |
The acquisition of the DSS Business from Dynamic on December 1, 2021. |
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DSS Business |
The services and industrial staffing businesses of Dynamic, which were acquired in connection with the DSS Acquisition. |
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DTA(s) |
Deferred Tax Asset(s). |
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Dynamic |
Dynamic Industries, Inc. |
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EPC |
Engineering, Procurement and Construction. |
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Exchange Act |
Securities Exchange Act of 1934, as amended. |
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Fabrication Division |
Our Fabrication reportable segment. |
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Facilities |
Our Houma Facilities, Ingleside Facility, Harvey Facility and other facilities that support our operations. |
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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
Harvey Facility |
Our leased facility located in Harvey, Louisiana assumed in connection with the DSS Acquisition that is subject to the Harvey Option. |
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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. |
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Houma Facilities |
Our owned facilities located in Houma, Louisiana that support our Fabrication Division and Services Division and represent our primary operating facilities. |
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Ingleside Facility |
Our owned facility located in Ingleside, Texas that supports our Services Division, which was acquired in connection with the DSS Acquisition. |
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inland |
Typically, bays, lakes and marshy areas. |
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jacket |
A component of a fixed platform consisting of a tubular steel, braced structure extending from the mudline of the seabed to a point above the water surface. The jacket is anchored with tubular steel pilings driven into the seabed. The jacket supports the deck structure located above the water. |
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Jennings Facility |
Our leased facility located near Jennings, Louisiana that previously supported our Shipyard Division and was closed in the fourth quarter 2020, which has been subleased to a third-party for the duration of the lease. |
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labor hours |
Hours worked by employees directly involved in the fabrication of our products or delivery of our services. |
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Lake Charles Facility |
Our leased facility located near Lake Charles, Louisiana that previously supported our Shipyard Division and 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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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. |
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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. |
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MPSV(s) |
Multi-Purpose Supply Vessel(s). |
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NOL(s) |
Net operating loss(es) that are available to offset future taxable income, subject to certain limitations. |
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offshore |
In unprotected waters outside coastlines. |
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onshore |
Inside the coastline on land. |
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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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platform |
A structure from which offshore oil and gas development drilling and production are conducted. |
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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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Pro Forma Information |
The condensed combined financial information that gives effect to the DSS Acquisition as if it had occurred on January 1, 2020 (the earliest period presented in our 2021 Annual Report). |
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Purchase Price |
The purchase price of $7.6 million associated with the DSS Acquisition. |
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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. |
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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. |
iii
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SAB |
Staff Accounting Bulletin. |
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SBA |
Small Business Administration. |
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SEC |
U.S. Securities and Exchange Commission. |
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Services Division |
Our Services reportable segment. |
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Shipyard Division |
Our Shipyard reportable segment. |
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Shipyard Facility |
Our owned facility located in Houma, Louisiana that previously supported our Shipyard Division, which was sold in connection with the Shipyard Transaction. |
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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. |
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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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Statement of Shareholders’ Equity |
Our Consolidated Statements of Changes in Shareholders’ Equity, as filed in this Report. |
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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. |
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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 which can include a mark-up. |
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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 Date |
The closing date of the Shipyard Transaction of April 19, 2021. |
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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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Working Capital True-Up |
The $7.8 million received in the second quarter 2021 in connection with the Shipyard Transaction associated with changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Transaction Date. |
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iv
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
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June 30, 2022 |
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December 31, 2021 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash and cash equivalents |
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$ |
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$ |
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Restricted cash, current |
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Contract receivables and retainage, net |
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Contract assets |
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Prepaid expenses and other assets |
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Inventory |
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Assets held for sale |
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Total current assets |
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Restricted cash, noncurrent |
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— |
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Property, plant and equipment, net |
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Goodwill |
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Other intangibles, net |
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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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Total current liabilities |
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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 June 30, 2022 and |
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Additional paid-in capital |
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Accumulated deficit |
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( |
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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 June 30, |
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Six Months Ended June 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue |
$ |
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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 |
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General and administrative expense |
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Other (income) expense, net |
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( |
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( |
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( |
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( |
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Operating income (loss) |
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( |
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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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( |
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Income tax (expense) benefit |
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Income (loss) from continuing operations |
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( |
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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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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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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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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 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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( |
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Stock-based compensation expense |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
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$ |
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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, 2021 |
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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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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, 2021 |
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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 March 31, 2022 |
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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 June 30, 2022 |
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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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Six Months Ended June 30, |
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2022 |
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2021 |
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Cash flows from operating activities: |
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Net loss |
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$ |
( |
) |
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$ |
( |
) |
Adjustments to reconcile net loss to net cash used in operating activities: |
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Depreciation and amortization |
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Asset impairments |
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— |
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Loss on Shipyard Transaction |
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— |
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(Gain) loss on sale of fixed assets, net |
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( |
) |
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Stock-based compensation expense |
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Changes in operating assets and liabilities: |
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Contract receivables and retainage, net |
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( |
) |
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Contract assets |
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( |
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( |
) |
Prepaid expenses, inventory and other current assets |
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|
( |
) |
|
|
( |
) |
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 |
|
|
|
|
|
|
|
|
Maturities of short-term investments |
|
|
— |
|
|
|
|
|
Net cash provided by investing activities |
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Financed insurance premium payments |
|
|
( |
) |
|
|
— |
|
Tax payments for vested stock withholdings |
|
|
( |
) |
|
|
( |
) |
Net cash 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 |
|
$ |
|
|
|
$ |
|
|
The accompanying notes are an integral part of these financial statements.
- 4 -
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 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
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 fourth quarter 2022 (previously the third quarter 2022, but delayed as further discussed in Note 2). 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 for the three and six months ended June 30, 2022. 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 and six months ended June 30, 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 and six months ended June 30, 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 and six months ended June 30, 2022, and had no material assets and liabilities of discontinued operations at June 30, 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 and six months ended June 30, 2021, were summarized in the footnotes to our Financial Statements in our 2021 Annual Report. Our results for the three and six months ended June 30, 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; 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 June 30, 2022 and December 31, 2021, we had $
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 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
- 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 or six months ended June 30, 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 or six months ended June 30, 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 and six months ended June 30, 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 June 30, 2022 and December 31, 2021, we had
Other (Income) Expense, Net
Other (income) expense, net, generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items.
- 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 six months ended June 30, 2022, and three and six months ended June 30, 2021, as
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 and six months ended June 30, 2022 and 2021 (in thousands):
|
|
Three Months Ended June 30, 2022 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Eliminations |
|
|
Total |
|
|||||
Fixed-price and unit-rate(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
T&M(2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
|
|
Six Months Ended June 30, 2022 |
|
|||||||||||||||||
|
|
Services |
|
|
Fabrication |
|
|
Shipyard |
|
|
Eliminations |
|
|
Total |
|
|||||
Fixed-price and unit-rate(1) |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
T&M(2) |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
( |
) |
|
|
|
|
Total |
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
( |
) |
|
$ |
|
|
- 10 -