Gulf Island Fabrication, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

SEGMENT DISCLOSURES

SEGMENT DISCLOSURES

6 Months Ended

Jun. 30, 2017

We have structured our operations with three operating divisions and a corporate non-operating division. During the three months ended June 30, 2017, management reduced its allocation of corporate administrative costs and overhead expenses from its corporate, non-operating division to its operating divisions in order to individually evaluate corporate administrative costs and overhead within our Corporate division as well as to not overly burden our operating divisions with costs that do not directly relate to their operations. Accordingly, a significant portion of our corporate administrative costs and overhead expenses are retained within the results of our corporate division. In addition, we have also allocated certain personnel previously included in the operating divisions to our Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and its Corporate division each meeting the criteria of reportable segments under GAAP. Our operating divisions and Corporate division are discussed below.

Fabrication - Our Fabrication division primarily fabricates structures such as offshore drilling and production platforms and other steel structures for customers in the oil and gas industries including jackets and deck sections of fixed production platforms along with pressure vessels. Our Fabrication division also fabricates structures for alternative energy customers (such as the five jackets and piles we constructed for a shallow water wind turbine project off the coast of Rhode Island during 2015) as well as modules for an LNG facility. We have historically performed these activities out of our fabrication yards in Houma, Louisiana and formerly out of our fabrication yards in Aransas Pass and Ingleside, Texas.

Shipyards - Our Shipyards division primarily fabricates and repairs marine vessels including offshore supply vessels, anchor handling vessels, lift boats, tugboats and towboats. Our Shipyards division also constructs and owns drydocks to lift marine vessels out of the water in order to make repairs or modifications. Our marine repair activities include steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs and propeller, shaft and rudder reconditioning. Our Shipyards division also performs conversion projects that consist of lengthening or modifying the use of existing vessels to enhance their capacity or functionality. We perform these activities out of our facilities in Houma, Jennings and Lake Charles, Louisiana.

Services - Our Services division primarily provides interconnect piping services on offshore platforms and inshore structures. Interconnect piping services involve sending employee crews to offshore platforms in the Gulf of Mexico to perform welding and other activities required to connect production equipment, service modules and other equipment on a platform. We also contract with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the Southeast for various on-site construction and maintenance activities. In addition, our Services division can fabricate packaged skid units and construct various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other projects for state and local governments.

Corporate - Our Corporate division primarily includes expenses that do not directly relate to the operations or shared services provided to our three operating divisions. Expenses for shared services, which include human resources, insurance, business development, accounting salaries, etc., are allocated to the operating divisions. Expenses that are not allocated include, but are not limited to, costs related to executive management and directors' fees, clerical and administrative salaries, costs of maintaining the corporate office and costs associated with overall governance and being a publicly traded company.

We generally evaluate the performance of, and allocate resources to, our segments based upon gross profit (loss) and operating income (loss). Segment assets are comprised of all assets attributable to each segment. Corporate administrative costs and overhead are allocated to our three operating divisions for expenses that directly relate to the operations or relate to shared services as discussed above. During 2016, we allocated substantially all of our corporate administrative costs and overhead to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information concerning our segments as of and for the three and six months ended June 30, 2017 and 2016, is as follows (in thousands):



	Three Months Ended June 30, 2017
	Fabrication		Shipyards ⁽¹⁾			Services			Corporate			Eliminations			Consolidated
Revenue	$	13,990	$	18,303		$	15,396		$	—		$	(1,821	)	$	45,868
Gross profit (loss)	1,931		(13,851		)	390			(90		)	—			(11,620		)
Operating income (loss)	1,098		(14,834		)	(257		)	(2,267		)	—			(16,260		)
Total assets	201,284		57,905			98,367			259,175			(309,145		)	307,586
Depreciation and amortization expense	1,152		994			421			209			—			2,776
Capital expenditures	746		546			106			35			—			1,433



	Three Months Ended June 30, 2016
	Fabrication		Shipyards ⁽¹⁾		Services		Corporate			Eliminations			Consolidated
Revenue	$	24,296	$	29,373	$	28,692	$	—		$	(859	)	$	81,502
Gross profit (loss)	3,877		5,423		4,864		(98		)	—			14,066
Operating income (loss)	2,747		3,963		4,064		(1,770		)	—			9,004
Total assets	290,910		81,874		100,197		334,946			(465,896		)	342,031
Depreciation and amortization expense	4,589		1,161		456		105			—			6,311
Capital expenditures	1,201		181		505		679			—			2,566



	Six months ended June 30, 2017
	Fabrication			Shipyards ⁽¹⁾			Services			Corporate			Eliminations			Consolidated
Revenue	$	24,199		$	36,724		$	26,107		$	—		$	(3,170	)	$	83,860
Gross profit (loss)	(1,034		)	(15,556		)	423			(351		)	—			(16,518		)
Operating income (loss)	(2,688		)	(17,892		)	(890		)	(4,007		)	—			(25,477		)
Total assets	201,284			57,905			98,367			259,175			(309,145		)	307,586
Depreciation and amortization expense	4,287			2,004			854			331			—			7,476
Capital expenditures	848			818			106			52			—			1,824



	Six months ended June 30, 2016
	Fabrication		Shipyards ⁽¹⁾		Services		Corporate			Eliminations			Consolidated
Revenue	$	48,125	$	63,493	$	55,251	$	—		$	(1,388	)	$	165,481
Gross profit (loss)	3,964		7,797		8,240		(234		)	—			19,767
Operating income (loss)	2,028		5,047		6,721		(3,576		)	—			10,220
Total assets	290,910		81,874		100,197		334,946			(465,896		)	342,031
Depreciation and amortization expense	9,444		2,327		898		209			—			12,878
Capital expenditures	1,311		216		1,047		716			—			3,290

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(1)

Revenue includes non-cash amortization of deferred revenue related to the values assigned to contracts acquired in the LEEVAC transaction of $335,000 and $1.5 million for the three months ended June 30, 2017 and 2016 and $1.9 million and $2.7 million for the six months ended June 30, 2017 and 2016, respectively.