Gulf Island Fabrication, Inc. Annual report pursuant to Section 13 and 15(d)

Annual report pursuant to Section 13 and 15(d)

OPERATING SEGMENTS

OPERATING SEGMENTS

12 Months Ended

Dec. 31, 2017

We have structured our operations with three significant operating divisions, one corporate non-operating division and one newly formed operating division. Beginning in 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 significant operating divisions and its Corporate Division each meeting the criteria of reportable segments under GAAP. Beginning in December 2017, we created a new operating division, which we have named our EPC Division to manage expected work we will perform for the SeaOne Project and other projects that may require EPC project management services. EPC's operating revenue and expenses for 2017 were immaterial and it held no assets.

Our three significant operating divisions and Corporate Division are discussed below.

Fabrication Division - 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, hull, tendon, and/or deck sections of floating production platforms (such as TLPs, SPARs, FPSOs and MinDOCs), piles, wellhead protectors, subsea templates, and various production, compressor, and utility modules along with pressure vessels. Our Fabrication Division also fabricates structures for alternative energy customers (such as the five jackets and piles we constructed for the first offshore wind power project in the United States during 2015) as well as modules for petrochemical facilities. We perform these activities out of our fabrication yards in Houma, Louisiana, and formerly out of our fabrication yards in Aransas Pass and Ingleside, Texas, each of which are marketed for sale.

Shipyard Division - Our Shipyard Division primarily manufactures newbuild and repairs various steel marine vessels in the United States including offshore supply vessels, anchor handling vessels and liftboats to support the construction and ongoing operation of offshore oil and gas production platforms, tug boats, towboats, barges and other marine vessels. We also construct drydocks to lift marine vessels out of the water. 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. In addition, we perform conversion projects that consist of lengthening vessels, modifying vessels to permit their use for a different type of activity, and other modifications to enhance the capacity or functionality of a vessel. We perform these activities out of our shipyards in Houma, Jennings and Lake Charles, Louisiana.

Services Division - 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 GOM 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 southeastern United States for various on-site construction and maintenance activities. In addition, our Services Division fabricates packaged skid units and perform various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other public works projects for state and local governments. We perform these services at our customer's facilities or out of our Houma Service Yard.

We generally evaluate the performance of, and allocate resources to, our divisions based upon gross profit (loss) and operating income (loss). Segment assets are comprised of all assets attributable to each division. Corporate administrative costs and overhead are generally allocated to our segments except for those costs that are not directly related to the operations of our divisions. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information concerning our segments as of and for the three-year period ended December 31, 2017, is as follows (in thousands):



	December 31, 2017
	Fabrication			Shipyard ⁽¹⁾			Services		Corp. & Eliminations			Consolidated
Revenue	$	57,880		$	52,699		$	65,445	$	(5,002	)	$	171,022
Gross profit (loss)	(1,941		)	(44,870		)	4,575		(689		)	(42,925		)
Operating income (loss)	(12,040		)	(49,785		)	1,874		(8,446		)	(68,397		)

Depreciation expense	6,592			4,073			1,676		404			12,745
Capital expenditures	2,395			1,909			403		127			4,834
Total Assets	$	195,187		$	74,516		$	105,291	$	(104,154	)	$	270,840



	December 31, 2016
	Fabrication		Shipyard		Services		Corp. & Eliminations			Consolidated
Revenue	$	88,683	$	109,502	$	91,414	$	(3,273	)	$	286,326
Gross profit (loss)	5,276		7,801		12,420		(644		)	24,853
Operating income (loss)	1,500		2,375		9,106		(7,798		)	5,183

Depreciation expense	18,566		4,686		1,775		421			25,448
Capital expenditures	2,633		1,861		1,495		806			6,795
Total Assets	$	272,292	$	81,928	$	96,404	$	(128,216	)	$	322,408



	December 31, 2015
	Fabrication			Shipyard		Services		Corp. & Eliminations			Consolidated
Revenue	$	151,576		$	59,601	$	100,431	$	(5,488	)	$	306,120
Gross profit (loss)	(36,990		)	8,750		13,937		(853		)	(15,156		)
Operating income (loss)	(49,295		)	7,695		11,353		(8,367		)	(38,614		)

Depreciation expense	22,045			1,921		1,733		505			26,204
Capital expenditures	3,360			1,206		1,379		73			6,018
Total Assets	$	310,790		$	54,543	$	94,618	$	(143,028	)	$	316,923

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(1)

Included in the 2017 operating results for our Shipyard Division is $34.5 million in operating losses related to cost overruns and delays that we encountered in the newbuild construction of two multi-purpose service vessels. The delivery of the vessels will be extended beyond the contractual delivery dates and put us in a position to incur liquidated damages. In absence of a signed amendment with the customer, we have accrued the maximum liquidated damages under the contract of $11.2 million.