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, 2018

We have structured our operations with four operating divisions, and one corporate non-operating division. We believe that our operating divisions and our corporate non-operating division each represent a reportable segment under GAAP. Our EPC Division was created in December 2017 to manage expected work we will perform for the SeaOne Project and other projects that may require EPC project management services. As part of our efforts to strategically reposition the Company (see Note 1), we may change how we manage the business which could result in a change in our reporting segments in future periods. Our operating divisions and corporate non-operating division at June 30, 2018 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 industry 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) as well as modules for petrochemical facilities. We perform these activities out of our fabrication yards in Houma, Louisiana. As of the date of this Report, our Texas South Yard has been sold and our Texas North Yard is held for sale. See Note 2 for further disclosure relating to our South Texas Properties.

Shipyard Division - Our Shipyard Division primarily manufactures newbuild vessels 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, drydocks and other marine vessels. 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 at 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 performs 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 customer facilities or at our Houma Services Yard.

EPC Division - Late in the fourth quarter of 2017, SeaOne selected us as the prime contractor for the engineering, procurement, construction, installation, commissioning and start-up operations for their SeaOne Project. This project will include execution of engineering, construction and installation of modules for an export facility in Gulfport, Mississippi, and import facilities in the Caribbean and South America. SeaOne’s selection of the Company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on the terms of the engagement with SeaOne. We created our EPC Division to manage this project and future similar projects. We understand that SeaOne is in the process of securing financing to move forward with its project. We are hopeful that the SeaOne Project will initiate planning and initial construction efforts in early 2019. We are strengthening our internal project management capabilities through the hiring of additional personnel to service this potential project.

Corporate Division - Our Corporate Division primarily includes expenses that do not directly relate to the operations or shared services provided to our four operating divisions. Expenses for shared services such as human resources, insurance, business development and accounting salaries 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 divisions based upon gross profit (loss) and operating income (loss). Division assets are comprised of all assets attributable to each division. Corporate administrative costs and overhead are allocated to our four operating divisions for expenses that directly relate to the operations or relate to shared services as discussed above. Intersegment revenue is priced at the estimated fair value of work performed. Summarized financial information concerning our divisions as of and for the three and six months ended June 30, 2018, and 2017, is as follows (in thousands):



	Three Months Ended June 30, 2018
	Fabrication			Shipyard			Services		EPC		Corporate			Eliminations			Consolidated
Revenue	$	8,590		$	23,620		$	22,205	$	882	$	—		$	(1,283	)	$	54,014
Gross profit (loss)	(1,667		)	(2,776		)	3,585		543		(384		)	—			(699		)
Operating income (loss)	(3,227		)	(3,374		)	2,823		58		(2,681		)	—			(6,401		)
Total assets ⁽¹⁾	101,498			88,305			35,197		888		30,801			—			256,689
Depreciation and amortization expense	1,047			1,051			383		—		130			—			2,611
Capital expenditures	—			653			98		—		69			—			820



	Three Months Ended June 30, 2017
	Fabrication		Shipyard			Services			EPC	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 ⁽¹⁾	164,211		98,393			30,592			—	14,390			—			307,586
Depreciation and amortization expense	1,152		995			422			—	207			—			2,776
Capital expenditures	746		546			106			—	35			—			1,433



	Six Months Ended June 30, 2018
	Fabrication			Shipyard			Services		EPC			Corporate			Eliminations			Consolidated
Revenue	$	25,860		$	42,185		$	44,075	$	955		$	—		$	(1,771	)	$	111,304
Gross profit (loss)	(1,886		)	(3,799		)	6,199		235			(769		)	—			(20		)
Operating income (loss)	(4,821		)	(5,192		)	4,703		(667		)	(5,204		)	—			(11,181		)
Total assets ⁽¹⁾	101,498			88,305			35,197		888			30,801			—			256,689
Depreciation and amortization expense	2,196			2,120			776		—			268			—			5,360
Capital expenditures	—			659			163		—			69			—			891



	Six Months Ended June 30, 2017
	Fabrication			Shipyard			Services			EPC		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 loss	(2,688		)	(17,892		)	(890		)	—		(4,007		)	—			(25,477		)
Total assets ⁽¹⁾	164,211			98,393			30,592			—		14,390			—			307,586
Depreciation and amortization expense	4,287			2,004			854			—		331			—			7,476
Capital expenditures	848			818			106			—		52			—			1,824

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1) Intercompany balances have been excluded.