ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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| Accounting Policies [Abstract] | |||||||||||||
| ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Gulf Island Fabrication, Inc. ("Gulf Island"), and together with its subsidiaries, (the “Company”, “we” or “our”), is a leading fabricator of steel platforms and other specialized structures for customers in the offshore oil and gas industry. In addition, we also perform onshore and offshore construction and fabrication services for customers in the marine industry. Our principal markets are concentrated in the offshore regions and along the coast of the Gulf of Mexico. We currently provide our customers with what we believe to be the largest group of fabrication facilities serving the Gulf of Mexico market. The Company was incorporated in 1985 and began operations at our fabrication yard on the Houma Navigation Canal in southern Louisiana, approximately 30 miles from the Gulf of Mexico. Since our formation, we have expanded and grown our operations through acquisitions of additional facilities on the Houma Navigation Canal in southern Louisiana as well as 212 acres in Ingleside, Texas between the Gulf Intracoastal Waterway and Corpus Christi Ship Channel and 160 acres in Aransas Pass, Texas located along the U.S. Intracoastal Waterway. In October 2013, we moved our corporate headquarters to Houston, Texas. We continue to grow our operations and to diversify our business. On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC Shipyards, L.L.C. and its affiliates (collectively, “LEEVAC”), through our newly formed wholly-owned subsidiary, Gulf Island Shipyards, L.L.C. in an all cash transaction. See further discussion of the LEEVAC acquisition as discussed in Note12 - "Subsequent Events".
Gulf Island serves as a holding company and conducts all of its operations through its subsidiaries, which include Gulf Island, L.L.C.; Gulf Marine Fabricators, L.P.; Gulf Island Marine Fabricators, L.L.C.; Gulf Island Shipyards, L.L.C.; Dolphin Services, L.L.C.; and Dolphin Steel Sales, L.L.C.
The consolidated financial statements include the accounts of Gulf Island Fabrication, Inc. and its majority owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
Operating Cycle
The lengths of our contracts vary, but are typically longer than one year in duration. Consistent with industry practice, assets and liabilities have been classified as current under the operating cycle concept whereby all contract-related items are regarded 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 paid or received within the next twelve months include contract retainage, costs and estimated earnings in excess of billings on uncompleted contracts and billings in excess of costs and estimated earnings on uncompleted contracts. However, any variation from normal contract terms would cause classification of assets and liabilities as long-term.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States (GAAP) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenue and expense during the reporting period. Areas requiring significant estimates by our management include asset impairments, value of assets held for sale, provisions for contract losses, contract revenues, costs and profits, the application of the percentage-of-completion method of accounting and the determination of the allowance of doubtful accounts. Actual results could differ from those estimates.
Reclassifications
We reclassified $2.6 million in deferred tax assets, current with deferred tax liabilities in our consolidated balance sheet as of December 31, 2014 to conform to current year balance sheet presentation. This reclassification had no impact to our previously reported results of operations or cash flows. See also New Accounting Standards discussion below.
Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents.
Allowance for Doubtful Accounts
We routinely review individual contracts receivable balances and make provisions for probable doubtful accounts as we deem appropriate. Among the factors considered during the review are the financial condition of our customer and their access to financing, underlying disputes on the account, age and amount of the account and overall economic conditions. Accounts are written off only when all reasonable collection efforts are exhausted.
Our principal customers include major and large independent oil and gas companies and their contractors and marine vessel operators and their contractors. This concentration of customers may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic or other conditions. Receivables are generally not collateralized. In the normal course of business, we extend credit to our customers on a short-term basis. See Note 3 - "Contracts Receivable and Retainage" for a detail of our allowance for doubtful accounts.
Stock-Based Compensation
Awards under the Company’s stock-based compensation plans are calculated using a fair value based measurement method. Share-based compensation expense for share based awards is recognized only for those awards that are expected to vest. We use the straight-line method to recognize share-based compensation expense over the requisite service period of the award.
Inventory
Inventory consists of materials and production supplies and is stated at the lower of cost or market determined on the first-in, first-out basis.
Assets Held for Sale
Assets held for sale are required to be measured at the lower of their carrying amount or fair value less cost to sell. See Note 5-“Fair Value Measurements and Assets Held for Sale” for additional information regarding our assets held for sale.
Workers Compensation Liability
The Company and its subsidiaries are self-insured for workers’ compensation liability except for losses in excess of varying threshold amounts. Our workers compensation liability balance was $2.6 million as of December 31, 2015 and $2.7 million as of December 31, 2014, respectively.
Property, Plant and Equipment
Property, plant and equipment is stated at cost less accumulated depreciation. Depreciation is computed on the straight-line basis over the estimated useful lives of the assets, which range from 3 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.
Long-Lived Assets
We evaluate impairment losses on long-lived assets or asset groups used in operations when events and circumstances indicate that the assets or asset groups might not be recoverable. If events and circumstance indicate that the assets or asset groups might not be recoverable, the expected future undiscounted cash flows from the assets or asset groups are estimated and compared with the carrying amount of the assets or asset groups. If the sum of the estimated undiscounted cash flows is less than the carrying amount of the assets or asset groups, an impairment loss is recorded.
An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and recording the excess of the carrying amount of the asset or asset group over its fair value as an impairment charge. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other asset or liability groups. Fair value is determined based on discounted cash flows or appraised values, as appropriate. Due to the slow down in our industry as a result of the downturn in oil prices, we identified indicators of impairment at our Texas facility. Management performed an undiscounted cash flow analysis for the Texas facility which did not result in impairment.
Fair Value Measurements
The Company bases its fair value determinations of the carrying value of other financial assets and liabilities on an evaluation of their particular facts and circumstances and valuation techniques that require judgments and estimates. We base our fair value determinations by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
See Note 5-“Fair Value Measurements and Assets Held for Sale” for additional information regarding fair value measurements.
Revenue Recognition
We use the percentage-of-completion accounting method for fabrication contracts. Revenue from fixed-price or unit rate contracts is recognized on the percentage-of-completion method, computed by the efforts-expended method which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. This progress percentage is applied to our estimate of total anticipated gross profit for each contract to determine gross profit earned to date. Revenue recognized in a period for a contract is the amount of gross profit earned for that period plus the costs incurred on the contract during the period. Under a unit rate contract, material items or labor tasks are assigned unit rates of measure. The unit rates of measure will generally be an amount of dollars per ton, per foot, per square foot or per item installed. A typical unit rate contract can contain hundreds to thousands of unit rates of measure. Profit margins are built into the unit rates.
Profit incentives are included in revenue when their realization is probable. Claims for extra work or changes in scope of work are included in revenue when the amount can be reliably estimated and collection is probable. Changes in job performance, job conditions, and estimated profitability, including those arising from contract penalty provisions, and final contract settlements may result in revisions to costs and income and are recognized in the period in which the revisions are determined. For the years ended December 31, 2015, 2014, and 2013, there was no significant revenue related to unapproved change orders or claims.
Some contracts include a total or partial reimbursement to us of any costs associated with specific capital projects required by the fabrication process. If a particular capital project provides future benefits to us, the cost to build the capital project will be capitalized, and the revenue for the capital project will increase the estimated profit in the contract.
See Note 2-“Contract Revenue” for additional information regarding our percentage-of-completion accounting and revenue recognition.
Income Taxes
Income taxes have been provided 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 basis differences reverse. A valuation allowance is provided to reserve for deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
Reserves for uncertain tax positions are recognized when the positions are more likely than not to not be sustained upon audit. Interest and penalties on uncertain tax positions are recorded in income tax expense. Our federal tax returns have been examined and settled through the 2011 tax year. There were no material uncertain tax positions recorded for the years presented in these statements. See also Note 8 - "Income Taxes"
New Accounting Standards
In November 2015, the Financial Accounting Standards Board (FASB), issued Accounting Standards Update (ASU) No. 2015-17, “Balance Sheet Classification of Deferred Taxes” (Topic 740). Prior to implementation of this update, entities are required to separate deferred tax assets and liabilities into current and noncurrent amounts on their balance sheet. However, upon implementation of this update, entities will be required to present deferred tax liabilities and assets as noncurrent on their balance sheet. The provisions of this update are applicable to us on January 1, 2017; however, we have elected to early adopt the provisions of this statement as permitted during the fourth quarter of 2015. As a result of this implementation, we reclassified $2.6 million in current deferred tax assets as of December 31, 2014 with our deferred tax liabilities as noncurrent. Implementation of this update had no impact to our results of operations or cash flows for any of the periods presented. See also Note 8 - “Income Taxes.”
On May 28, 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606), which supersedes the revenue recognition requirements in FASB Accounting Standard Codification (ASC) Topic 605, “Revenue Recognition.” ASU No. 2014-09 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. ASU 2014-09 requires retrospective application and will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early application is not permitted. The Company is evaluating the effect of this new standard on its financial statements.
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