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, 2018

We operate and manage our business through four operating divisions ("Fabrication", "Shipyard", "Services" and "EPC") and one non-operating division ("Corporate"), which represent our reportable segments.We believe that our operating divisions each meet the criteria of reportable segments under GAAP. Our four operating divisions and Corporate Division are discussed below.

Fabrication Division - Our Fabrication Division fabricates modules for petrochemical and industrial facilities, foundations for alternative energy developments and other complex steel structures. Our Fabrication Division also fabricates offshore drilling and production platforms and other offshore 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. We perform these activities at our fabrication yard in Houma, Louisiana.

Shipyard Division - Our Shipyard Division fabricates newbuild vessels, including OSVs, MPSVs, research vessels, tug boats, salvage vessels, towboats, barges, drydocks, anchor handling vessels, lift boats and other marine vessels. Our Shipyard Division also performs marine repair activities, including 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 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, we fabricate 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 at our services yard in Houma, Louisiana.

EPC Division - Our EPC Division was created during the fourth quarter 2017 to manage potential work for the SeaOne Project, offshore wind opportunities and other projects that may require project management of EPC activities. During the fourth quarter 2017, SeaOne selected us as the prime contractor for the engineering, procurement, construction, installation, commissioning and start-up operations for its SeaOne Project. This project is expected to consist of an export facility in Gulfport, Mississippi and import facilities in the Caribbean and South America. Our current activities include pricing, planning and scheduling for the project. SeaOne’s selection of the Company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on terms of the engagement with SeaOne. We understand that SeaOne is in the process of securing financing for the project.

Corporate Division - Our Corporate Division represents expenses that do not directly relate to our four operating divisions and are not allocated to our operating divisions. Such expenses include, but are not limited to, costs related to executive management and directors' fees, clerical and administrative salaries, costs of maintaining our 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). Segment assets are comprised of all assets attributable to each division. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information for our segments as of and for the three-year period ended December 31, 2018, is as follows (in thousands):



	2018
	Fabrication⁽¹⁾			Shipyard ⁽¹⁾			Services		EPC			Corporate			Eliminations			Consolidated
Revenue	$	37,943		$	96,424		$	88,230	$	2,477		$	—		$	(3,827	)	$	221,247
Gross profit (loss)	(7,794		)	(10,472		)	12,447		(46		)	(1,331		)	—			(7,196		)
Operating income (loss)	(2,950		)	(14,396		)	9,371		(1,863		)	(9,827		)	—			(19,665		)
Depreciation expense	4,310			4,229			1,511		5			295			—			10,350
Capital expenditures	73			2,003			1,244		143			18			—			3,481
Total Assets	62,138			97,197			38,643		1,938			58,374			—			258,290



	2017
	Fabrication			Shipyard ⁽²⁾			Services		EPC		Corporate			Eliminations			Consolidated
Revenue	$	57,880		$	52,699		$	65,445	$	198	$	—		$	(5,200	)	$	171,022
Gross profit (loss)	(1,941		)	(44,870		)	4,575		41		(730		)	—			(42,925		)
Operating income (loss)	(12,010		)	(50,044		)	1,874		41		(8,471		)	—			(68,610		)
Depreciation expense	6,592			4,073			1,676		—		404			—			12,745
Capital expenditures	2,395			1,909			403		—		127			—			4,834
Total Assets	155,731			74,516			32,487		198		7,908			—			270,840



	2016
	Fabrication		Shipyard		Services		EPC		Corporate			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)	2,009		2,436		9,217		—		(7,798		)	—			5,864
Depreciation expense	18,566		4,686		1,775		—		421			—			25,448
Capital expenditures	2,633		1,861		1,495		—		806			—			6,795
Total Assets	195,901		81,928		37,102		—		7,477			—			322,408

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(1)

Gross loss and operating loss for 2018 for our Fabrication Division includes a $2.4 million impact from increased costs on a petrochemical module project and our Shipyard Division includes a $6.7 million impact from increased forecast costs on our harbor tug projects. Operating loss also includes a net benefit of $6.9 million related to a gain on the sale of our South Texas Properties of $8.0 million and a gain on insurance recoveries of $3.6 million, offset partially by impairments of $4.4 million related to inventory and assets that were held for sale and a loss on assets sold of $0.3 million within our Fabrication and Shipyard Divisions. See Note 2 for further discussion of the project charges and Note 3 and Note 5 for further discussion of our asset impairments and gains on assets held for sale.


(2)	Gross loss and operating loss for 2017 for our Shipyard Division includes a $34.5 million impact from increased forecast costs on our MPSV projects. See Note 2 for further discussion of the MPSV projects.