UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
☒ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the fiscal year ended December 31, 2018
or
☐ | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
For the transition period from to Commission File Number 001-34279
GULF ISLAND FABRICATION, INC.
(Exact name of registrant as specified in its charter)
Louisiana | 72-1147390 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) | |
16225 Park Ten Place, Suite 300 Houston, Texas | 77084 | |
(Address of principal executive offices) | (Zip code) |
(713) 714-6100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Common Stock | GIFI | NASDAQ |
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes
Indicate by check mark whether the registrant has submitted electronically, every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding twelve months (or for such shorter period that the registrant was required to submit such files). Yes
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ | ||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | ||
Emerging growth company | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant at June 30, 2018,2020, was approximately $129,279,276.
The number of shares of the registrant’s common stock, no par value per share, outstanding as of March 1, 2019,29, 2021, was 15,234,420.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s definitive Proxy Statement prepared for use in connection with the registrant’s 20192021 Annual Meeting of Shareholders have been incorporated by reference into Part III of this Form 10-K.
GULF ISLAND FABRICATION, INC.
ANNUAL REPORT ON FORM 10-K FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2018
TABLE OF CONTENTS
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i
GLOSSARY OF TERMS
As used in this report filed on form 10-K for the year ended December 31, 2018 ("20182020 (“2020 Annual Report"Report” or "this Report"“this Report”), the following abbreviations and terms have the meanings listed below. In addition, the terms “Gulf Island,” “the Company,” “we,” “us” and “our” refer to Gulf Island Fabrication, Inc. and its consolidated subsidiaries, unless the context clearly indicates otherwise. Certain terms defined below may be redefined separately within this Report when we believe providing a definition upon the first use of the term will assist users of this Report. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Report.
ASU | |||
Accounting Standards Update. | |||
Balance Sheet | Our Consolidated Balance Sheets, as filed in this Report. | ||
CARES Act | The Coronavirus Aid, Relief and Economic Security Act. | ||
COVID-19 | The ongoing global coronavirus pandemic. | ||
contract assets | Costs and estimated earnings recognized to date in excess of cumulative billings. | ||
contract liabilities | Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses. | ||
Covered Period | The eight-week period following the date of the PPP Loan of April 17, 2020. | ||
deck | The component of a platform on which drilling, production, separating, gathering, piping, compression, well support, crew quartering and other functions related to offshore oil and gas development are conducted. | ||
labor hours | Hours worked by employees directly involved in the production of our | ||
DTA(s) | Deferred | ||
EPC | Engineering, procurement and construction phases of a complex project that requires project management and coordination of these significant activities. | ||
ESG | Environmental, Social and Governance. | ||
Exchange Act | Securities Exchange Act of 1934, as amended. | ||
Fabrication | Our Fabrication & Services Division (also referred to | ||
FASB | Financial Accounting Standards Board. | ||
Financial Statements | Our Consolidated Financial Statements, including comparative consolidated Balance Sheets, Statements of Operations, Statements of Changes in Shareholders' Equity and Statements of Cash Flows, as filed in this Report. | ||
Flexibility Act | The Paycheck Protection Program Flexibility Act of 2020, which amended the | ||
GAAP | Generally | ||
GOM | Gulf of Mexico. | ||
Gulf Coast | Along the coast of the Gulf of Mexico. | ||
Houma Yards | Our Shipyard Division and Fabrication | ||
Incentive Plans | Long-term incentive plans under which equity or cash-based awards may be made to eligible employees and non-employee directors. | |
inland | Typically, | |
jacket | A component of a fixed platform consisting of a tubular steel, braced structure extending from the mudline of the seabed to a point above the water surface. The jacket is anchored with tubular steel pilings driven into the seabed. The jacket supports the deck structure located above the water. | |
Jennings | Our Shipyard Division's | |
Lake Charles | Our Shipyard Division's | |
LC Facility | Our $20.0 million letter of credit facility with Hancock Whitney Bank maturing June 30, 2023, as amended. |
ii
LIBOR | London Inter-Bank Offered Rate. | |
LNG | Liquified Natural Gas. | |
modules | Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a refining, petrochemical, LNG or industrial system. These modules are | |
MPSV | Multi-Purpose Service Vessel. | |
NOL(s) | Net operating loss(es) that are available to offset future taxable income, subject to certain limitations. | |
offshore | In unprotected waters outside coastlines. | |
onshore | Inside the coastline on land. | |
OSV | Offshore Support Vessel. | |
OPEC | Organization of the Petroleum Exporting Countries. | |
performance obligation | A contractual obligation to construct and transfer a distinct good or service to a customer. It is the unit of account in Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. | |
Permissible Expenses | Expenses which may be paid using proceeds from the PPP Loan. Such expenses are limited to payroll costs, rent, utilities, mortgage interest and interest on other pre-existing indebtedness. | |
piles | Rigid tubular pipes that are driven into the seabed to support platforms. | |
PPP | Paycheck Protection Program administered by the SBA under the CARES Act. | |
PPP Loan | Our $10.0 million loan from Whitney Bank issued pursuant to the PPP. | |
platform | A structure from which offshore oil and gas development drilling and production are conducted. | |
SBA | Small Business Administration. | |
SEC | ||
U.S. Securities and Exchange Commission. | ||
Shipyard | Our | |
South Texas Properties | Our former Texas North Yard and Texas South Yard. | |
Spud barge | ||
Construction barge rigged with vertical tubular or square lengths of steel pipes that are lowered to anchor the vessel. | ||
Statement of Cash Flows | Our Consolidated Statements of Cash Flows, as filed in this Report. | |
Statement of Operations | Our Consolidated Statements of Operations, as filed in this Report. | |
Surety | ||
A financial institution that issues bonds to customers on behalf of the Company for the purpose of providing third-party financial assurance related to the performance of our contracts. | ||
T&M | Work performed and billed to the customer generally at contracted time and material rates, cost plus or other variable fee arrangements which can include a mark-up. | |
Texas North Yard | Our former fabrication yard, and certain related machinery and equipment, located in Aransas Pass, Texas, which was sold on November 15, 2018. | |
Texas South Yard | Our former fabrication yard, and certain related machinery and equipment, located in Ingleside, Texas, which was sold on April 20, 2018. | |
Topic 606 | The revenue recognition criteria prescribed under ASU 2014-09, Revenue from Contracts with Customers. | |
U.S. | The United States of America. | |
USL&H | United States Longshoreman and Harbor Workers Act. | |
VA(s) | Valuation Allowance(s). | |
Whitney Bank | Hancock Whitney Bank. | |
iii
Cautionary Statement on Forward-Looking Information
This Report contains forward-looking statements in which we discuss our potential future performance. Forward-looking statements, within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, are all statements other than statements of historical facts, such as projections or expectations relating to oil and gas prices, operating cash flows, capital expenditures, liquidity and tax rates. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be,” “potential” and any similar expressions are intended to identify those assertions as forward-looking statements.
We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements includeinclude: the duration and scope of, and uncertainties associated with, the ongoing global pandemic caused by COVID-19 and the corresponding weakened demand for, and volatility of prices of, oil and the impact thereof on our business and the global economy, which are evolving and beyond our control; the potential forgiveness of any portion of the PPP Loan; our ability to secure new project awards, including fabrication projects for refining, petrochemical, LNG and industrial facilities and offshore wind developments; our ability to improve project execution; the cyclical nature of the oil and gas industry, competition,industry; competition; consolidation of our customers,customers; timing and award of new contracts,contracts; reliance on significant customers,customers; financial ability and credit worthiness of our customers,customers; nature of our contract terms,terms; competitive pricing and cost overruns on our projects,projects; adjustments to previously reported profits or losses under the percentage-of-completion method,method; weather conditions,conditions; changes in backlog estimates,estimates; suspension or termination of projects,projects; our ability to raise additional capital,capital; our ability to amend or obtain new debt financing or credit facilities on favorable terms, ability to remain in compliance withterms; our covenants contained in our Credit Agreement, ability to generate sufficient cash flow,flow; our ability to sell certain assets,assets; any future asset impairments; utilization of facilities or closure or consolidation of facilities; customer or subcontractor disputes,disputes; our ability to resolve the dispute with a customer relating to the purported terminationterminations of contracts to build two MPSVs,MPSVs; operating dangers and limits on insurance coverage,coverage; barriers to entry into new lines of business,business; our ability to employ skilled workers,workers; loss of key personnel,personnel; performance of subcontractors and dependence on suppliers,suppliers; changes in trade policies of the U.S. and other countries,countries; compliance with regulatory and environmental laws,laws; lack of navigability of canals and rivers, shutdowns of the U.S. government,rivers; systems and information technology interruption or failure and data security breaches,breaches; performance of partners in ourany future joint ventures and other strategic alliances, progress of the SeaOne Project,alliances; shareholder activism; focus on environmental, social and governance factors by institutional investors; and other factors described in Item 1A “Risk Factors” in this Report as may be updated by subsequent filings with the SEC.
Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made, which we cannot control. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes, and we undertake no obligation to update any forward-looking statements.
PART I
Items 11. and 2. Business and Properties
Certain terms are defined in the “Glossary of Terms” beginning on page ii.
Description of our Operations
Gulf Island Fabrication, Inc. ("Gulf Island"), together(together with its subsidiaries, ("the“Gulf Island,” “the Company," "we," "us"” “we,” “us” and "our"“our”), is a Louisiana corporation, which was incorporated in 1985. We are a leading fabricator of complex steel structures, modules and marine vessels, used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy and shipping and marine transportation operations. We also providea provider of project management, for engineering, procurement and construction ("EPC") projects along with installation, hookup, commissioning, repair, maintenance and repair and maintenancecivil construction services. In addition, we perform civil, drainage and other work for state and local governments. Our customers include United States ("U.S.") and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power and marine operators; EPC companies; and certain agencies of the U.S. government.
During 2019, we operated and managed our business through three operating divisions (“Fabrication,” “Shipyard” and “Services”) and one non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. As a result, we operate and manage our business through two operating divisions (“Shipyard” and “Fabrication & Services”) and one non-operating division (“Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for each of 2019 and 2018 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects were transferred from our former Fabrication Division to our Shipyard Division. Accordingly, results for these projects for 2019 (the projects had no results for 2018) were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Consolidated Financial Statements (“Financial Statements”) in Item 8 for further discussion of our realigned operating divisions.
Our corporate headquarters is located in Houston, Texas with fabricationand our operating facilities are located in Houma, Louisiana. In the fourth quarter 2020, we closed our Jennings Yard and Lake Charles Louisiana. Yard within our Shipyard Division. See
Shipyard Division -
Fabrication & Services Division–Our Fabrication & Services (“F&S”) Division fabricates modules, skids and Lake Charles, Louisiana.
Corporate Division
Facilities and Equipment
Our operatingShipyard Division and Fabrication & Services Division operate from our owned facilities are located in Houma, Jennings and Lake Charles, Louisiana. Although our divisional operations are managed separately and represent separate reportable segments, we may move labor and resources among our divisions and facilities from time to time to ensure we have the proper resources dedicated to our projects and to maximize our utilization. The following summarizes the facilities and equipment that are significant to our business.
Shipyard Division– Our Houma Fabrication YardShipyard Division facility is an owned facility and includes:
Fabrication Yard includes:
Facilities and Equipment– Facilities and equipment that are significant to our inshore construction activities. Each barge is equipped with a crane that has a lifting capacity of 60 to 100 tons.
• | Large assembly buildings equipped with overhead cranes for modular section fabrication and various equipment for pipe fitting and welding; |
• | Prefabrication shops equipped with overhead cranes, press brake for forming plate, cutting tables, coping machines, sub-arc welding stations, hydraulic iron workers, and various other equipment for fabricating steel structures and components; |
• | Alloy and carbon steel pipe fabrication and spooling shops equipped with overhead cranes, pipe benders, pipe cutters, pipe spooling and welding stations, and various equipment for pipe fitting and welding; |
• | Plate bending, rolling and assembly shop with the capability to roll steel and automatic weld process seams into tubular pipe sections; |
• | Automated panel line shop equipped with overhead cranes, cutting table, one-sided plate welder with magnetic holding system, panel marking station, stiffener fitting and welding stations, and various equipment for fitting and welding; |
• | Blast and coating shops that enable under roof blast and paint services; |
• | Large warehouse buildings for storage; |
• | Over 20 crawler cranes and 18 rubber-tired hydraulic modular transporters; |
• | A 400’ x 160’ floating drydock with a 15,000-ton lift capacity used for repair and conversion of vessels; |
• | A 200’ x 96’ floating drydock with a 4,000-ton lift capacity used for repair and conversion of vessels; |
• | Deck barge for transporting equipment and fabricated products; |
• | Truckable tug and spud barges with cranage for marine construction activities; and |
• | Various civil construction equipment. |
Materials and Supplies
The principal materials and supplies used in our operations across all our divisions include standard steel shapes, steel plate, steel pipe, welding gases, welding wire, fuel, oil, gasoline and paint, all of which are currently available from many sources. We do not depend upon any single supplier or source for our materials and supplies. We anticipate being able to obtain these materials for the foreseeable future; however, the price,pricing, availability and schedule validitiesschedules offered by our suppliers may vary significantly from year to year due to various factors, including supplier consolidations, supplier raw material shortages, costs and surcharges, supplier capacity, customer demand, market conditions, and any duties and tariffs imposed on the materials.
The majority of the steel used in our operations arrives at our fabrication yardsfacilities as steel plate. The steel plate, which is cut and rolled into the form needed or into tubular sections at our rolling mills in our fabrication yards.mill. Tubular sections (which vary in diameter up to 23 feet) can be welded together in long straight tubes to become legs or into shorter tubes to become part of thea network of bracing. Various cuts and welds in the fabrication process are performed by computer-controlled equipment.
In addition to the materials and supplies described above that we useused in our fabrication process, we also use third-party manufacturers for engineered and manufactured equipment that are added to the structures, modules and vessels that we fabricate. Such manufactured equipment includes, but is not limited to valves, fittings, propulsion systems (suchsuch as engines),engines, cranes, pumps, electrical and communications systems and other technologically advanced equipment. To mitigate our risk of increasing costs, we often negotiate and purchase such equipment from the manufacturer at a fixed price. Additionally, we may use subcontractors when their use enables us to meet customer requirements for resources, schedule, cost or technical expertise. Subcontractors may range from small local entities to companies with global capabilities, some of which may be utilized on a repetitive or preferred basis.
The pricing of materials and supplies and the ability of our suppliers and subcontractors to meet delivery schedules have been impacted by the ongoing global coronavirus pandemic (“COVID-19”) and may continue to be impacted by COVID-19 in the future. See
Human Capital Management
Our employees are our most important assets and serve as the foundation for our ability to achieve our financial and strategic objectives.
Employee Statistics – Our workforce varies based on our level of activity at any particular time. At December 31, 2020 and 2019, we had 875 and 944 employees, respectively, of which approximately 10 were part-time employees. In addition, we use independent contractors as necessary to supplement our workforce. None of our employees are employed pursuant to a collective bargaining agreement and we believe our relationship with our employees is good. Labor hours worked during 2020, 2019 and 2018, were 1.9 million, 2.4 million, and 1.9 million, respectively.
Recruitment, Training and Workforce Development –Our success depends on our ability to attract, develop, motivate and retain a highly-skilled workforce that includes craft labor as well as supervision and various other salaried positions, including engineering, construction and project management, and project controls. Specifically, during 2020, we began increasing our skilled workforce within our Shipyard Division to execute the division’s backlog. To support the development of our workforce, we offer supervision and other training programs to educate and elevate the skillsets of our front-line leaders. We also provide internal training programs for technical fitting and welding instruction to further develop our workforce and maintain high standards of quality. We have also created a succession plan for senior leadership positions.
Employee Engagement–During 2020, we launched an employee satisfaction survey to gather information from our employees regarding their perspectives on working at the Company and suggestions for improvements. We gathered valuable insights and feedback and were able to implement positive changes within our organization.
Employee Benefits – Our compensation programs are designed to enable us to attract, motivate and retain our employees to achieve our objectives. We provide competitive base wages and salaries that are consistent with employee positions, skills and experience levels, and our geographic location. Employees are eligible to receive paid and unpaid leave and participate in our health insurance and life, disability and accident insurance programs. During 2020, we conducted an employee benefits survey to gain a deeper understanding of how our various benefit programs are valued by our employees, and feedback from this survey was used to enhance our employee benefit program offerings for 2021. We also offer retirement benefits through our 401(k) plan which includes discretionary Company-matching contributions.
Diversity and Inclusion–Our commitment to diversity extends across every division and discipline of our business. We leverage multiple social media platforms, including veteran, diversity and industry sites to expand our reach for diverse talent. We intend to continue evaluating our use of human capital measures or objectives in managing our business, such as the factors we employ or seek to employ in the attraction, development and retention of personnel and the maintenance of diversity in our workforce.
See “Risk Factors” in Item 1A for further discussion of our ability to attract and retain qualified employees.
Safety
We are committed to the safety and health of our employees and subcontractors. Wesubcontractors and believe that a strong safety culture is a critical element of our success. We continue to improve and maintain a stringent safety assurance program designed to ensure the safety of our employees and subcontractors and allow us to remain in compliance with all applicable federal and state mandated safety regulations. We are committed to maintaining a well-trained workforce and providing timely instruction to ensure our employees have the knowledge and skills to perform their work safely while maintaining the highest standards of quality. We provide continuous safety education and training to employees and subcontractors to ensure they are ready for the challenges inherent in all our projects. Our employees commence training on their first day of employment with a comprehensive orientation class that addresses Company policies and procedures and provides clear expectations for working safely. We have a zero-tolerance policy for drugs and alcohol use in the workplace. We support this policy through the useapplication of a comprehensive drug and alcohol screening program that includes initial screenings for all employees and periodic random screenings throughout employment. Additionally, we require our subcontractors to follow alcohol and drug screening policies substantially the same as ours.
Our employees are given opportunities to be a part of a dedicated safety committee which is comprised of peer-elected craft employees and members of management to assist in supporting our efforts to continuously improve safety performance. A safety component is also included in our annual incentive program guidelines for our executive officers and other key employees. See
We are continuing to take actions to mitigate the impacts of COVID-19 on our operations while ensuring the safety and well-being of our employees and subcontractors. We have initiated measures that include ongoing communications with our leadership teams to anticipate and proactively address COVID-19 impacts, work-place distancing of employees (including allowing some employees to work remotely) and regular monitoring of office and yard personnel for compliance. We are also monitoring employee and visitor temperatures prior to entering our facilities; have implemented employee and visitor wellness questionnaires; increased our monitoring of employee absenteeism and the reasons for such absences; and initiated protocols for employees returning from absences, including employees that have tested positive for COVID-19, or have come in contact with individuals that tested positive for COVID-19. In addition, we have installed hand sanitizing stations and taken additional actions to more frequently sanitize our facilities. See “Risk Factors” in Item 1A for further discussion of the impact of COVID-19 on our operations.
Quality Assurance
We use modern welding and fabrication technology, and all of our fabrication projects are executed in accordance with industry standards, specifications and regulations, including those published by the American Petroleum Institute, the American Welding Society, the American Society of Mechanical Engineers, the American Bureau of Shipping, the U.S. Coast Guard, the U.S. Navy and customer specifications. We maintain training programs for technical fitting and welding instruction in order to prepare and upgrade our skilled labor workforce and maintain high standards of quality. In addition, we maintain on-site facilities for the non-destructive testing of all welds, a process performed by an independent contractor.
Our quality management systems are certified as ISO 9001-2015 programs. ISO 9001-2015 is an internationally recognized verification system for quality management overseen by the International Standard Organization based in Geneva, Switzerland. The certification is based on a review of our programs and procedures designed to maintain and enhance quality production and is subject to semi-annualannual review and full recertification every three years.
Customers
Our principal customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power and marine operators; EPC companies; and certain agencies of the U.S. government. While our customers may consider other factors, including the availability, capability, reputation and safety record of a contractor, we believe price and the ability to meet a customer’s delivery schedule are the principal factors weighed by customers in awarding contracts.
• | For 2020, two customers accounted for 46% of our consolidated revenue, which related to the construction of three research vessels and five towing, salvage and rescue ships within our Shipyard Division; |
• | For 2019, four customers accounted for 54% of our consolidated revenue, which related to the construction of three research vessels and three towing, salvage and rescue ships for two customers within our Shipyard Division and the expansion of a paddle wheel riverboat and offshore hook-up and installation services for two customers within our Fabrication & Services Division; and |
• | For 2018, three customers accounted for 44% of our consolidated revenue, which related to the construction of harbor tug vessels for two customers within our Shipyard Division and offshore hook-up and installation services for a customer within our Fabrication & Services Division. |
Certain of our consolidated revenue, which relatedcustomers have requested to the constructionrenegotiate pricing and suspended contracts in our backlog, and bidding activities for several new project opportunities have been delayed or suspended as a result of our ten harbor tug vessels for two customers within our Shipyard Division and offshore hook-up and installation work within our Services Division for the third customer. For 2017, two customers accounted for 39% of our consolidated revenue, which related to the fabrication of modules for a petrochemical facility within our Fabrication Division and offshore hook-up and installation work within our Services Division. For 2016, one customer accounted for 23% of our consolidated revenue.
Contracting
Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate and T&M. Our contracts primarily relate to the fabrication of complex steel structures, modules and marine vessels, and project management services and othercertain service arrangements. OurSuch contracts vary in lengthduration depending on the size and complexity of the project.
Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method, based on contract costs incurred to date compared to total estimated contract costs. Contract costs include direct costs, such as materials and labor, and indirect costs that are attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred.
Revenue for our T&M contracts is recognized at contracted rates when the work is performed, the costs are incurred and collection is reasonably assured. Our T&M contracts provide for labor and materials to be billed at rates specified within the contract. The consideration from the customer directly corresponds to the value of our performance completed at the time of invoicing. See
Certain of our contracting termscustomers have requested to renegotiate pricing and suspended contracts in our backlog, and bidding activities for our contracts could adversely affect our operating results"
See “Risk Factors” in Item 1A,
New Awards and Backlog
New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unearned value ofunrecognized revenue for our new project awards and may differ from the value of future performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note 2 of our Financial Statements in Item 8. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Backlog includes our performance obligations at December 31, 2018,2020, plus signed contracts that are temporarily suspended or under protest that may not meet the criteria to be reported as future performance obligations under Topic 606 but represent future work that we believe will be performed. We believe that backlog, a non-GAAP financial measure, provides useful information to investors. New project awards and backlog may vary significantly each reporting period based on the timing of our major new contract commitments.
Projects in our backlog are generally subject to delay, suspension, termination, or an increase or reduction in scope at the option of the customer, although the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or reduction in scope. Depending on the size of the project, the delay, suspension, termination or increase or reduction in scope of any one contract could significantly impact our backlog and change the expected amount and timing of revenue recognized. See Note 2 of our Financial Statements in Item 8 for a reconciliation of our future performance obligations under Topic 606 (the most comparable GAAP measure) to our reported backlog.
At December 31, 2018, we had a2020, our backlog of $356.5 million, compared with $222.6 million at December 31, 2017. Backlog includes $21.9was $371.6 million, of backlog pursuant to a purported notice of termination from our customer related to contracts for the construction of two MPSVs. We dispute the purported termination and disagree with the customer’s reasons for the same. We can provide no assurances that we will reach a favorable resolution with the customer for completion of the MPSVs. The increase in backlog is primarily due to new project awards exceeding revenue for our Shipyard and Fabrication Divisions for 2018. Approximately 34% of our December 31, 2018 backlogwhich approximately 57% is anticipated to be recognized as revenue beyond 2019.2021. See
Seasonality
Our operations have historically beenmay be subject to seasonal variations due to weather conditions and available daylight hours. We attempt to mitigate the impact on productivity from weather conditions through the use of ourAlthough we have large, covered fabrication facilities. However,facilities, a significant amount of our construction activities take place outdoors. Accordinglyoutdoors, and accordingly, the number of direct labor hours worked generally declinesmay decline during the winter months due to an increase in rain, cold temperaturesunfavorable weather conditions and a decrease in daylight hours. TheIn addition, the seasonality of oil and gas industry activity in the Gulf Coast region may also affectsaffect our operations. Our offshore oil and gas customers often schedule the completion of their projects during the summer months in order to take advantage of more favorable weather during such months. Further, rainy weather, tropical storms, hurricanes and other storms prevalent in the GOM and along the Gulf Coast throughout the year may also affect our operations. See
Competition
We operate within highly competitive markets which are significantly impacted by oil and gas prices and government spending. Even as we continue to strategically position the Company to participate in the fabrication of petrochemical and industrial facilities, pursue offshore wind opportunities, enter the EPC industry and diversify our customer base, significant declinesDeclines in oil and gas prices and limits on government spending can create excess capacity and underutilizationunder-utilization of our competitor's facilities, resulting in more intense competition in the bidding process for work. Therenew project awards. Further, there are numerous regional, national and global competitors that offer similar services to those offered by each of our operating divisions, some of which aredivisions. These competitors may be larger than us with more resources and have fabrication facilities in both the U.S. and abroad. Competition with foreign competitors can also be challenging as such competitors often have lower operating costs and lower wage rates, and foreign governments often use subsidies and incentives to create local jobs, impose import duties and fees on products and tax foreign operators. In addition, as a result of recent technological innovations, decreased transportation costs incurred by our customers when exporting structures from foreign locations to the GOM or Gulf Coast may hinder our ability to successfully bid against foreign competitors for large construction and fabrication projects. Uncertainties with respect to tariffs on materials and fluctuations in the value of the U.S. dollar and other factors, may also impact our ability to compete effectively.
Although we believe price and the contractor’s ability to meet a customer’s delivery schedule and project requirements are the principal factors in determining which contractor is awarded a project, customers also consider, among other things, a contractor’s past project experience, the availability of technically capable personnel, facility space,capacity and location, production efficiency, condition of equipment, reputation, safety record, customer relations and customer relations.financial strength. We believe that our strategic location, competitive pricing, expertise in fabricating and servicing onshore and offshore structures and vessels, and the certification of our facilities as ISO 9001-2015 will enable us to continue to compete effectively for projects. See
Government and Environmental Regulation
Our operations and properties are subject to a wide variety of increasingly complex and stringent foreign, federal, state and local environmental laws and other regulations, including those governing discharges into the air and water, the handling and disposal of solid and hazardous wastes, and the remediation of soil and groundwater contaminated by hazardous substances and the health and safety of employees.substances. Compliance with many of these laws is becoming increasingly complex, stringent and expensive.
Our operations are also governed by laws and regulations relating to workplacethe health and safety and worker health,of our employees, primarily the Occupational Safety and Health Act and regulations promulgated thereunder. Various governmental and quasi-governmental agencies require certain permits, licenses and certificates with respect to our operations. We believe that we have all material permits, licenses and certificates necessary for the conduct of our existing business.
Our employees may engage in certain activities, including interconnect piping and other service activities conducted on offshore platforms, activities performed on the spud barges owned or chartered by us, and marine vessel fabrication and repair activities performed at our facilities and barges owned by us, that are covered in either the provisions of the Jones Act or U.S. Longshoreman and Harbor Workers Act (“USL&H”). These laws make the liability limits established under state workers’ compensation laws inapplicable to these employees and instead, permit them or their representatives to pursue actions against us for damages or job-related injuries, with generally no limitations on our potential liability.
Many aspects of our operations and properties are materially affected by federal, state and local regulations, as well as certain international conventions and private industry organizations. The exploration and development of oil and gas properties located on the outer continental shelf of the U.S. is regulated primarily by the Bureau of Ocean Energy Management and Enforcement (“BOEM”) of the Department of Interior, (“DOI”). The Secretary of the Interior, through the BOEM,which is responsible for the administration of federal regulations under the Outer Continental Shelf Lands Act requiring the construction of offshore platforms located on the outer continental shelf to meet stringent engineering and construction specifications. Violations of these regulations and related laws can result in substantial civil and criminal penalties as well as injunctions curtailing operations. We believe that our operations are in compliance with these and all other regulations affecting the fabrication of platforms for delivery to the outer continental shelf of the U.S. In addition, we depend on the demand for our services from the oil and gas and marine industries and, therefore, can be affected by changes in taxes, price controls and other laws and regulations affecting these industries. It is also possible that the new Biden Administration will impose additional environmental regulations that will restrict federal oil and gas leasing, permitting or drilling practices on public lands. For example, President Biden has already issued orders temporarily suspending leasing or permitting of oil and gas activities on federal lands and waters, and the President has also proposed a moratorium on hydraulic fracturing on federal lands and waters. Offshore construction and drilling in certain areas has also been opposed by environmental groups and, in certain areas, has been restricted. To the extent laws are enacted or other governmental actions are taken that prohibit or restrict offshore construction and drilling or impose environmental protection requirements that result in increased costs to the oil and gas industry in general and the offshore construction industry in particular, our business and prospects could be adversely affected. We cannot determine to what extent future operations and earnings may be affected by new legislation, new regulations or changes in existing regulations.
The Comprehensive Environmental Response, Compensation, and Liability Act of 1980, as amended and similar laws provide for responses to and liability for releases of hazardous substances into the environment. Additionally, the Clean Air Act, the Clean Water Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Emergency Planning and Community Right to Know Act, each as amended, and similar foreign, state or local counterparts to these federal laws, regulate air emissions, water discharges, hazardous substances and wastes, and require public disclosure related to the use of various hazardous substances. Compliance with such environmental laws and regulations may require the acquisition of permits or other authorizations for certain activities and compliance with various standards or procedural requirements. We believe that our facilities are in substantial compliance with current regulatory standards.
In addition, our operations are subject to extensive government regulation by the U.S. Coast Guard, as well as various private industry organizations such as the American Petroleum Institute, American Society of Mechanical Engineers, American Welding Society and the American Bureau of Shipping.
Further, our operations have been impacted by national, state and local authorities recommending or mandating COVID-19 physical distancing and/or quarantine and isolation measures on large portions of the population, including mandatory business closures in the areas in which we operate.
Our compliance with these laws and regulations has entailed certain additional expenses and changes in operating procedures; however, we believe that compliance efforts have not resulted in a material adverse effect on our business or financial condition. However, future events, such as changes in existing laws and regulations or their interpretation, more vigorous enforcement policies of regulatory agencies, or stricter or different interpretations of existing laws and regulations, may require additional expenditures by us. See "
Insurance
We maintain insurance againstfor property damage caused by fire, flood, explosion and similar catastrophic events that may result in physical damage or destruction to our facilities. All policies are subject to deductibles and other coverage limitations. We also maintain builder’s risk, general liability and maritime employer’s liability insurance, which are also subject to deductibles and coverage limitations. We are further self-insured for workers’ compensation and USL&H claims through our use of deductibles and self-insured retentions up to per occurrence threshold amounts. See
Available Information
We make available our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports, free of charge through our Internet website at www.gulfisland.com as soon as reasonably practicable after such materials are electronically filed with or furnished to the U.S. Securities and Exchange Commission (the “SEC”). The SEC also maintains an Internet website at
www.sec.gov that contains periodic reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. Our website and the information contained therein or connected thereto are not intended to be incorporated into this Report.Item 1A. Risk Factors
The following discussion of risk factors contains forward-looking statements (see "Cautionary“Cautionary Statement on Forward-Looking Information"Information”). These risk factors are important to understanding other statements in this Report. The following information should be read in conjunction with Item 7 “Management’s“Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Item 8 “Financial“Financial Statements and Supplementary Data” found elsewhere in this Report.
Our business, prospects, financial condition, operating results, cash flows and stock price may be affected materially and adversely, in whole or in part, by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause our actual financial condition, and operating results and cash flows to vary materially from historical operating results or those anticipated, projected or assumed in our forward-looking statements. Our business, prospects, financial condition, operating results, cash flows and stock price could also be affected by additional factors that apply to all companies generally which are not specifically mentioned below.
Business and Industry Risks
The ongoing global pandemic caused by COVID-19 and certain developments in the global oil markets have had and may continue to have, and any future pandemic, epidemic, endemic or similar public health threats and resulting negative impact on the global economy and financial markets could have, a negative impact on our operations, the duration and extent of which is highly uncertain and could be material.
COVID-19 is a widespread public health crisis that continues to adversely affect global economies and financial markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and the U.S. President announced a national emergency relating to COVID-19. National, state and local authorities recommended physical distancing and many authorities imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. Authorities in some areas of the U.S. began to relax these restrictions in the second quarter 2020. However, the country, including areas where we have our headquarters and operating facilities, experienced several periods of resurgence in the spread of the virus in both the third and fourth quarters of 2020. Authorities have reacted to these resurgences by deferring the phasing out of these restrictions and, in some instances, re-imposing quarantine and isolation measures during the fourth quarter 2020. The measures taken, while intended to protect human life, have had and are expected to continue to have a serious adverse impact on domestic and foreign economies of uncertain severity and duration. Moreover, governmental and commercial responses to COVID-19 have exacerbated the already weakened condition of the energy industry, further reducing the demand for oil, and further depressing and creating volatility in oil prices. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy entered a recession in February 2020, and the duration and severity of this recession, which is ongoing, remains unclear at this time. Any prolonged period of economic slowdown or recession could have a significant adverse effect on our financial condition and financial condition of our customers, subcontractors and other counterparties. The longer-term effectiveness of economic stabilization efforts, including government payments to impacted citizens and industries, is uncertain. Although the U.S. Food and Drug Administration has authorized three COVID-19 vaccines for emergency use, the overall supply of these vaccines may be limited or otherwise hampered by delivery issues, and distribution may therefore be delayed. Even with widespread distribution and acceptance of these vaccines, their long-term efficacy is unknown.
We operate in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date, we currently continue to operate across our footprint. Notwithstanding our continued operations, the progression of and global response to COVID-19, and related contraction in oil demand, combined with depressed and volatile crude oil prices have had and may continue to have negative impacts on our operations, which include but are not limited to:
• | Delays, Suspension or Termination of Backlog; Reduced Bidding Activity; Deterioration of Customer Financial Condition. Certain of our customers have requested to renegotiate pricing and suspended contracts in our backlog and bidding activities for several new project opportunities have been suspended. We may have additional delays, suspensions or terminations of contracts in our backlog and further reduced bidding activity for new project awards. In addition, financial strain on our customers could impact their ability pay or otherwise perform on their obligations to us. |
• | Availability of Workforce. We have seen an increase in employee absenteeism and turnover, experienced challenges recruiting and hiring craft labor, and implemented COVID-19 related mitigation measures to ensure the safety and well-being of our employees and contractors, all of which have impacted our project execution. The productivity of our workforce may be further impacted by COVID-19 (including, but not limited to, the temporary inability of the workforce to work due to illness, quarantine following illness, or absenteeism for fear of contracting COVID-19), which may further impact our progress on projects. |
• | Potential Supply Disruptions; Performance by Subcontractors. COVID-19 has also had an impact on our suppliers and subcontractors. Failure of suppliers and subcontractors, on which we rely, to deliver materials and provide services, or perform under their contracts on a timely basis or at all due to their own financial or operational difficulties or inability to fulfill their contractual obligations due to the reduced availability of their workforce, has had and may continue to have an adverse impact on our operations. For example, the impact of COVID-19 on our suppliers and subcontractors has resulted in and may continue to result in scheduling delays and higher costs for subcontracted services and materials. Further, certain deliverables from third-party engineering firms supporting our projects have been delayed. The inability of our suppliers or subcontractors to perform could result in the need to transition to alternative suppliers or subcontractors, which could result in significant incremental cost and delay, or the need for us to provide other supplemental means to support our existing suppliers and subcontractors. |
The extent to which COVID-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable. This current level of uncertainty means the ultimate business and financial impacts of COVID-19 and reduction and volatility in crude oil prices cannot be reasonably estimated at this time. See Note 1 of our Financial Statements in Item 8 and “Overview” in Item 7 for further discussion of the impacts of COVID-19 and reductions and volatility in crude oil prices.
Our revenue and profitability may be impacted by the cyclical nature of the oil and gas industry.
Our business is significantly dependent on the level of capital expenditures by (i) oil and gas companiesproducers, processors and their contractors, (ii) alternative energy companies and (iii) marine companies operating in the GOM and along the Gulf Coast and federal, state and local governments.Coast. The level of activity by these parties has traditionally beencompanies can be volatile and they have beenis significantly impacted by fluctuations in oil and gas and associated commodity prices. Oil and gas prices continue to be depressed and have not increased to a level that supports a recovery in offshore exploration and production spending. In addition to the price of oil and gas, the levels of our customers’ capital expenditures are influenced by, among other things:
• | the cost of exploring for, producing and delivering oil and gas; |
• | the ability of oil and gas companies to generate capital; |
• | the sale and expiration dates of offshore leases in the U.S. and overseas; |
• | the discovery rate, size and location of new oil and gas reserves; |
• | demand for energy, including hydrocarbon production, which is affected by worldwide economic activity and population growth; |
• | the ability of the Organization of the Petroleum Exporting Countries (“OPEC”) to set and maintain production levels for oil and the level of production by non-OPEC countries; |
• | local, federal and international military, political and economic events and conditions, including regulatory changes under the Biden Administration, economic uncertainty, socio-political unrest, any government shutdown and instability or hostilities; |
• | demand for, availability of and technological viability of, alternative sources of energy; |
• | technological advances affecting energy exploration, production, transportation and consumption; and |
• | uncertainty regarding the U.S. energy policy under the Biden Administration, particularly any revision, reinterpretation or creation of environmental and tax laws and regulations that would negatively impact the oil and gas industry. |
The above factors have not favored increasedsuppressed capital spending by offshore oil and gas companies in recent years. The oil and gas industry has also experienced increased volatility beginning in the first quarter 2020 due to certain geopolitical developments in addition to COVID-19. Further, although a reduction in gas prices has benefited capital spending for petrochemical and other facilities, the timing of, and our ability to secure, new project awards for this end market continues to be uncertain. As a result, there are fewer project awards in our traditional oil and gas markets to replace completed projects, and pricing of new contracts remains increasingly competitive.Thiscompetitive. This creates challenges with respect to our ability to operate our fabrication facilities at desired utilization levels and may result in decreased revenue, lower margins, and losses in certain periods.during periods of lower capital spending. Should industry conditions not improve, we may continue to suffer such decreased revenue, lower margins, and losses in future quarters. In addition, we believe that the downturn in the oil and gas industry has also adversely impacted many of our customers' businesses.
We are unable to predict future oil and gas prices or the level of oil and gas industry activity for the products and services we provide. Further, an increase in oil and gas prices may not necessarily translate into immediate or long- term increased activity, and even during periods of relatively high oil prices, our customers may cancel or curtail programs, or reduce their levels of capital expenditures for exploration and production. Advances in onshore exploration and development technologies, particularly with respect to large, onshore shale production areas, could result in our historical customers allocating a higher percentage of their capital expenditure budgets to onshore exploration and production activities and we may not be successful securing new project awards related to these onshore activities. An increase in gas prices could also negatively impact future investments in petrochemical and other facilities that benefit from lower gas prices. These factors could cause our revenue and margins to remain depressed and limit our future growth prospects.
We operate in an industry that is highly competitive.
The onshore refining, petrochemical, LNG and industrial fabrication industries, the offshore oil and gas industriesfabrication industry and the marine fabrication industriesindustry are highly competitive and influenced by events largely outside of our control. Contracts for our services are often awarded on a competitively bid basis, and our customers consider many factors when awarding a project. These factors include price, ability to meet the customer’s schedule, the availability and capacity of equipment and facilities, and the reputation, experience, and safety record of the contractor. Although we believe we have an excellent reputation for safety and quality, we can provide no assurances that we will be able to maintain our competitive position. In addition, we often compete with companies that have greater resources, which may make them more competitive for certain projects.
Competition with foreign competitors can also be challenging as such competitors often have lower operating costs and lower wage rates, and foreign governments often use subsidies and incentives to create local jobs, impose import duties and fees on products, and tax foreign operators. In addition, as a result of technological innovations, decreased transportation costs incurred by our customers when exporting structures from foreign locations to the GOM and Gulf Coast may hinder our ability to successfully bid for projects indestined for the GOM and Gulf Coast against foreign competitors. See
Certain of our customers are facing significant challenges and a period of consolidation within their industry.
The oil and gas industry is facing significant challenges due to a prolonged period of depressed and volatile oil and gas prices. This has also negatively impacted the marine industry that supports offshore exploration and production. Accordingly, many companies are unable to compete and, in some cases, are unable to pay their liabilities as they become due. This has resulted in many companies within the oil and gas and marine industries seeking bankruptcy protection or pursuing consolidation through mergers with, or acquisition by, other companies. During 2020, one of our customer’s filed for and emerged from Chapter 11 bankruptcy; however, our dispute with the customer relating to the construction of two MPSVs is ongoing. See “Legal Proceedings” in Item 3 for further discussion of the status of the dispute and the impact of the customer’s bankruptcy filing. We expect these trends to continue.
The consolidation of one or more of our primary customers, the acquisition of one or more of our primary customers by a company that is not a customer, andor a primary customer’s acquisition of another company that provides services similar to those provided by us, could result in a reduction in such customers’ capital spending and a decrease in the demand for our products and services. In addition, the liquidation of one or more of our primary customers could decrease the demand for our products and services. We can provide no assurances that we will be able to maintain our level of revenue with a customer that has consolidated or replace lost revenue. We are unable to predict what effect consolidations in the industry may have on contract pricing, capital spending by our customers, our selling strategies, our competitive position, our ability to retain customers or our ability to negotiate favorable agreements with our customers.
Financial and Operational Risks
We are dependent upondepend on the award of new contracts and the timing of those awards.
It is difficult to predict whether or when we will be awarded a new contract due to complex bidding and selection processes, changes in existing or forecast market conditions, governmental regulations, permitting and environmental matters. Bidding activities for several new project opportunities have been delayed or suspended as a result of COVID-19 and low and volatile oil and gas prices. As these conditions continue, we may have further reduced bidding activity for new project opportunities during 2021 and beyond. In addition, political events within the U.S. have resulted, and may in the future result, in the shutdown of government services, which could impact inspections, regulatory review and certifications, grants or approvals. Because our revenue is derived from new project awards, our results of operations and cash flows can fluctuate materially from period to period as contracts are typically awarded on a project-by-project basis.
The timing of new project awards may reduce our short-term profitability as we balance our current capacity with expectations of future project awards. If an expected new project award is delayed or not received, we may incur costs to maintain an idle workforce and facilities, or alternatively, we may determine that our long-term interests are best served by reducing our workforce and incurring increased costs associated with termination benefits. In recent years we have reduced our skilled workforce in response to decreases in the utilization of our facilities. A further reduction in our workforce could also impact our results of operations if customers are hesitant to award new contracts based upon our staffing levels or if we are unable to adequately increase our labor force and staff projects that are awarded subsequent to workforce reductions.
We depend on significant customers for our revenue.
We derive a significant amount of our revenue from a small number of customers, including U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power, and marine operations;operators; EPC companies; and certain agencies of the U.S. government. Because the level of services that we may provide to any customer depends, among other things, on the amount of that customer’s capital expenditure budget and our ability to meet the customer’s delivery schedule, customers that account for a significant portion of our revenue in one year may represent an immaterial portion of revenue in subsequent years. We define significant customers as those that individually comprise 10% or more of our consolidated revenue. For 2020, 2019 and 2018, two, four and three customers accounted for 46%, 54%, and 44% of our consolidated revenue. For 2017, two customers accounted for 39% of our consolidated revenue. For 2016, one customer accounted for 23%, respectively, of our consolidated revenue. The loss of a significant customer in any given
We are exposed to the credit risks of our customers, including nonpayment and nonperformance by our customers.
The concentration of our customers in the oil and gas and marine industries may impact our overall exposure to credit risk as customers may be similarly affected by prolonged changes in economic and industry conditions. Our business could be impacted due to nonpayment or nonperformance by our customers. We believe certain of our customers finance their activities through cash flows from operations and debt or equity financing. Many of these customers are facing significant challenges withinin light of the ongoing global pandemic caused by COVID-19 and the current oil and gas market. As a result, many of our customersmarket and are facingexperiencing decreased cash flows, a reductionreductions in borrowing capacity, the inability to access capital or credit markets, and a reductionreductions in their liquidity, andwhich may impact their ability to pay or otherwise perform on their obligations to us. Accordingly, our operations could be impacted due to nonpayment or nonperformance by our customers. We perform ongoing credit evaluations of our customers and do not generally require collateral in support of our trade receivables. While we maintain reserves for potential credit losses, we can provide no assurances that such reserves will be sufficient to cover uncollectible receivable amounts or that our losses from such receivables will be consistent with our expectations.
Furthermore, some of our customers may be highly leveraged and subject to their own operating and regulatory risks, which increases the risk that they may default on their obligations to us. To the extent one or more of our key customers is in financial distress or commences bankruptcy proceedings, contracts with, or obligations from, these customers may be subject to renegotiation or rejection under applicable provisions of the U.S. Bankruptcy Code and similar Internationalinternational laws.
The nature of our contracting terms for our contracts could adversely affect our operating results.
As is common in the fabrication and marine construction industries, a substantial number of our projects are performed on a fixed-price or unit-rate basis. Under fixed-price contracts, our contract price is fixed, and is generally only subject to adjustment only for changes in scope by the customer. Accordingly, we retain cost savings realized on a project but are also responsible for cost overruns. Under unit rate contracts, material items or labor tasks are assigned unit rates of measure. The unit rates of measure will generally be an amount of dollarsa reimbursable value per ton, per foot peror square foot or per item installed. A typical unit rate contract can contain hundreds to thousands of unit rates of measure. Profit margins are builtincorporated into the unit rates and, similar to a fixed pricefixed-price contract, we retain cost savings realized on a project but are also responsible for cost overruns. In many cases, our fixed-price and unit rate contracts involve complex
design and engineering, significant procurement of materials and equipment, supplies and extensive constructionproject management. In addition, as projects increase or decrease in scope, the resulting changes in contract price or unit rates could be less than the actual costs incurred associated with such changes in scope. We employ our best efforts to properly estimate the costs to complete our projects; however, our actual costs incurred to complete our projects could materially exceed our estimates. The revenue, costs and profit realized on a contract will often vary from the estimated amounts on which such contract was originally estimated due to the following:
• | failure to properly estimate costs of engineering, materials, components, equipment, labor or subcontractors; |
• | unanticipated changes in the costs of engineering, materials, components, equipment, labor or subcontractors; |
• | failure to properly estimate the impact of engineering delays or errors on the construction of a project, including productivity, schedule and rework; |
• | difficulties in engaging third-party subcontractors, equipment manufacturers or materials suppliers, or failures by third-party subcontractors, equipment manufacturers or materials suppliers to perform, resulting in project delays and additional costs; |
• | late delivery of materials by our vendors or the inability of subcontractors to deliver contracted services on schedule or at the agreed upon price; |
• | increased costs due to poor project execution or productivity and/or weather conditions; |
• | unanticipated costs or claims, including costs for project modifications, delays, errors or changes in specifications or designs, regulatory changes or contract termination; |
• | unrecoverable costs associated with customer changes in scope and schedule; |
• | payment of liquidated damages due to a failure to meet contracted delivery dates; |
• | changes in labor conditions, including the availability, wage and productivity of labor; |
• | termination, temporary suspension or significant reduction in scope of our projects by our customers; |
• | unanticipated technical problems with the structures, equipment or systems we supply; |
• | under-utilization of our facilities and an idle labor force; and |
• | changes in general economic conditions. |
These variations and risks are inherent within our industry and may result in revenue and profit that differ from thoseamounts originally estimated and alter profitability or result in losses on projects. Depending on the size of a project, variations from estimated contract performance can have a significant impact on our operating results for any quarter or year.results. In addition, substantially all of our contracts require us to continue work in accordance with the contractually agreed schedule, (andand thus,
Competitive pricing common in the fabrication and marine construction industry may not provide sufficient protection from cost overruns.
Even when industry conditions are favorable, we operate in a very competitive industry, and as a result, we are not always successful in fully recovering our cost structureproject costs or realizing a profit. Additionally, during periods of increased market demand, a significant amount of new service capacity may enter the market, which also places pressure on the pricing of our services. Furthermore, during periods of declining pricing for our services, we may not be able to reduce our costs accordingly, which could further affect our profitability.
Our method of accounting for revenue using the percentage-of-completion method could have a negative impact on our results of operations.
Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method, based on contract costs incurred to date compared to total estimated contract costs. Contract costs include direct costs, such as materials and labor, and indirect costs that are attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred. Revenue and gross profit for contracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: forecast costs of engineering, materials, components, equipment and subcontracts; forecast costs of labor and subcontracts; labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which could result in material changes to our Financial Statements and related disclosures.
We are susceptible to adverse weather conditions in our market areas.
Our operations have historically beenmay be subject to seasonal variations due to weather conditions and daylight hours. We attempt to mitigate the impact on productivity from weather conditions through the use of ourAlthough we have large covered fabrication facilities. However,facilities, a significant amount of our construction activities continues to take place outdoors. Accordingly,outdoors, and accordingly, the number of direct labor hours worked generally declines inmay decline during the winter months due to an increase in rain, colder temperaturesunfavorable weather conditions and a decrease in daylight hours. TheIn addition, the seasonality of oil and gas industry activity in the Gulf Coast region also affects our operations. Our offshore oil and gas customers often schedule the completion of their projects during the summer months in order to take advantage of more favorable weather during such months. Further, the rainy weather, tropical storms, hurricanes and other storms prevalent in the GOM and along the Gulf Coast throughout the year may also affect our operations. RepercussionsFor example, in the third quarter 2020 we experienced damage to our facilities in Lake Charles, Louisiana due to Hurricane Laura, which made landfall as a high-end Category 4 hurricane. The impact of severe weather conditions or natural disasters may include disruption of our workforce, curtailment of services, weather-related damage to facilities and equipment, resulting in suspension of operations, inability to deliver equipment, personnel and products to job sites in accordance with contract schedules;schedules, and loss of productivity. Our suppliers and subcontractors are also subject to severe weather and natural or environmental disasters that could affect their ability to deliver products or services or otherwise perform under their contracts. Furthermore, our customers’ operations may be materially and adversely affected by severe weather and seasonal weather conditions, resulting in reduced demand for services. Accordingly, our operating results may vary from quarter to quarter, depending on factors outside of our control. As a result, full year results are not likely to be a direct multiple of any quarter or combination of quarters. We believe that we maintain adequate insurance coverage related to potential damage from weather. See
Our backlog is subject to change as a result of delay, suspension, termination or termination ofan increase or decrease in scope for projects currently in backlog or our failure to secure additional projects.
New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unearnedunrecognized revenue offor our new project awards and includes signed contracts that are temporarily suspended or under protest but represent future work that we believe will be performed. The revenue projected in our backlog may not be realized or, if realized, may not be profitable.
Projects included in our backlog are generally subject to delay, suspension, termination, or an increase or reductiondecrease in scope at the option of the customer, althoughcustomer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or reductiondecrease in scope. Certain of our customers have requested to renegotiate pricing, and in some cases temporarily suspended, contracts in our backlog as a result of COVID-19 and low and volatile oil and gas prices. Depending on the size of the project, the delay, suspension, termination,
We may need to obtain debt financing or new credit facilities or raise equity capital in the future for working capital, capital expenditures, contract commitments and/or acquisitions, and we may not be able to do so or do so on favorable terms, which would impair our ability to operate our business or execute our strategy.
Our primary sources of liquidity are our existing cash, cash equivalents and scheduled maturities of our short-term investmentsinvestments. If such amounts and cash flows from operating activities are not sufficient to fund our working capital requirements, capital expenditures, contract commitments, and/or acquisition opportunities, we would be required to reduce our capital expenditures and/or forego certain contracts and/or acquisition opportunities, or we would be required to fund such needs through debt or equity issuances or through other financing alternatives, including the sale of assets.
We have created our EPC Division to manage the potential SeaOne Project, offshore wind opportunities and other projects that may require engineering, procurement and construction and project management services. We are working to strengthen our internal project management capabilities through the hiring of additional personnel to service such projects. Additionally, we may be required to make capital investments in our existing or new facilities and increase our working capital to support our backlog or new project awards, including potential additional projects for the U.S. Navy, the potential SeaOne Project and potential offshore wind projects.awards. The capital outlays and working capital required by us to execute such projects could exceed the availability under our Credit Agreementexisting, cash, cash equivalents, scheduled maturities of our short-term investments and cash flows from operating activities, and we may not be able to obtain alternative debt financing or new credit facilities to fund any such capital investment or working capital requirements.
Our ability to successfully obtain debt financing or new credit facilities or raise equity capital in the future will depend in part upon prevailing capital market conditions, as well as conditions in our business and our operating results, and those factors may affect our efforts to obtain additional capital on terms that are satisfactory to us. If adequate capital is not available, or not available on beneficial terms, we may not be able to make future investments, take advantage of acquisitions or other investment opportunities, or respond to competitive challenges. This could limit our ability to bid on new project opportunities, thereby limiting our potential growth and profitability.
We may not be able to amend our Credit Agreement or obtain debt financing, or new credit facilities or surety bonds if and when needed on favorable terms, if at all.
There are a number of potential negative consequences for the energy sector that may result if oil and gas prices remain depressed or decline or if oil and gas companies continue to de-prioritize investments in exploration, development and production, including the continued or worsening of outflow of credit and capital from the energy sector and/or energy focused companies, further efforts by lenders to reduce their exposure to the energy sector, the imposition of increased lending standards for the energy sector, higher borrowing costs and collateral requirements, or a refusal to extend new credit or amend existing credit facilities in the energy sector. These potential negative consequences may be exacerbated by the pressure exerted on financial institutions by regulatory agencies to respond quickly and decisively to credit risk that develops in distressed industries. All these factors may complicate our ability to achieve a favorable outcome in obtaining debt financing negotiating newor credit facilities or amending or extending our Credit Agreement.
In order to extend our Credit Agreement or secure debt financing or new credit facilities with borrowing capacity, if available, we may be required to provide further collateral, pay higher interest rates and otherwise agree to more restrictive terms. Collateral requirements and higher borrowing costs may limit our long- and short-term financial flexibility, and any failure to obtain amendments to our Credit Agreement or to secure debt financing or new credit facilities on terms that are acceptable to us could jeopardize our ability to fund, among other things, capital expenditures and general working capital needs or meet our other financial commitments.
Our LC Facility currently provides for letters of credit, which are subject to cash securitization. We provide our customers letters of credit under our Credit Agreement (which will reduce our availability under our Credit Agreement) orLC Facility and surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. With respect to a letter of credit under
We may not be able to generate sufficient cash flow to meet our obligations.
Our ability to fund our operations depends on our ability to generate future cash flows from operations. This, to a large extent, is subject to conditions in the oil and gas industry, including commodity prices, demand for our services and the prices we are able to charge for our services, general economic and financial conditions, competition in the markets in which we operate, the impact of legislative and regulatory actions on how we conduct our business and other factors, all of which are beyond our control. During 2018,2020, we hadexperienced negative cash flows from operations, and this trend could continue if conditions in our industry continue or worsen.worsen or if we were to experience losses on our projects. See
In addition, On April 17, 2020, we entered into a $10.0 million PPP Loan with Whitney Bank. The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met. On September 29, 2020, we submitted our application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million. Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the SBA for review. As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made no loan payments. Because the amount borrowed exceeded $2.0 million, the PPP Loan and our loan forgiveness application is subject to audit by the SBA. Any portion of the PPP Loan that is not forgiven, together with accrued interest, will be repaid based on the terms and conditions of the PPP Loan and in accordance with the PPP, as amended by the Flexibility Act, unless the SBA were to determine that we were not eligible to participate in the PPP, in which case the SBA could seek immediate repayment of the PPP Loan. While we believe we are a qualifying business and have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds only for Permissible Expenses, we can provide no assurances that we will be eligible for forgiveness of the PPP Loan, in whole or in part. See Note 5 of our Financial Statements in Item 8 and “Liquidity and Capital Resources” in Item 7 for further discussion of our PPP Loan and related loan forgiveness application.
If we do not receive forgiveness of the portion of the PPP Loan anticipated, it could have a significant impact on our operations, including requiring us to dedicate more of our cash balance and any cash flow from operations to payments on the PPP Loan, thereby reducing our liquidity and available cash flow to fund overhead costs and general corporate administrative expenses, working capital, capital expenditures, and initiatives to diversify and enhance our business.
Our strategy to monetize under-utilized assets, including the sale of assets held for sale, and rationalize under-utilized facilities to improve our facility utilization, could result in future losses or impairments and may not be ableproduce our desired results.
We are taking actions to sellmonetize under-utilized assets. At December 31, 2020, our assets held for sale totaled $8.2 million and primarily consisted of three 660-ton crawler cranes and two drydocks. Further, our ongoing evaluation of under-utilized assets could result in the identification of additional assets for sale. During 2020, we recorded impairments associated with our assets held for sale and / or any sales we consummate may not produce the desired results.
We are also taking actions to relocate assets, consolidate operations and rationalize under-utilized facilities to improve our facility and personnel utilization. Such actions may include the closure or consolidation of one or more of our facilities and the termination of facility employees. During the fourth quarter 2020, we closed our Jennings Yard and Lake Charles Yard and relocated certain assets to our Houma Yards. We also relocated certain assets from our Shipyard Division to our Fabrication & Services Division, and we abandoned certain assets, within our Houma Yards to improve operational efficiency. In connection therewith, during 2020, we recorded impairments of certain assets associated with our Lake Charles Yard and Houma Yards. See Note 3 of our Financial Statements in Item 8 for further discussion of our closure of the Jennings Yard and Lake Charles Yard. A facility closure or consolidation could result in future impairments of facility assets and other restructuring or exits costs, including retention, severance or other costs associated with terminated personnel. Further, we can provide no assurances that any facility closure or consolidation will result in an improvement in our overall utilization or that the costs of doing so will not exceed the benefits expected to be gained from the closure or consolidation of a facility.
If we continue to be unable to maintain satisfactory utilization of our facilities or personnel, our results of operations and financial condition would be adversely affected.
In recent years we have experienced an under-utilization of our facilities and personnel and have not fully recovered our fixed overhead costs, due in part to the high fixed costs of our operations and the impact of the ongoing global pandemic caused by COVID-19 and low and volatile oil and gas prices. This has resulted in losses from our operations. If current or future facility and personnel capacity fails to match current or future customer demands for our services, our facilities would continue to be under-utilized, which could result in less profitable operations or ongoing losses from our operations.
We may be unable to successfully defend against claims made against us by customers or subcontractors, or recover claims made by us against customers or subcontractors.
Our projects are generally complex, and we may encounter difficulties in design, engineering, schedule changes and other factors, some of which may be beyond our control, that affect our ability to complete projects in accordance with contracted delivery schedules or to otherwise meet contractual performance obligations. We may bring claims against customers for additional costs incurred by us as a result of customer-caused delays or changes in project scope initiated by our customers that are not part of the original contract scope. In addition, claims may be brought against us by customers relating to, among other things, alleged defective or incomplete work, breaches of warranty and/or late completion of work. We may also incur claims with our subcontractors that are similar to those described above. These claims may be subject to lengthy and/or expensive litigation or arbitration proceedings and may require us to invest significant working capital in projects to cover cost increases pending resolution of the claims.
Our employees and subcontractors work on projects that are inherently dangerous. If we fail to maintain safe work sites, we can be exposed to significant financial losses and reputational harm.
We work on projects with large mechanized equipment, moving vehicles, and dangerous processes, which can place our employees and otherssubcontractors in challenging environments. In addition,We maintain a safety assurance program designed to ensure the failuresafety of structures duringour employees and after installation can also resultsubcontractors and to ensure that we remain in personal injury or loss of life, severe damage tocompliance with all applicable federal and destruction of property and equipment and suspension of operations. Management is focused on the implementation of effective quality, health,state mandated safety environmental and security procedures.regulations. If we fail to implement these procedures,our safety assurance program fails, our employees, subcontractors and others may become injured, disabled or lose their lives, and our projects may be delayed, causing exposure to litigation or investigations by regulators.
Unsafe conditions at project work sites also have the potential to increase employee turnover, increase project costs and raiseincrease our operating costs. In addition, our customers often require that we meet certain safety criteria for eligibilityin order to be eligible to bid for contracts. Our failure to maintain adequate safety standards, could result in lost project awards and customers and our ability to tenderor preclude us from tendering future bids.
These risks may be greater should we acquire companies that have not allocated sufficient resources and management focus on safety and have poor safety recordsperformance, requiring corrective actions during the integration process. This may result in liabilities before such corrective actions are implemented.
The limits on our insurance coverage could expose us to potentially significant liability and costs.
The fabrication of structures and the services we provide involves operating hazards that can cause accidents resulting in personal injury or loss of life, severe damage to and destruction of property and equipment and suspension of operations. In addition, due to the proximity to the GOM, our facilities are subject to the possibility of physical damage caused by hurricanes or flooding.
In addition, our employees may engage in certain activities, including interconnect piping and other service activities conducted on offshore platforms, activities performed on spud barges owned or chartered by us, and marine vessel fabrication and repair activities performed at our facilities, and barges owned by us, that are covered in either the provisions of the Jones Act or USL&H. These laws make the liability limits established under state workers’ compensation laws inapplicable to these employees and, instead, permit them or their representatives to pursue actions against us for damages or job-related injuries, with generally no limitations on our potential liability. For example, ourOur ownership and operation of vessels and our fabrication and repair of customer vessels can also give rise to large and varied liability risks, such as risks of collisions with other vessels or structures, sinking, fires and other marine casualties, which can result in significant claims for damages against both us and third parties. Litigation arising from any such occurrences may result in our being named as a defendant in lawsuits asserting large claims.
We may be exposed to future losses through our use of deductibles and self-insured retentions for our exposures related to third party liability and workers' compensation. We expect liabilities in excess of any deductible to be covered by insurance. Although we believe that our insurance coverage is adequate, there can be no assurance that we will be able to maintain adequate insurance at rates we consider reasonable or that our insurance coverage will be adequate to cover claims that may arise. To the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change.
Changes in the insurance industry have generally led to higher insurance costs and decreased availability of coverage. The availability of insurance that covers risks we typically insure against may decrease, and the insurance that we are able to obtain may have higher deductibles, higher premiums and more restrictive policy terms.
Our entry into a new line of businessefforts to strategically reposition the Company to diversify our service offerings and customer base may not result in increased shareholder value.
Our operations have historically been focused on offshore fabrication and services for the offshore oil and gas industry. We have diversified our fabrication business through the pursuit of onshore fabrication opportunities, expandedthe pursuit of marine vessel opportunities outside of the oil and diversified our shipyard capability throughgas industry and the acquisitionpursuit of a shipyard business in 2016, and expanded our EPC capability through the creation of our EPC Division to manage the potential SeaOne Project, offshore wind opportunities and other projects that may require EPC services.are not related to our traditional offshore oil and gas markets. We may pursue additional markets or lines of business to expand our capabilitiesservice offerings and further and enter into additional lines of business.diversify our customer base. Entry into, or further development of, new lines of business in which we have not historically operated may expose us to business and operational risks that are different from those we have experienced historically. We may not be able to effectively manage these additional risks or implement successful business strategies in new lines of business.strategies. Additionally, our competitors in these expanded lines of business may possess greater operational knowledge, resources and experience than we do. These diversification initiatives may not result in an increase in shareholder value and could result in a reduction in shareholder value depending upon our required capital investment and success.
We may be unable to employ a sufficient number of skilled personnel to execute our projects.
Our operations require personnel with specialized skills and experience. In recent years we have reduced our skilled workforce in response to decreases in the utilization of our facilities. Our productivity and profitability are significantly dependent upon our ability to attract and retain skilled construction supervisionsupervisors and craft labor, primarily welders, pipe fitters and equipment operators. Reductions in our labor force may make it more difficult to increase our labor force to desirable levels during periods of expanding customer demand and increases in our backlog. Our abilityDuring 2020, we began increasing our skilled workforce within our Shipyard Division to expandexecute the division’s backlog, and in connection therewith, and in part due to COVID-19, we experienced an increase in employee absenteeism and turnover as well as challenges recruiting and hiring craft labor, which has impacted our operations to support growth in our backlog is highly dependent on our ability to increase our labor force when necessary with an appropriate skilled construction workforce.
In addition, in periods of increased demand for construction labor, the supply of suchskilled labor becomes increasingly limited resulting in higher costs of labor, including increases in the wage rates as well asand the costs of recruiting or training costs to attract and retain qualified employees. During previous periods of high activity, we have enhanced several incentive programs and expanded our training facility to maintain our workforce and attract new employees. DuringFurther, during times of higher demand for our services, if qualified personnelskilled labor become scarce, it could also increase our use of contract labor, which may have a higher cost and lower levels of productivity. Further, if
If we failare unable to attracthire and retain qualified personnel,necessary skilled labor, we could incur difficulties performing our contracts and attractingmay be unable to win new project awards. Moreover,awards and expand our operations. Further, any shortage of qualified personnelskilled labor or the inability to obtainongoing challenges hiring and retain qualified personnelretaining skilled labor could negatively affect the quality, safety, timeliness and timelinessprofitability of our operations.projects.
Our success is dependent on key personnel.
Our success depends onis dependent upon the abilities of our executives, management, and other key employees who have significant experience within our industry. Our success also depends on our ability to attract, retain and motivate highly-skilled personnel in various areas, including engineering, skilled laborers and craftsmen,construction supervision, project management, procurement, project controls and finance. The loss of one or more key personnel or our inability to attract, retain and motivate necessary personnel could impact our operations. In addition, we may not be able to retain key employees assumed in an acquisition, which may impact our ability to successfully integrate or operate the business acquired.
We depend on third parties to provide services to perform our contractual obligations and supply raw materials.
We rely on third parties to provide raw materials, and major components and to perform certain services required by our contracts. For example, we rely on steel purchased from domestic and foreign steel mills as well as subcontractors for the installation of electrical and mechanical testing of equipment. Disruptions and performance problems caused by our suppliers and subcontractors, or a misalignment between our contractual obligations to our customers and our agreements with our subcontractors and suppliers, could have an adverse effect on our ability to meet our commitments to customers. Our ability to perform our obligations on a timely basis could be adversely affected if one or more of our suppliers or subcontractors are unable
We depend upon subcontractors for a variety of reasons, including:
We work closely with these subcontractors to monitor progress and address our customer requirements. However, the inability of our subcontractors to perform under the terms of their contracts could cause us to incur additional costs that reduce profitability or createresult in losses on projects.
We may be protected from increases in material costs through cost escalation provisions in some of our contracts. Even with these provisions, however,However, the difference between our actual material costs and these escalation provisions may expose us to cost uncertainty. In addition, we may experience significant delays in deliveries of key raw materials, which may occur as a result of availability or price.
Systems and information technology interruption or failure and data security breaches could adversely impact our ability to operate or expose us to significant financial losses and reputational harm.
We rely heavily on computer information, communications technology and related systems in order to properly operate our business. From time to time, we experience occasional system interruptions and delays. In the event we are unable to deploy software and hardware, effectively upgrade our systems and network infrastructure, and take other steps to maintain or improve the efficiency and efficacy of our systems, the operation of such systems could be interrupted or result in the loss, corruption or release of data. In addition, our computer and communications systems and operations could be damaged or interrupted by natural disasters, force majeure events, telecommunications failures, power loss, acts of war or terrorism, physical or electronic security breaches, intentional or inadvertent user misuse or error, or similar events or disruptions. Any of these or other events could cause interruptions, delays, loss of critical and/or sensitive data or similar effects.
In addition, we face the threat to our computer systems of unauthorized access, computer hackers, computer viruses, malicious code, organized cyber-attacks and other security problems and system disruptions. If we were to be subject to a cyber incident or attack, it could result in the disclosure of confidential or proprietary customer information, theft, loss, corruption or misappropriation of intellectual property, damage to our reputation with our customers and the market, failure to meet customer requirements or customer dissatisfaction, theft, exposure to litigation, damage to equipment and other financial costs and losses. We rely on industry accepted security measures and technology to securely maintain all confidential and proprietary information on our computer systems, but these systems are still vulnerable to these threats. In addition, as cybersecurity threats continue to evolve, we may be required to expend significant resources to protect against the threat of these system disruptions and security breaches or to alleviate problems caused by these disruptions and breaches.
We may conduct a portion of our operations through joint ventures and strategic alliances over which we may have limited control, and our partners in such arrangements may not perform.
We may conduct a portion of our operations through joint ventures and strategic alliances with business partners. In any such arrangement, differences in views among the participants may result in delayed decisions or in failures to reach agreement on certain matters, or to do so in a timely manner. In any joint venture or strategic alliance in which we hold a non-controlling interest, we may have limited control over many decisions relating to joint venture operations and internal controls relating to operations. We also cannot control the actions of our partners, including any non-performance, default, or bankruptcy of our partners, and we would likely share liability or have joint and/or several liability with our partners for joint venture matters.
Actions of activist shareholders could create uncertainty about our future strategic direction, be costly and divert the attention of our management and board. In addition, some institutional investors may be discouraged from investing in the industries that we service.
In recent years, activist shareholders have placed increasing pressure on publicly-traded companies to effect changes to corporate governance practices, executive compensation practices or social and environmental practices or to undertake certain corporate actions or reorganizations. There can be no assurances that activist shareholders will not publicly advocate for us to make additional corporate governance changes or engage in certain corporate actions. Responding to challenges from activist shareholders, such as proxy contests, media campaigns or other public or private means, could be costly and time consuming and could have an adverse effect on our reputation and divert the attention and resources of management and our board, which could have an adverse effect on our business and operational results. Additionally, shareholder activism could create uncertainty about our leadership or our future strategic direction, resulting in loss of future business opportunities, which could adversely affect our business, future operations, profitability and our ability to attract and retain qualified personnel. As of December 31, 2020, based on our review of public filings with the SEC, we believe over half of our stock is held by a combination of institutional investors, pooled investment funds, and certain other investors with a history of shareholder activism. One such investor has a Schedule 13D on file with the SEC that reserves that investor’s rights to pursue corporate governance changes, board structure changes, changes to capitalization, potential business combinations or dispositions involving the Company or certain of its businesses, or suggestions for improving the Company’s financial and/or operational performance. We have a Cooperation Agreement in place with our largest shareholder that is set to expire at the 2021 annual meeting, if not terminated sooner.
In addition to risks associated with activist shareholders, some institutional investors are increasingly focused on environmental, social and governance (“ESG”) factors when allocating their capital. These investors may be seeking enhanced ESG disclosures or may implement policies that discourage investment in certain of the industries that we service. To the extent that certain institutional investors implement policies that discourage investments in industries that we service, it could have an adverse effect our financing costs and access to sources of capital.
Legal and Regulatory Risks
Any changes in U.S. trade policies and retaliatory responses from other countries may significantly increase the costs or limit supplies of materials and products used in our fabrication projects.
The federal government recentlyhas imposed new or increased tariffs or duties on an array of imported materials and goods that are used in connection with our fabrication business, including steel, raising our costs for these items (or products made with them), and has threatened to impose further tariffs, duties and/or trade restrictions on imports. Foreign governments, including China and Canada, and trading blocs, such as the European Union, have responded by imposing or increasing tariffs, duties and/or trade restrictions on U.S. goods, and are reportedly considering other measures. These trading conflicts and related escalating governmental actions that result in additional tariffs, duties and/or trade restrictions could increase our costs, further, cause disruptions or shortages in our supply chains and/or negatively impact the U.S., regional or local economies.
The nature of our industry subjects us to compliance with regulatory and environmental laws.
Our operations and properties are subject to a wide variety of existing foreign, federal, state and local laws and other regulations, including those governing discharges into the air and water, the handling and disposal of solid and hazardous wastes, the remediation of soil and groundwater contaminated by hazardous substances and the health and safety of employees. In addition, we could be affected by future laws or regulations, including those imposed in response to concerns over climate change, other aspects of the environment, or natural resources. For example, because of concerns that carbon dioxide, methane and certain other greenhouse gases may produce climate changes that have significant impacts on public health and the environment, various governmental authorities have considered and are continuing to consider the adoption of regulatory strategies and controls designed to reduce the emission of greenhouse gases resulting from regulated activities, which if adopted in areas where we conduct business, could require us or our customers to incur additional compliance costs, may result in delays in pursuit of regulated activities and could adversely affect demand for the oil and natural gas that some of our customers produce, thereby potentially limiting demand for our services.
Compliance with many of these laws is becoming increasingly complex, stringent and expensive. These laws may impose “strict liability” for damages to natural resources or threats to public health and safety, rendering a party liable for the environmental damage without regard to its negligence or fault. Certain environmental laws provide for strict, joint and several liability for remediation of spills and other releases of hazardous substances, as well as damage to natural resources. In addition, we could be subject to claims alleging personal injury or property damage as a result of alleged exposure to hazardous substances. Such laws and regulations may also expose us to liability for the conduct of others or conditions caused by others, or acts for which we were in compliance with applicable laws at the time such acts were performed. We believe that our present operations materially comply with applicable federal and state pollution control and environmental protection laws and regulations. We also believe that compliance with such laws has not resulted in a material adverse effect on our operations. However, such environmental laws are changed frequently. Sanctions for noncompliance may include revocation of permits, corrective action orders, administrative or civil penalties and criminal prosecution. It is also possible that the new Biden Administration will impose additional environmental regulations that will restrict federal oil and gas leasing, permitting or drilling practices on public lands, which could result in more stringent or costly restrictions, delays or cancellations to our operations. For example, President Biden has already issued orders temporarily suspending leasing or permitting of oil and gas activities on federal lands and waters, and the President has also proposed a moratorium on hydraulic fracturing on federal lands and waters. We are currently unable to predict whether these and other environmental lawsregulations will have a material adverse effect on our future operations and financial results. See “
The demand for our services is also affected by changing taxes, price controls and other laws and regulations related to the oil and gas, chemicals, commodities, marine and marinealternative energy industries. We may not be able to pass any potential increases in taxes on to our customers.
Offshore construction and drilling in certain areas is opposed by many environmental groups and, in certain areas, has been restricted. To the extent laws are enacted or other governmental actions are taken that prohibit or restrict offshore construction
Our business is highly dependent on our ability to utilize the navigation canals adjacent to our facilities.
Our shipyard and fabrication yardsfacilities in Houma, Louisiana are located on the Houma Navigation Canal approximately 30 miles from the GOM and our services yard is located on a slip adjacent to the Houma Navigation Canal. The Houma Navigation Canal provides the shortest and least restrictive means of access from our facilities to open waters. Our shipyard in Jennings, Louisiana, is located on the west bank of the Mermentau River approximately 25 miles north of the U.S. Intracoastal Waterway and our shipyard near Lake Charles located 17 miles from the GOM on the Calcasieu River. All theseThese waterways are navigable waterways of the U.S. and, as such, are protected by federal law from unauthorized obstructions that would hinder water-borne traffic. Federal law also authorizes maintenance of these waterways by the U.S. Army Corps of Engineers. These waterways are dredged from time to time to maintain water depth and, while federal funding for dredging has historically been provided, there is no assurance that Congressional appropriations sufficient for adequate dredging and other maintenance of these waterways will be continued. If funding were not appropriated for that purpose, some or all of these waterways could become impassable by barges or other vessels required to transport many of our products.
Item 1B. Unresolved Staff Comments
None.
Item 3. Legal Proceedings
We are subject to various routine legal proceedings in the normal conduct of our business, primarily involving commercial disputes and claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the U.S. and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, we believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on our financial position, results of operations or cash flows
On October 2, 2018, we filed a lawsuit against our customer to enforce our rights and remedies under the applicable construction contracts for two MPSVs. The lawsuit was filed in the Twenty-Second Judicial District Court for the Parish of St. Tammany, State of Louisiana and is styled
Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC. The customer responded to our lawsuitOn May 19, 2020, the customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The customer’s prepackaged Chapter 11 plan of reorganization was subsequently confirmed by the bankruptcy court and that plan of reorganization is effective. In connection with its bankruptcy case, on June 3, 2020, the customer filed a separate bankruptcy adversary proceeding against us in which it again sought to obtain possession of the vessels. In response, we filed a motion to dismiss the adversary proceeding and to allow the dispute regarding the vessels and the construction contracts to continue in state court where our lawsuit against the customer is currently pending. On September 1, 2020, a hearing was held in connection with the motion to dismiss; however, the bankruptcy court’s decision was delayed to allow the parties an opportunity to mediate their dispute. The parties engaged in mediation until January 26, 2021 when the customer unilaterally and voluntarily dismissed its adversary proceeding seeking possession of the vessels. The mediation between the parties was not successful.
See Note 118 of our Financial Statements in Item 8 for further discussion of this litigation.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant'sRegistrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities
Our common stock is traded on the Nasdaq Global Select Market, under the symbol “GIFI.” As ofAt February 22, 2019, we had approximately 2,83523, 2021, there were 2,640 holders of record of our common stock.
Issuer Purchases of Equity Securities
We had no repurchases of securities during the fourth quarter 2018.
Current Program | |||||||||||||
Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs | |||||||||
October 1 to 31, 2018 | — | $ | — | — | — | ||||||||
November 1 to 30, 2018 | — | — | — | — | |||||||||
December 1 to 31, 2018 | 1,738 | 7.85 | — | — | |||||||||
Total | 1,738 | (a) | 7.85 | — | — |
ANNUAL RETURN PERCENTAGE Years Ending | |||||||||||||||||||||||
Company / Index | Dec 14 | Dec 15 | Dec 16 | Dec 17 | Dec 18 | ||||||||||||||||||
Gulf Island | (14.9)% | (44.2)% | 14.3% | 13.2% | (46.2)% | ||||||||||||||||||
S&P 500 Index | 13.7 | 1.4 | 12.0 | 21.8 | (4.4) | ||||||||||||||||||
S&P 500 Oil & Gas Equipment & Services Index | (7.8) | (18.8) | 31.9 | (14.7) | (41.5) | ||||||||||||||||||
Base Period Dec 13 | INDEXED RETURNS ($'s) Years Ending | ||||||||||||||||||||||
Company / Index | Dec 14 | Dec 15 | Dec 16 | Dec 17 | Dec 18 | ||||||||||||||||||
Gulf Island | $ | 100.00 | $ | 85.15 | $ | 47.50 | $ | 54.29 | $ | 61.47 | $ | 33.06 | |||||||||||
S&P 500 Index | 100.00 | 113.69 | 115.26 | 129.05 | 157.22 | 150.33 | |||||||||||||||||
S&P 500 Oil & Gas Equipment & Services Index | 100.00 | 92.20 | 74.91 | 98.83 | 84.32 | 49.36 |
Item 6. Selected Financial Data
Years Ended December 31, | |||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
(in thousands, except per share data) | |||||||||||||||||||
Statement of Operations Data: | |||||||||||||||||||
Revenue | $ | 221,247 | $ | 171,022 | $ | 286,326 | $ | 306,120 | $ | 506,639 | |||||||||
Cost of revenue | 228,443 | 213,947 | 261,473 | 321,276 | 462,083 | ||||||||||||||
Gross profit (loss) (1) (3) (5) | (7,196 | ) | (42,925 | ) | 24,853 | (15,156 | ) | 44,556 | |||||||||||
General and administrative expense | 19,015 | 17,800 | 19,670 | 16,256 | 17,409 | ||||||||||||||
Asset impairments and (gain) loss on assets held for sale, net (2) (4) (6) | (6,850 | ) | 7,931 | — | 7,202 | 3,200 | |||||||||||||
Other (income) expense, net | 304 | (46 | ) | (681 | ) | (20 | ) | 99 | |||||||||||
Operating income (loss) | (19,665 | ) | (68,610 | ) | 5,864 | (38,594 | ) | 23,848 | |||||||||||
Interest expense, net | (142 | ) | (349 | ) | (308 | ) | (139 | ) | (24 | ) | |||||||||
Income (loss) before income taxes | (19,807 | ) | (68,959 | ) | 5,556 | (38,733 | ) | 23,824 | |||||||||||
Income tax (expense) benefit | (571 | ) | 24,193 | (2,041 | ) | 13,369 | (8,504 | ) | |||||||||||
Net income (loss) | $ | (20,378 | ) | $ | (44,766 | ) | $ | 3,515 | $ | (25,364 | ) | $ | 15,320 | ||||||
Income Summary Data: | |||||||||||||||||||
Basic and diluted income (loss) per common share | $ | (1.36 | ) | $ | (3.02 | ) | $ | 0.24 | $ | (1.75 | ) | $ | 1.05 | ||||||
Basic and diluted weighted-average common shares | 15,032 | 14,838 | 14,631 | 14,546 | 14,505 | ||||||||||||||
Cash dividends per common share | $ | — | $ | 0.04 | $ | 0.40 | $ | 0.40 | $ | 0.40 |
Not applicable.
December 31, | |||||||||||||||||||
2018 | 2017 | 2016 | 2015 | 2014 | |||||||||||||||
(in thousands) | |||||||||||||||||||
Balance Sheet Data: | |||||||||||||||||||
Working capital | $ | 103,854 | $ | 130,499 | 78,012 | $ | 77,968 | $ | 97,084 | ||||||||||
Property, plant and equipment, net | 79,930 | 88,899 | 206,222 | 200,384 | 224,777 | ||||||||||||||
Total assets | 258,290 | 270,840 | $ | 322,408 | 316,923 | 395,297 | |||||||||||||
Debt | — | — | — | — | — | ||||||||||||||
Cash Flow Data: | |||||||||||||||||||
Net cash provided by (used in) operating activities | $ | (20,392 | ) | $ | (39,385 | ) | $ | 14,568 | $ | 10,694 | $ | 32,110 | |||||||
Net cash provided by (used in) investing activities | 82,718 | (1,135 | ) | 2,698 | (6,007 | ) | (26,729 | ) | |||||||||||
Net cash used in financing activities | (852 | ) | (1,664 | ) | (927 | ) | (5,944 | ) | (5,865 | ) | |||||||||
Operating Data: | |||||||||||||||||||
Direct labor hours worked for the year ended December 31, (1) | 1,947 | 1,926 | 2,784 | 2,655 | 3,646 | ||||||||||||||
Backlog as of December 31, (2) | |||||||||||||||||||
Direct labor hours | 2,224 | 1,544 | 1,265 | 1,914 | 1,654 | ||||||||||||||
Dollars | $ | 356,460 | $ | 222,617 | $ | 132,972 | $ | 232,411 | $ | 184,667 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and significant trends that may impact our future performance. This discussion should be read in conjunction with our Financial Statements and the related notes thereto.
Overview
We are a leading fabricator of complex steel structures, modules and marine vessels, used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy and shipping and marine transportation operations. We also provide relateda provider of project management, for EPC projects along with installation, hookup, commissioning, repair, maintenance and repair and maintenancecivil construction services. In addition, we perform civil, drainage and other work for state and local governments. Our customers include United States ("U.S.") and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power, and marine operators; EPC companies; and certain agencies of the U.S. Government. We
During 2019, we operated and managed our business through three operating divisions (“Fabrication,” “Shipyard” and “Services”) and one non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. As a result, we operate and manage our business through fourtwo operating divisions ("Fabrication", "Shipyard", "Services"(“Shipyard” and "EPC"“Fabrication & Services”) and one non-operating division ("Corporate"(“Corporate”), which represent our reportable segments. Accordingly, the segment results (including the effects of eliminations) for our Fabrication and Services Divisions for each of 2019 and 2018 were combined to conform to the presentation of our reportable segments for 2020. In addition to the division combination, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects were transferred from our former Fabrication Division to our Shipyard Division. Accordingly, results for these projects for 2019 (the projects had no results for 2018) were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions.
Our corporate headquarters is located in Houston, Texas, with fabricationoperating facilities located in Houma, Louisiana. In the fourth quarter 2020, we closed our Jennings Yard and Lake Charles Louisiana.
Since 2014, the price of oil has been at depressed levels, resulting in a severesignificant and sustained declinereduction in oilcapital spending and gas prices led to a significant decline in oil and gas industry drilling activities and capital spending from our traditional offshore oil and gas customer base. As a result,Consequently, our operating results and cash flows were negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing, and a significant underutilizationunder-utilization of our operating facilities in our Fabrication and Shipyard Divisions. In addition, during 2017 we incurred losses on certain projects.
During the first quarter 2020, oil prices declined even further to historical lows due to a projectdecline in demand for oil resulting in part from an unprecedented global health crisis caused by COVID-19. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy entered a recession in February 2020, and the duration and severity of this recession, which is ongoing, remains unclear at this time. We operate in a critical infrastructure industry, as defined by the U.S. Department of Homeland Security. Consistent with federal guidelines and with state and local orders to date, we have continued to operate across our footprint. However, the progression of and global response to COVID-19, and related contraction in oil demand, combined with depressed and volatile crude oil prices have had and may continue to have negative impacts on our operations. The extent to which COVID-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable. This current level of uncertainty means the ultimate business and financial impacts of COVID-19 and the related contraction in oil demand and the depressed crude oil prices cannot be reasonably estimated at this time.
During 2020, COVID-19 significantly impacted our operations. Specifically, as we have ramped up our workforce to support our longer duration projects, we have been impacted by physical distancing measures, higher employee absenteeism and turnover, as well as challenges recruiting and hiring craft labor, particularly within our Shipyard DivisionDivision. Further, certain deliverables from third-party engineering firms supporting our projects have been delayed and our suppliers and subcontractors are being impacted by COVID-19, resulting in schedule delays and higher cost estimates for subcontracted services and materials. The more significant impacts to our projects associated with COVID-19 during 2020 are summarized below:
• | Towing, salvage and rescue ship projects – The cumulative effect of COVID-19 related impacts has resulted in disruptions, inefficiencies and lower than anticipated productivity and progress on our five towing, salvage and rescue ship projects, which are expected to have compounding effects over the duration of the projects and result in extensions of schedules and the re-sequencing of construction activities on the projects. The re-sequencing of construction activities will require us to perform construction activities on a concurrent basis, which is less efficient and reduces our ability to incorporate the benefits of previous experience into each follow-on vessel. These impacts have resulted in forecast cost increases on the projects. We have submitted a request for equitable adjustment to our customer, the U.S. Navy, to extend our project schedules and recover the increased forecast costs associated with the impacts of COVID-19; however, we can provide no assurances that we will be successful in recovering these costs. |
• | Research Vessel Projects – Construction activities for our three research vessel projects have been delayed until production engineering achieves a satisfactory level of completion to limit impacts on construction, including disruption and rework. These construction delays are expected to continue in the near term due to production engineering delays experienced by our customer’s engineering subcontractor as a result of COVID-19. We are working with the customer to collectively assess the execution and schedule impacts to the projects due to these production engineering delays. |
• | Harbor Tug Projects – Physical distancing measures associated with COVID-19 resulted in lower than anticipated productivity and progress on our final two harbor tug projects, resulting in extensions of schedules and forecast cost increases on the projects. The final two projects were completed in October 2020 and January 2021, respectively. |
• | Seventy-Vehicle Ferry Project and Two Forty-Vehicle Ferry Projects – The cumulative effect of COVID-19 related impacts has resulted in disruptions, inefficiencies and lower than anticipated productivity and progress on our seventy-vehicle ferry project and two forty-vehicle ferry projects, resulting in extensions of schedules and forecast cost increases on the projects. Although we have received extensions of the project schedules, we have been unable to recover the cost impacts of COVID-19 on the projects. |
While we believe it is likely that there will continue to be an impact from COVID-19 for the foreseeable future, as described indiscussed above, we are unable to estimate the
In addition to the impacts of COVID-19 during 2020, our dispute.projects and operations were further impacted by the following:
• | Hurricanes – During the third quarter 2020, Hurricane Laura made landfall near our Lake Charles Yard as a high-end Category 4 hurricane, damaging primarily drydocks, warehouses, bulkheads and our ninth harbor tug project at our Lake Charles Yard. In the fourth quarter 2020, we closed our Lake Charles Yard. See Note 2 of our Financials in Item 8 for further discussion of the impacts of Hurricane Laura on our operations. |
• | Overhead Crane Incident – During the third quarter 2020, our first forty-vehicle ferry project was damaged by an overhead crane, which disengaged from its tracks, and landed on the hull that was under construction. See Note 2 of our Financial Statements in Item 8 for further discussion of the crane incident and the impact on our first forty-vehicle ferry project. |
We continue to address these operational, market and economic challenges through a strategy focused on the following initiatives to:
• | Mitigate the impacts of COVID-19 on our operations, employees and contractors; |
• | Improve and maintain our liquidity through cost reduction efforts and the sale of under-utilized assets; |
• | Improve our resource utilization and centralize key project resources through the rationalization and integration of our facilities and operations; |
• | Improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures; and |
• | Reduce our reliance on the fabrication of structures and marine vessels associated with the offshore oil and gas sector by repositioning the Company to: |
– | Fabricate modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities; |
– | Fabricate newbuild marine vessels for the government and other customers unrelated to the offshore oil and gas sector; |
– | Fabricate foundations, secondary steel components and support structures for offshore wind developments; and |
– | Fabricate structures in support of our customers as they make energy transitions away from fossil fuels. |
See below for further discussion of these initiatives.
Progress on our Initiatives
Efforts to mitigate the impacts of COVID-19 on our operations, employees and contractors – We are continuing to take actions to mitigate the impacts of COVID-19 on our operations while ensuring the safety and well-being of our employees and contractors.
• | COVID-19 measures – We have initiated measures that include ongoing communications with our leadership teams to anticipate and proactively address COVID-19 impacts, work-place distancing of employees (including allowing some employees to work remotely) and regular monitoring of office and yard personnel for compliance. We are also monitoring employee and visitor temperatures prior to entering our facilities, implemented employee and visitor wellness questionnaires, increased monitoring of employee absenteeism and the reasons for such absences, and initiated protocols for employees returning from absences, including employees that have tested positive for COVID-19, or have come in contact with |
individuals that tested positive for COVID-19. In addition, we have installed hand sanitizing stations and taken additional actions to more frequently sanitize our facilities. |
• | Pursuit of force majeure – We are providing appropriate notices to our customers and making the appropriate claims for extensions of schedule for our projects which have been impacted by COVID-19. |
• | Loanagreement – In April 2020, we entered into a loan agreement for proceeds of $10.0 million (“PPP Loan”) pursuant to the Paycheck Protection Program (“PPP”) under the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”). The proceeds were used for payroll costs, rent and utilities, of which approximately 93% was used for payroll costs. See “Liquidity and Capital Resources” below and Note 5 of our Financial Statements in Item 8 for further discussion of the PPP Loan. |
Efforts to Divestpreserve and improve our liquidity – We continue to take actions to preserve and improve our liquidity, and at December 31, 2020, our cash and short-term investments totaled $51.2 million. To preserve our liquidity position, we have undertaken cost reduction initiatives (including reducing the compensation of Underutilized Assets
Efforts to improve our resource utilization and centralize our key project resources – We are improving our resource utilization and centralizing our key project resources through the salerationalization and integration of our fabrication yardfacilities and certain associated equipmentoperations.
• | Closure of Jennings Yard and Lake Charles Yard – During the fourth quarter 2020, we closed our Jennings Yard and Lake Charles Yard. The closures will consolidate our marine vessel construction and repair and maintenance activities in our Houma Yards, enabling us to maximize the utilization of our facilities and resources (including reducing overhead costs), combine our management and supervision talent in a single location, and improve our project execution. See Note 3 of our Financial Statements in Item 8 for further discussion of our closure of the Jennings Yard and Lake Charles Yard. |
• | Combination of our Fabrication Division and Services Division and Realignment of Projects – As discussed above, in the first quarter 2020, we combined our Fabrication and Services Divisions to form an integrated new division called Fabrication & Services. The integration will enable us to capitalize on the best practices and execution experience of the former divisions, conform processes and procedures, maximize the utilization of our resources (including reducing overhead costs) and improve project execution. In addition, as discussed above, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division to better align the supervision and construction of these vessels with the capabilities and expertise of our Shipyard Division. |
Efforts to improve our competitiveness and project execution – We have taken, and continue to take, actions to improve our competitiveness and project execution by enhancing our proposal, estimating and operations resources, processes and procedures. Our actions include strategic changes in Ingleside, Texas ("Texas South Yard")management and key personnel, the addition of functional expertise, project management training, development of a formal “lessons learned” program to incorporate experiences gained from previous projects into current and future projects, and other measures designed to strengthen our personnel, processes and procedures. Further, we are taking a disciplined approach to pursuing and bidding project opportunities, putting more rigor around our bid estimates to provide greater confidence that our estimates are achievable, increasing accountability and providing incentives for $55.0 million, less selling coststhe execution of $1.2 million, for total net proceeds of $53.8 million and a gain of $3.9 million.
Efforts to reduce our reliance on the offshore oil and $9.4 million was received during 2018), resulting in a net gaingas sector – We are pursuing several initiatives to reduce our reliance on insurance recoveries of $3.6 million during 2018.
• | Fabrication of onshore modules, piping systems and structures – We continue to focus our business development efforts on the fabrication of modules, piping systems and other structures for onshore refining, petrochemical, LNG and industrial facilities. We have experienced success with several smaller project opportunities, and our volume of bidding activity for onshore modules, piping systems and structures is increasing; however, our pursuit of large project opportunities has been impacted by the timing and delay of certain opportunities due in part to COVID-19, volatile oil prices and an ongoing competitive market environment. We also continue to believe that our strategic location in Houma, Louisiana and track record of quality and on-time completion of onshore modules position us well to compete in the onshore fabrication market. However, we do not expect large project opportunities to be awarded by customers until late 2021 or 2022. This timing may be impacted by ongoing uncertainty created by the volatility of oil prices and COVID-19. In the interim, we continue to strengthen our relationships with key customers and strategic partners and enhance our resources as discussed above. |
• | Fabrication of newbuild marine vessels for the government and other non-oil and gas related customers – We continue to pursue newbuild marine vessel opportunities for customers unrelated to the offshore oil and gas sector. During the first quarter 2020, the U.S. Navy exercised its options for the construction of two additional towing, salvage and rescue ships. At December 31, 2020, nearly all of the backlog within our Shipyard Division was attributable to government and other customers unrelated to the offshore oil and gas sector, including the construction of three research vessels, five towing, salvage and rescue ships and three vehicle ferries. During 2020, we also made capital improvements to our facilities associated primarily with erection sites and warehouse storage to support our backlog and future new project awards. |
• | Fabrication of offshore wind foundations, secondary steel components and support structures – We continue to believe that current initiatives, and potential future requirements, to provide electricity from renewable and green sources will result in growth of offshore wind projects. Furthermore, we believe that we possess the expertise to fabricate foundations, secondary steel components and support structures for this emerging market. This is demonstrated by our previous fabrication of wind turbine foundations for the first offshore wind project in the U.S. and the fabrication of a meteorological tower and platform for an offshore wind project. While we believe we have the capability to participate in this emerging market, we do not expect meaningful opportunities in the near term. |
• | Fabricate structures in support of our customers as they make energy transitions away from fossil fuels– We believe that our expertise and capabilities provide us with the necessary foundation to fabricate steel structures in support of our customers as they transition away from fossil fuels to green energy end markets. Examples of these opportunities involve refiners who are looking to process biofuels and customers looking to embrace the growing hydrogen economy. |
Operating Outlook
Our focus remains on our liquidity and securing meaningfulprofitable new project awards and backlog in the near-term and generating operating income and cash flows from operations in the longer-term. Operating resultslonger-term while ensuring the safety and well-being of our employees and contractors, which has been further challenged due to COVID-19. Our success, including achieving the aforementioned initiatives, will be determined by, among other things:
• | Oil and gas prices and the level of volatility in such prices, including the impact of environmental regulations that restrict the oil and gas industry under the Biden Administration; |
• | COVID-19, for which the ultimate business and financial impacts cannot be reasonably estimated at this time; |
• | The level of fabrication opportunities in our traditional offshore markets and the new markets we are pursuing, including refining, petrochemical, LNG and industrial facilities, offshore wind developments and green energy; |
• | The level of new build marine vessel activity within, and outside of, the oil and gas sector; |
• | Our ability to secure new project awards through competitive bidding and/or alliance and partnering arrangements; |
• | Our ability to execute projects within our cost estimates and successfully manage them through completion; |
• | Our ability to hire, motivate and retain key personnel and craft labor to execute our projects; |
• | The successful integration of our Fabrication Division and Services Division; and |
• | Our ability to resolve our dispute with a customer related to the construction of two MPSVs. See Note 8 of our Financial Statements in Item 8 and “Legal Proceedings” in Item 3 for further discussion of the dispute. |
In addition, in the near-term: (i) the utilization of our Shipyard Division will be adversely affected by temporary delays in construction activities for our three research vessel projects until engineering achieves further completion, (ii) the utilization of our Fabrication & Services Division have been strong and we have increased our backlog within our Shipyard and Fabrication Divisions. Further, we believe we will be successful securingimpacted by the delay in timing of new project awards, and growing(iii) the utilization of both divisions and our backlog in the future. However, our Fabrication Divisionprojects will be negativelyimpacted by inefficiencies and disruptions associated with COVID-19 related health and safety mitigation measures, employee absenteeism and turnover, craft labor hiring challenges, engineering delays, and supplier and subcontractor disruptions. Our near-term results may also be adversely affected by costs associated with investments in key personnel and process improvement efforts to support our aforementioned initiatives. In addition, our gross profit for both divisions will be impacted in the near-term by the underutilizationas certain projects within our backlog are in a loss position and a majority of its facilitiesour remaining backlog is at, or near, break-even gross profit. Specifically, due to an anticipated delay in the timing of new project awards. Our Shipyard Division will also be negatively impacted by the underutilization of its facilities (although to a lesser extent) due to an anticipated lag in the commencement of construction activities for our recentprevious new project awards bid at competitive pricing (including the option exercises by our customer in the first quarter 2020 for two additional towing, salvage and due to lower margin backlog related torescue ships) and recent and previous project awards bid duringcharges, approximately 30% of our backlog is in a periodloss position, 65% of competitive pricing. In addition, as discussed below within
New Awards and Backlog
New project awards represent expected revenue values of commitments received during a given period, including scope growth on existing commitments. A commitment represents authorization from our customer to begin work or purchase materials pursuant to a written agreement, letter of intent or other form of authorization. Backlog represents the unearned value ofunrecognized revenue for our new project awards and may differ from the value of future performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note 2 of our Financial Statements in Item 8. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to
Projects in our backlog are generally subject to delay, suspension, termination, or an increase or reductiondecrease in scope at the option of the customer, althoughcustomer; however, the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or reductiondecrease in scope. Depending on the size of the project, the delay, suspension, termination or increase or reduction in scope of any one contract could significantly impact our backlog and change the expected amount and timing of revenue recognized. A reconciliation of our future performance obligations under Topic 606 (the most comparable GAAP measureNew project awards by Division for 2020 and 2019, are as presented in Note 2 of our Financial Statements in Item 8) to our reported backlogfollows (in thousands):
|
| Years Ended December 31, |
| |||||
Division |
| 2020 |
|
| 2019 |
| ||
Shipyard |
| $ | 140,428 |
|
| $ | 251,424 |
|
Fabrication & Services |
|
| 66,654 |
|
|
| 132,659 |
|
Total New Awards |
| $ | 207,082 |
|
| $ | 384,083 |
|
Backlog by Division at December 31, 2020 and 2019, is provided belowas follows (in thousands).:
|
| December 31, |
| |||||||||||||
|
| 2020 |
|
| 2019(2) |
| ||||||||||
Division |
| Amount |
|
| Labor hours |
|
| Amount |
|
| Labor hours |
| ||||
Shipyard |
| $ | 352,181 |
|
|
| 2,784 |
|
| $ | 373,969 |
|
|
| 2,507 |
|
Fabrication & Services |
|
| 19,381 |
|
|
| 236 |
|
|
| 63,357 |
|
|
| 630 |
|
Total Backlog (1), (3) |
| $ | 371,562 |
|
|
| 3,020 |
|
| $ | 437,326 |
|
|
| 3,137 |
|
December 31, 2018 | |||||||||||||||||||
Fabrication | Shipyard | Services | EPC | Consolidated | |||||||||||||||
Future performance obligations under Topic 606 | $ | 63,498 | $ | 259,644 | $ | 11,046 | $ | 385 | $ | 334,573 | |||||||||
Signed contracts under purported termination (1) | — | 21,887 | — | — | 21,887 | ||||||||||||||
Backlog | $ | 63,498 | $ | 281,531 | $ | 11,046 | $ | 385 | $ | 356,460 |
Backlog at December 31, 2018 and 2017, is as follows (in thousands, except for percentages):
December 31, | ||||||||||||||
2018 | 2017 | |||||||||||||
Division | Amount | Labor hours | Amount | Labor hours | ||||||||||
Fabrication | $ | 63,498 | 369 | $ | 15,771 | 150 | ||||||||
Shipyard | 281,531 | 1,684 | 184,035 | 1,104 | ||||||||||
Services | 11,046 | 171 | 23,181 | 290 | ||||||||||
EPC | 385 | — | — | — | ||||||||||
Intersegment eliminations | — | — | (370 | ) | — | |||||||||
Total Backlog (1) | $ | 356,460 | 2,224 | $ | 222,617 | 1,544 |
Year (4) |
| Total |
|
| Percentage |
| ||
2021 |
| $ | 161,370 |
|
|
| 43.4 | % |
2022 |
|
| 140,018 |
|
|
| 37.7 | % |
Thereafter |
|
| 70,174 |
|
|
| 18.9 | % |
Total Backlog (1), (3) |
| $ | 371,562 |
|
|
| 100.0 | % |
Year (2) | Total | Percentage | ||||
2019 | $ | 233,987 | 65.6% | |||
2020 | 103,351 | 29.0% | ||||
2021 | 19,122 | 5.4% | ||||
Total Backlog | $ | 356,460 | 100.0% |
(1) | At December 31, |
(i) | Construction of |
(ii) | Construction of |
(iii) | Construction of two forty-vehicle ferries within our Shipyard Division. We estimate completion of the |
(iv) | Construction of a |
(v) | Fabrication of |
(vi) | Material supply for an offshore jacket and deck within our |
(vii) | Fabrication of marine docking structures within our F&S Division. We estimate completion of the project in 2021. |
(2) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, backlog as of December 31, 2019 for our former Fabrication and Services Divisions has been combined to conform to the presentation of our reportable segments for 2020. In addition, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects were transferred from our former Fabrication Division to our Shipyard Division. Accordingly, $13.4 million of backlog and 0.1 million labor hours associated with these projects as of December 31, 2019 were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See “Description of Operations” in Item 1 and Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
(3) | Backlog at December 31, 2019 for our Shipyard Division was $21.9 million higher than our remaining performance obligations under Topic 606 (the most comparable GAAP measure as presented in Note 2 of our Financial Statements in Item 8), as it included contracts for the construction of two |
(4) | The timing of recognition of the revenue |
Our contract for the construction of our contracts containfive towing, salvage and rescue ships contains options which grant our customer, the U.S. Navy, the right, to our customer, if exercised, for the construction of three additional vessels at contracted prices. We doDuring the first quarter 2021, the U.S. Navy determined it would not include options in our backlog. If allexercise the three remaining options under our current contracts were exercised bycontract. In connection therewith, we agreed to a change order with our customers, our backlog would increase by approximately $534.0 million. We believe disclosing these options provides investors with useful informationcustomer to evaluate additional potential work that we would be contractually obligated to perform under our current contracts as well asfacilitate the potential significancetransfer of these options, if exercised. We have not received any commitments from our customers relatedtechnology, plans and know-how to the exerciseU.S. Navy to enable it to contract with other contractors for the construction of these options, and we can provide no assurances that any of these options will be exercised.
Critical Accounting Policies
Our Financial Statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"(“GAAP”) which require us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. We also discuss the development and selection of our critical accounting policies with the Audit Committee of our Board of Directors. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our Financial Statements.
Revenue Recognition
General – Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate and T&M. Our contracts primarily relate to the fabrication and construction of steel structures, modules and marine vessels, and project management services and other service arrangements. We recognize revenue for our contracts in accordance with Accounting Standards Update ("ASU"(“ASU”) 2014-09, Topic 606 “Revenue from Contracts with Customers” ("Topic 606"), which was adopted by us on January 1, 2018, and supersedes previous revenue recognition guidance, including industry-specific guidance. Accordingly, the reported results for 2018 reflect the application of Topic 606 guidance, while the comparable results for 2017 and 2016 were prepared under previous revenue recognition guidance.
Fixed-Price and Unit-Rate Contracts -
T&M Contracts -
Variable Consideration
See Note 1 and Note 2 of our Financial Statements in Item 8 for further discussion of our adoption of Topic 606 and our revenue recognition policy.
Long-Lived Assets
Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from three to 25 years, absent any indicators of impairment. We review long-livedyears. Long-lived assets, which include property, plant and equipment and our lease assets included within other noncurrent assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, we compare the estimated future undiscounted cash flow associated with the assets or asset groups are compared to their respective carrying amounts to determine if an impairment exists. 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 asto determine if an impairment charge.exists. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and the excess of the carrying amount of the asset or asset group over its fair value is recorded as an impairment charge. Fair value is determined based on discounted cash flows, appraised values or third partythird-party indications of value, as appropriate. See Note 3 of our Financial Statements in Item 8 for further discussion of impairments recorded forof our long-lived assets.
Assets Held for Sale
Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. See Note 3 of our Financial Statements in Item 8 for further discussion of impairments of our assets held for sale.
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 differences are expected to reverse. Due to changing tax laws, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future.
A valuation allowance is provided to reserve for deferred tax assets ("(“DTA(s)"”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our DTAs depends on our ability to generate sufficient taxable income of the appropriate character and in the appropriate jurisdictions.
Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense. Tax returns subject to examination by the U.S. Internal Revenue Service are open for years after 2014. At December 31, 2018 and 2017, we had no material reserves for uncertain tax positions. See Note 86 of our Financial Statements in Item 8 for further discussion of our income taxes, DTAs, and valuation allowance.
Stock-Based Compensation
Awards under our stock-based compensation plans are calculated using a fair value basedvalue-based measurement method. 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. We recognize the excess tax benefit or tax deficiency resulting from the difference between the deduction we receive for tax purposes and the stock-based compensation expense we recognize for financial reporting purposes created when common stock vests, as an income tax benefit or expense in our Statement of Operations. See Note 97 of our Financial Statements in Item 8 for further discussion of our stock-based and other compensation plans.
Insurance
We maintain insurance coverage for various aspects of our business and operations. However, we may be exposed to future losses through our use of deductibles and self-insured retentions for our exposures related to third party liability and workers' compensation.workers’ compensation claims. We expect liabilities in excess of any deductibles and self-insured retentions to be covered by insurance. To the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change.
Fair Value Measurements
Our fair value determinations for financial assets and liabilities are based on the particular facts and circumstances. Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:
• | Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets. |
• | Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market. |
• | Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques. |
See Note 51 of our Financial Statements in Item 8 for further discussion of our fair value measurements.
Results of Operations
Comparison of 20182020 and 2017
In the comparative tables below, percentage changes that are not considered meaningful are shown below as “nm” (generally when the prior period amount is immaterial or when the percentage change is significantly greater than 100%) are shown below as "
Consolidated
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 207,082 |
|
| $ | 384,083 |
|
| $ | (177,001 | ) |
|
| (46.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 250,959 |
|
| $ | 303,308 |
|
| $ | (52,349 | ) |
|
| (17.3 | )% |
Cost of revenue |
|
| 268,710 |
|
|
| 320,307 |
|
|
| 51,597 |
|
|
| 16.1 | % |
Gross loss |
|
| (17,751 | ) |
|
| (16,999 | ) |
|
| (752 | ) |
|
| (4.4 | )% |
Gross loss percentage |
|
| (7.1 | )% |
|
| (5.6 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 13,858 |
|
|
| 15,628 |
|
|
| 1,770 |
|
|
| 11.3 | % |
Impairments and (gain) loss on assets held for sale |
|
| 4,130 |
|
|
| 17,528 |
|
|
| 13,398 |
|
| nm |
| |
Other (income) expense, net |
|
| (8,580 | ) |
|
| (134 | ) |
|
| 8,446 |
|
| nm |
| |
Operating loss |
|
| (27,159 | ) |
|
| (50,021 | ) |
|
| 22,862 |
|
|
| 45.7 | % |
Interest (expense) income, net |
|
| (268 | ) |
|
| 531 |
|
|
| (799 | ) |
| nm |
| |
Loss before income taxes |
|
| (27,427 | ) |
|
| (49,490 | ) |
|
| 22,063 |
|
|
| 44.6 | % |
Income tax (expense) benefit |
|
| 52 |
|
|
| 96 |
|
|
| (44 | ) |
|
| (45.8 | )% |
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | 22,019 |
|
|
| 44.6 | % |
New Project Awards – New project awards for 2020 and 2019 were $207.1 million and $384.1 million, respectively. Significant new project awards for 2020 include:
• | The exercise of options by the U.S. Navy for a fourth and fifth towing, salvage and rescue ship in the first quarter 2020 within our Shipyard Division, |
• | Additional scopes of work for our research vessel projects in the fourth quarter 2020 within our Shipyard Division, and |
• | A marine docking structures project and additional scopes of work for our offshore jacket and deck project in the second quarter 2020 within our Fabrication & Services Division. |
Significant new project awards for 2019 include:
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019 within our Shipyard Division, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019 within our Shipyard Division, |
• | A seventy-vehicle ferry in the third quarter 2019 within our Shipyard Division, |
• | An offshore jacket and deck project and subsea components project in the first quarter 2019 within our Fabrication & Services Division, |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019 within our Fabrication & Services Division, and |
• | A material supply project and offshore modules project in the fourth quarter 2019 within our Fabrication & Services Division. |
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2018 | 2017 | Amount | Percent | ||||||||||
Revenue | $ | 221,247 | $ | 171,022 | $ | 50,225 | 29.4 | % | |||||
Cost of revenue | 228,443 | 213,947 | (14,496 | ) | (6.8 | )% | |||||||
Gross loss | (7,196 | ) | (42,925 | ) | 35,729 | 83.2 | % | ||||||
Gross loss percentage | (3.3 | )% | (25.1 | )% | |||||||||
General and administrative expense | 19,015 | 17,800 | (1,215 | ) | (6.8 | )% | |||||||
Asset impairments and (gain) loss on assets held for sale, net | (6,850 | ) | 7,931 | 14,781 | nm | ||||||||
Other (income) expense | 304 | (46 | ) | (350 | ) | nm | |||||||
Operating loss | (19,665 | ) | (68,610 | ) | 48,945 | 71.3 | % | ||||||
Interest income (expense), net | (142 | ) | (349 | ) | 207 | 59.3 | % | ||||||
Net loss before income taxes | (19,807 | ) | (68,959 | ) | 49,152 | 71.3 | % | ||||||
Income tax (expense) benefit | (571 | ) | 24,193 | (24,764 | ) | (102.4 | )% | ||||||
Net loss | $ | (20,378 | ) | $ | (44,766 | ) | $ | 24,388 | 54.5 | % |
Revenue -
Decreased revenue of $22.8 million for our Fabrication & Services Division of $37.7 million, primarily due to additional demand for both onshore and offshore services;attributable to:
• | Lower revenue for our paddlewheel river boat and subsea components projects that were completed in the first quarter 2020, and |
• | Reduced offshore services activity and small fabrication project activity, offset partially by, |
• | Higher revenue for our offshore jacket and deck project, and |
• | Higher revenue for our marine docking structures project, material supply project and offshore modules project. |
Decreased revenue of $43.7 million for our Shipyard Division of $14.8 million, primarily due to the net impact of additional progress on the construction of our ten harbor tugs, two regional class research vessels and an ice-breaker tug that was not under construction during the prior period, offset partially by lower revenue from our two MPSV contracts that were suspended during the first quarter 2018; offset partially by,attributable to:
• | Lower revenue for our harbor tug projects as we had fewer vessels under construction, |
• | Lower revenue for our ice-breaker tug project which was completed in the second quarter 2020 and towboat projects which were completed in 2019, |
• | Lower revenue for our research vessel projects due to construction delays associated with the previously disclosed temporary suspension of construction activities on the projects until engineering achieves further completion, and |
• | Lower revenue associated with less repair and maintenance activity, offset partially by, |
• | Higher revenue for our towing, salvage and rescue ship projects associated with increased construction activities and procurement progress on engineered equipment, and |
• | Higher revenue for our seventy-vehicle ferry project associated with increased construction activities and procurement progress on engineered equipment. |
Gross loss -– Gross loss for 2020 and 2019 was $7.2$17.8 million (3.3%(7.1% of revenue) for 2018, compared to a gross lossand $17.0 million (5.6% of $42.9 million (25.1% of revenue) for 2017., respectively. The gross loss during 2018for 2020 was primarily due to under recovery of overhead costs for our Shipyard and Fabrication Divisions (including holding costs for our South Texas Properties of $2.1 million), the impact of lower margin backlog for our Shipyard Division related to previous project awards bid during a period of competitive pricing, and changes in estimates and project losses within our Fabrication and Shipyard Divisions (see below). to:
• | Project charges of $16.6 million for our Shipyard Division, |
• | A low margin backlog for our Shipyard Division and low revenue for our Fabrication & Services Division, |
• | The partial under-recovery of overhead costs, primarily associated with the under-utilization of our facilities and resources within our Fabrication & Services Division, and to a lesser extent within our Shipyard Division, including: |
− | Costs associated with retaining salaried overhead and hourly craft employees to perform process improvements, special projects and facility maintenance and repairs, and |
− | Lower utilization of our facilities and resources due to, and costs incurred to prepare for, Hurricane Laura, Hurricane Marco and Hurricane Sally in the third quarter 2020. |
• | Holding costs of $0.7 million related to the two MPSV vessels which remain in our possession and are subject to dispute, and |
• | Incremental direct costs associated with work-place monitoring, enhanced sanitization efforts and other measures related to COVID-19, offset partially by, |
• | Project improvements of $2.7 million for our Fabrication & Services Division. |
The decreaseincrease in gross loss for 2020 relative to the prior period2019 was primarily due to the net impact of:to:
• | The aforementioned project charges of $16.6 million for 2020 for our Shipyard Division, |
• | Lower revenue and an increase in the under-recovery of overhead costs for our Fabrication & Services Division, and |
• | A lower margin mix (excluding the aforementioned project charges) for our Shipyard Division, offset partially by, |
• | Project charges of $12.3 million and $4.9 million for 2019 for our Shipyard Division and Fabrication & Services Division, respectively, |
• | The aforementioned project improvements of $2.7 million for 2020 for our Fabrication & Services Division, and |
• | A higher margin mix (excluding the aforementioned project improvements) for our Fabrication & Services Division. |
See “Operating Segments” below and improved recoveries of overhead costs, and the 2017 period including project losses of $34.5 million related to cost increases and liquidated damages on the construction of two MPSVs which are in dispute and for which construction has been suspended; offset partially by changes in estimates and project losses in the 2018 period on our harbor tug projects of $6.7 million; and
General and losses onadministrative expense – General and administrative expense for 2020 and 2019 was $13.9 million (5.5% of revenue) and $15.6 million (5.2% of revenue), respectively, representing a decrease of 11.3%. The decrease was primarily due to:
• | Cost reduction initiatives including combining our former Fabrication and Services Divisions, |
• | Reduced professional fees associated with the evaluation of strategic alternatives, and |
• | Other costs savings including reductions in board size and the salaries of our executives, offset partially by, |
• | Higher incentive plan costs (due primarily to the 2019 period benefiting from the partial reversal of long-term incentives that were accrued in periods prior to 2019 but ultimately not earned), and |
• | Higher legal and advisory fees and insurance costs. |
General and administrative expense includes legal and advisory fees related to a contract dispute for a completed project that was settled during the first quarter 2020 and a contract dispute associated with our MPSV projects which are subject to purported termination and for which construction has been suspended. Legal and advisory fees related to such disputes totaled $1.3 million and $1.4 million for 2020 and 2019, respectively, and are reflected within our Corporate Division. See Note 111 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute and Note 8 for further discussion of our MPSV dispute.
Impairments and (gain) loss on assets held for sale net
• | Impairments of $1.4 million associated with assets held for sale within our Fabrication & Services Division, |
• | Impairments of $0.9 million for certain fixed assets associated with the relocation and consolidation of such assets to improve operational efficiency within our Fabrication & Services Division, |
• | Impairments of $1.0 million for lease assets and fixed assets (primarily drydocks) attributable to the closure of our Lake Charles Yard in the fourth quarter 2020 within our Shipyard Division, |
• | Costs of $0.6 million primarily associated with the closures of our Jennings Yard and Lake Charles Yard in the fourth quarter 2020 within our Shipyard Division, and |
• | A loss of $0.2 million on the sale of a barge and other assets held for sale within our Fabrication & Services Division. |
The loss for 20172019 was primarily due to the impact of:to:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory within our Fabrication & Services Division, |
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard within our Shipyard Division, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard within our Shipyard Division, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold within our Shipyard Division, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale within our Fabrication & Services Division. |
See
Other (income) expense, net
• | A gain of $10.0 million associated with the settlement of a contract dispute for a project completed in 2015. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute. The gain was offset partially by, |
• | Charges of $1.3 million associated with damage caused by Hurricane Laura to our drydocks, warehouses, bulkheads and ninth harbor tug project at our Lake Charles Yard in the third quarter 2020. The charges relate to deductibles associated with our insurance coverages and our estimates of cost associated with uninsurable damage. See Note 2 of our Financial Statements in Item 8 for further discussion of the impacts of Hurricane Laura. |
Other income for 2019 was primarily due to net gains on the sales of equipment.
Interest (expense) income, net – Interest (expense) income, net for 2020 and 2019 was expense of $0.3 million and income of $46,000, respectively. Other (income) expense primarily represents gains and losses on the sales of fixed assets other than assets held for sale.
Income tax (expense) benefit -
Operating Segments
Shipyard Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 140,428 |
|
| $ | 251,424 |
|
| $ | (110,996 | ) |
|
| (44.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 153,698 |
|
| $ | 168,466 |
|
| $ | (14,768 | ) |
|
| (8.8 | )% |
Gross loss |
|
| (19,274 | ) |
|
| (16,025 | ) |
|
| (3,249 | ) |
|
| (20.3 | )% |
Gross loss percentage |
|
| (12.5 | )% |
|
| (9.5 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 1,980 |
|
|
| 2,445 |
|
|
| 465 |
|
|
| 19.0 | % |
Impairments and (gain) loss on assets held for sale |
|
| 1,639 |
|
|
| 7,920 |
|
|
| 6,281 |
|
| nm |
| |
Other (income) expense, net |
|
| 1,450 |
|
|
| 38 |
|
|
| (1,412 | ) |
| nm |
| |
Operating loss |
|
| (24,343 | ) |
|
| (26,428 | ) |
|
| 2,085 |
|
|
| 7.9 | % |
(1) | In the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2020 and 2019 were $140.4 million and $251.4 million, respectively. Significant new project awards for 2020 include:
• | The exercise of options by the U.S. Navy for a fourth and fifth towing, salvage and rescue ship in the first quarter 2020, and |
• | Additional scopes of work for our research vessel projects in the fourth quarter 2020. |
Significant new project awards for 2019 include:
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019, and |
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2018 | 2017 | Amount | Percent | ||||||||||
Revenue | $ | 37,943 | $ | 57,880 | $ | (19,937 | ) | (34.4 | )% | ||||
Gross loss | (7,794 | ) | (1,941 | ) | (5,853 | ) | nm | ||||||
Gross loss percentage | (20.5 | )% | (3.4 | )% | |||||||||
General and administrative expense | 3,134 | 3,416 | 282 | 8.3 | % | ||||||||
Asset impairments and (gain) loss on assets held for sale, net | (7,896 | ) | 6,683 | 14,579 | nm | ||||||||
Other (income) expense, net | (82 | ) | (30 | ) | 52 | nm | |||||||
Operating loss | (2,950 | ) | (12,010 | ) | 9,060 | 75.4 | % |
• | A seventy-vehicle ferry in the third quarter 2019. |
Revenue – Revenue for 20182020 and 20172019 was $37.9$153.7 million and $57.9$168.5 million, respectively, representing a decrease of 34.4%.$14.8 million. The decrease was primarily due to the completion and delivery of four modules for a petrochemical facility during the second quarter 2018 with no other significant projects under construction for the division until the fourth quarter 2018 when the paddle wheel riverboat construction commenced.
• | Lower revenue for our harbor tug projects as we had fewer vessels under construction, |
• | Lower revenue for our ice-breaker tug project which was completed in the second quarter 2020 and towboat projects which were completed in 2019, |
• | Lower revenue for our research vessel projects due to construction delays associated with the previously disclosed temporary suspension of construction activities on the projects until engineering achieves further completion, and |
• | Lower revenue associated with less repair and maintenance activity, offset partially by, |
• | Higher revenue for our towing, salvage and rescue ship projects associated with increased construction activities and procurement progress on engineered equipment, and |
• | Higher revenue for our seventy-vehicle ferry project associated with increased construction activities and procurement progress on engineered equipment. |
Gross loss – Gross loss for 2020 and 2019 was $7.8$19.3 million (20.5%(12.5% of revenue) for 2018, compared to a gross lossand $16.0 million (9.5% of $1.9 million (3.4% of revenue) for 2017., respectively. The gross loss during 2018for 2020 was primarily due to under recovery of our overhead costs (including holding costs for our South Texas Properties of $2.1 million) and changes in estimates and losses on our petrochemical module project of $2.4 million. to:
• | Project charges of $7.3 million related to forecast cost increases on our towing, salvage and rescue ship projects, |
• | Project charges of $7.2 million related to forecast cost increases and liquidated damages on our two forty-vehicle ferry projects, |
• | Project charges of $1.0 million related to forecast cost increases on our final two harbor tug projects, |
• | Project charges of $1.1 million related to forecast cost increases on our seventy-vehicle ferry project, |
• | A low margin backlog as all of our Shipyard Division’s backlog is at, or near, break-even or is in a loss position, and accordingly, results in revenue with low or no gross profit, |
• | The partial under-recovery of overhead costs primarily due to: |
− | The under-utilization of our facilities and resources due to construction delays for our three research vessel projects, |
− | The under-utilization of our Jennings Yard and Lake Charles Yard which were closed in the fourth quarter 2020, and |
− | Lower utilization of our facilities and resources due to, and costs incurred to prepare for, Hurricane Laura, Hurricane Marco and Hurricane Sally in the third quarter 2020. |
• | Holding costs of $0.7 million related to the two MPSV vessels which remain in our possession and are subject to dispute. |
The increase in gross loss for 2020 relative to the prior period2019 was primarily due to the net impact of:to:
• | The aforementioned project charges of $16.6 million for 2020, and |
• | A lower margin mix (excluding the aforementioned project charges), offset partially by, |
• | Project charges of $12.3 million for 2019 on our forty-vehicle ferry projects, harbor tug projects, ice-breaker tug project and research vessel projects. |
• |
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2018 | 2017 | Amount | Percent | ||||||||||
Revenue | $ | 96,424 | $ | 52,699 | $ | 43,725 | 83.0 | % | |||||
Gross loss | (10,472 | ) | (44,870 | ) | 34,398 | 76.7 | % | ||||||
Gross loss percentage | (10.9 | )% | (85.1 | )% | |||||||||
General and administrative expense | 2,801 | 3,926 | 1,125 | 28.7 | % | ||||||||
Asset impairments and (gain) loss on assets held for sale, net | 964 | 1,248 | 284 | 22.8 | % | ||||||||
Other (income) expense, net | 159 | — | (159 | ) | nm | ||||||||
Operating loss | (14,396 | ) | (50,044 | ) | 35,648 | 71.2 | % |
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2018 | 2017 | Amount | Percent | ||||||||||
Revenue | $ | 88,230 | $ | 65,445 | $ | 22,785 | 34.8 | % | |||||
Gross profit | 12,447 | 4,575 | 7,872 | 172.1 | % | ||||||||
Gross profit percentage | 14.1 | % | 7.0 | % | |||||||||
General and administrative expense | 3,022 | 2,701 | (321 | ) | (11.9 | )% | |||||||
Asset impairments and (gain) loss on assets held for sale, net | 82 | — | (82 | ) | nm | ||||||||
Other (income) expense, net | (28 | ) | — | 28 | nm | ||||||||
Operating income | 9,371 | 1,874 | 7,497 | nm |
Years Ended December 31, | Favorable (Unfavorable) Change | |||||||||||
2018 | 2017 | Amount | Percent | |||||||||
Revenue | $ | 2,477 | $ | 198 | $ | 2,279 | nm | |||||
Gross profit (loss) | (46 | ) | 41 | (87 | ) | nm | ||||||
Gross profit (loss) percentage | (1.9 | )% | 20.7 | % | ||||||||
General and administrative expense | 1,817 | — | (1,817 | ) | nm | |||||||
Operating (loss) income | (1,863 | ) | 41 | (1,904 | ) | nm |
See Note 122 of our Financial Statements in Item 8 for further discussion of our EPC Division and the SeaOne Project.
General and administrative expense
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2018 | 2017 | Amount | Percent | ||||||||||
Revenue (eliminations) | $ | (3,827 | ) | $ | (5,200 | ) | $ | 1,373 | 26.4 | % | |||
Gross loss | (1,331 | ) | (730 | ) | (601 | ) | (82.3 | )% | |||||
Gross loss percentage | n/a | n/a | |||||||||||
General and administrative expense | 8,241 | 7,757 | (484 | ) | (6.2 | )% | |||||||
Other (income) expense, net | 255 | (16 | ) | (271 | ) | nm | |||||||
Operating loss | (9,827 | ) | (8,471 | ) | (1,356 | ) | (16.0 | )% |
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2020 and 2019 was a loss of $1.6 million and $7.9 million respectively. The loss for 2020 was primarily due to:
• | Impairments of $1.0 million for lease assets and fixed assets (primarily drydocks) attributable to the closure of our Lake Charles Yard in the fourth quarter 2020, and |
• | Costs of $0.6 million primarily associated with the closures of our Jennings Yard and Lake Charles Yard in the fourth quarter 2020. |
The loss for 2019 was primarily due to:
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Other (income) expense, net – Other (income) expense, net for 2020 was expense of $1.5 million, primarily due to charges of $1.3 million associated with damage caused by Hurricane Laura to our drydocks, warehouses, bulkheads and ninth harbor tug project at our Lake Charles Yard in the third quarter 2020. The charges relate to deductibles associated with our insurance coverages and our estimates of cost associated with uninsurable damage. See Note 2 of our Financial Statements in Item 8 for further discussion of the impacts of Hurricane Laura.
Fabrication & Services Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 66,654 |
|
| $ | 132,659 |
|
| $ | (66,005 | ) |
|
| (49.8 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 99,485 |
|
| $ | 137,169 |
|
| $ | (37,684 | ) |
|
| (27.5 | )% |
Gross profit (loss) |
|
| 1,523 |
|
|
| (657 | ) |
|
| 2,180 |
|
| nm |
| |
Gross profit (loss) percentage |
|
| 1.5 | % |
|
| (0.5 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 3,172 |
|
|
| 4,308 |
|
|
| 1,136 |
|
|
| 26.4 | % |
Impairments and (gain) loss on assets held for sale |
|
| 2,491 |
|
|
| 8,933 |
|
|
| 6,442 |
|
| nm |
| |
Other (income) expense, net |
|
| (10,033 | ) |
|
| (202 | ) |
|
| 9,831 |
|
| nm |
| |
Operating income (loss) |
|
| 5,893 |
|
|
| (13,696 | ) |
|
| 19,589 |
|
| nm |
|
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, segment results (including the effects of eliminations) for our Fabrication and Services Divisions for 2019 have been combined to conform to the presentation of our reportable segments for 2020. In addition, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2020 and 2019 were $66.7 million and $132.7 million, respectively. Significant new project awards for 2020 include:
• | A marine docking structures project in the second quarter 2020, and |
• | Additional scopes of work for our offshore jacket and deck project in the second quarter 2020. |
Significant new project awards for 2019 include:
• | An offshore jacket and deck project in the first quarter 2019, |
• | A subsea components project in the first quarter 2019, |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019, and |
• | A material supply project and offshore modules project in the fourth quarter 2019. |
Revenue – Revenue for 2020 and 2019 was $99.5 million and $137.2 million, respectively, representing a decrease of $37.7 million. The decrease was primarily due to:
• | Lower revenue for our paddlewheel river boat and subsea components projects that were completed in the first quarter 2020, and |
• | Reduced offshore services activity and small fabrication project activity, offset partially by, |
• | Higher revenue for our offshore jacket and deck project, and |
• | Higher revenue for our marine docking structures project, material supply project and offshore modules project. |
Gross profit (loss) – Gross profit for 2020 was $1.5 million (1.5% of revenue) and gross loss for 2019 was $0.7 million (0.5% of revenue), respectively. Gross profit for 2020 was primarily impacted by:
• | Project improvements of $1.2 million related to cost decreases, earned project incentives and the favorable resolution of change orders on our offshore jacket and deck project, and |
• | Project improvements of $1.5 million related to cost decreases and the favorable resolution of change orders on our paddlewheel riverboat and subsea components projects, offset partially by, |
• | Low revenue due to low backlog levels, and |
• | The partial under-recovery of overhead costs primarily due to: |
− | The under-utilization of our facilities and resources due to low workhours, |
− | Higher overhead costs associated with retaining salaried overhead and hourly craft employees to perform process improvements, special projects and facility maintenance and repairs, and |
− | Lower utilization of our facilities and resources due to, and costs incurred to prepare for, Hurricane Laura, Hurricane Marco and Hurricane Sally. |
Our Fabrication & Services Division utilization for 2020 and 2019 benefited by $1.2 million and $0.9 million, respectively, from providing resources and facilities to our Shipyard Division for our seventy-vehicle ferry project and two forty-vehicle ferry projects.
The gross profit for 2020 relative to the gross loss for 2019 was primarily due to:
• | The aforementioned project improvements of $2.7 million for 2020, |
• | A higher margin mix (excluding the aforementioned project improvements), and |
• | Project charges of $4.9 million for 2019 on our offshore jacket and deck project, subsea components project and paddlewheel riverboat project, offset partially by, |
• | Lower revenue and an increase in the under-recovery of overhead costs due to lower activity. |
See Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense – General and administrative expense for 2020 and 2019 was $3.2 million (3.2% of revenue) and $4.3 million (3.1% of revenue), respectively, representing a decrease of 26.4%. The decrease was primarily due to our cost reduction initiatives including combining our former Fabrication and Services Divisions.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2020 and 2019 was a loss of $2.5 million and $8.9 million, respectively. The loss for 2020 was primarily due to:
• | Impairments of $1.4 million associated with assets held for sale, |
• | Impairments of $0.9 million for certain fixed assets associated with the relocation and consolidation of such assets to improve operational efficiency, and |
• | A loss of $0.2 million on the sale of a barge and other assets held for sale. |
The loss for 2019 was primarily due:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Other (income) expense, net – Other (income) expense, net for 2020 and 2019 was income of $10.0 million and $0.2 million, respectively. Other income for 2020 was primarily due to a gain of $10.0 million associated with the settlement of a contract dispute for a project completed in 2015. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute. Other income for 2019 was primarily due to net gains on the sales of equipment.
Corporate Division
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| Amount |
|
| Percent |
| ||||
Revenue (eliminations) |
| $ | (2,224 | ) |
| $ | (2,327 | ) |
| $ | 103 |
|
|
| 4.4 | % |
Gross loss |
|
| — |
|
|
| (317 | ) |
|
| 317 |
|
| nm |
| |
Gross loss percentage |
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
General and administrative expense |
|
| 8,706 |
|
|
| 8,875 |
|
|
| 169 |
|
|
| 1.9 | % |
Impairments and (gain) loss on assets held for sale |
|
| — |
|
|
| 675 |
|
|
| 675 |
|
| nm |
| |
Other (income) expense, net |
|
| 3 |
|
|
| 30 |
|
|
| 27 |
|
| nm |
| |
Operating loss |
|
| (8,709 | ) |
|
| (9,897 | ) |
|
| 1,188 |
|
|
| 12.0 | % |
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, the effects of related eliminations on our Corporate Division for 2019 have been conformed to the presentation of our reportable segments for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
Gross loss –Gross loss for 2019 was $0.3 million and represents costs incurred by the Corporate Division to support our operating divisions. Such costs are reflected within the operating divisions in 2020.
General and administrative expense– General and administrative expense for 2020 and 2019 was $8.7 million (3.5% of consolidated revenue) and $7.8$8.9 million (4.5%(2.9% of consolidated revenue), respectively, representing an increasea decrease of 6.2%1.9%. The increasedecrease was primarily due to the net impact of:
• | Reduced professional fees associated with the evaluation of strategic alternatives, and |
• | Other cost savings including reductions in board size and the salaries of our executives, offset partially by, |
• | Higher incentive plan costs (due primarily to the 2019 period benefiting from the partial reversal of long-term incentives that were accrued in periods prior to 2019 but ultimately not earned), and |
• | Higher legal and advisory fees and insurance costs. |
General and administrative expense includes legal and advisory fees related to customer disputes a contract dispute for a completed project that was settled during the first quarter 2020 and shareholder matters; and
Comparison of 20172019 and 2016
In the comparative tables below, percentage changes that are not considered meaningful are shown below as “nm” (generally when the prior period amount is immaterial or when the percentage change is significantly greater than 100%) are shown below as "
Consolidated
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 384,083 |
|
| $ | 355,090 |
|
| $ | 28,993 |
|
|
| 8.2 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 303,308 |
|
| $ | 221,247 |
|
| $ | 82,061 |
|
|
| 37.1 | % |
Cost of revenue |
|
| 320,307 |
|
|
| 228,443 |
|
|
| (91,864 | ) |
|
| (40.2 | )% |
Gross loss |
|
| (16,999 | ) |
|
| (7,196 | ) |
|
| (9,803 | ) |
|
| (136.2 | )% |
Gross loss percentage |
|
| (5.6 | )% |
|
| (3.3 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 15,628 |
|
|
| 19,015 |
|
|
| 3,387 |
|
|
| 17.8 | % |
Impairments and (gain) loss on assets held for sale |
|
| 17,528 |
|
|
| (6,850 | ) |
|
| (24,378 | ) |
| nm |
| |
Other (income) expense, net |
|
| (134 | ) |
|
| 304 |
|
|
| 438 |
|
| nm |
| |
Operating loss |
|
| (50,021 | ) |
|
| (19,665 | ) |
|
| (30,356 | ) |
|
| (154.4 | )% |
Interest (expense) income, net |
|
| 531 |
|
|
| (142 | ) |
|
| 673 |
|
| nm |
| |
Loss before income taxes |
|
| (49,490 | ) |
|
| (19,807 | ) |
|
| (29,683 | ) |
|
| (149.9 | )% |
Income tax (expense) benefit |
|
| 96 |
|
|
| (571 | ) |
|
| 667 |
|
| nm |
| |
Net loss |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
| $ | (29,016 | ) |
|
| (142.4 | )% |
New Project Awards – New project awards for 2019 and 2018 were $384.1 million and $355.1 million, respectively. Significant new project awards for 2019 include:
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019 within our Shipyard Division, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019 within our Shipyard Division, |
• | A seventy-vehicle ferry in the third quarter 2019 within our Shipyard Division, |
• | An offshore jacket and deck project and a subsea components project in the first quarter 2019 within our Fabrication & Services Division, |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019 within our Fabrication & Services Division, and |
• | A material supply project and offshore modules project in the fourth quarter 2019 within our Fabrication & Services Division. |
Significant new project awards for 2018 include:
• | A towing, salvage and rescue ship for the U.S. Navy in the first quarter 2018 within our Shipyard Division, |
• | The exercise of an option by Oregon State University for a second research vessel in the second quarter 2018 within our Shipyard Division, |
• | The exercise of customer options for a ninth and tenth harbor tug in the second quarter 2018 within our Shipyard Division, |
• | A towboat in the second quarter 2018 and the exercise of a customer option for a second towboat in the third quarter 2018 within our Shipyard Division, |
• | Two forty-vehicle ferries in the fourth quarter 2018 within our Shipyard Division, |
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2017 | 2016 | Amount | Percent | ||||||||||
Revenue | $ | 171,022 | $ | 286,326 | $ | (115,304 | ) | (40.3 | )% | ||||
Cost of revenue | 213,947 | 261,473 | 47,526 | 18.2 | % | ||||||||
Gross (loss) profit | (42,925 | ) | 24,853 | (67,778 | ) | nm | |||||||
Gross (loss) profit percentage | (25.1 | )% | 8.7 | % | |||||||||
General and administrative expense | 17,800 | 19,670 | 1,870 | 9.5 | % | ||||||||
Asset impairments and (gain) loss on assets held for sale, net | 7,931 | — | (7,931 | ) | nm | ||||||||
Other (income) expense, net | (46 | ) | (681 | ) | (635 | ) | (93.2 | )% | |||||
Operating (loss) income | (68,610 | ) | 5,864 | (74,474 | ) | nm | |||||||
Interest expense, net | (349 | ) | (308 | ) | (41 | ) | (13.3 | )% | |||||
(Loss) income before income taxes | (68,959 | ) | 5,556 | (74,515 | ) | nm | |||||||
Income tax (expense) benefit | 24,193 | (2,041 | ) | 26,234 | nm | ||||||||
Net (loss) income | $ | (44,766 | ) | $ | 3,515 | $ | (48,281 | ) | nm |
• | A meteorological tower and platform for an offshore wind project in the first quarter 2018 within our Fabrication & Services Division, and |
• | The expansion of a paddlewheel riverboat in the third quarter 2018 within our Fabrication & Services Division. |
Revenue -– Revenue for 20172019 and 20162018 was $171.0$303.3 million and $286.3$221.2 million, respectively, representing a decreasean increase of 40.3%37.1%. The decreaseincrease was primarily due to an overall decrease in work as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions. Additionally, we recorded reducedto:
Increased revenue due to contract losses of $34.5 million related to cost overruns and delays that we encountered in the newbuild construction of two MPSVs and reductions of price of $11.2 million for liquidated damages (representing the maximum amount of liquidated damages under the contracts) which are in dispute.
• | Progress on our research vessel projects, towing, salvage and rescue ship projects and forty-vehicle ferry projects, offset partially by, |
• | Lower revenue for our harbor tug projects, and |
• | No revenue for our two MPSV contracts which were suspended during the first quarter 2018. |
Increased revenue for our Fabrication Division.& Services Division of $29.6 million, primarily attributable to:
• | Progress on our paddle wheel riverboat project and jacket and deck project, offset partially by, |
• | No revenue for our petrochemical modules project which was completed in 2018. |
See Note 8 of our Financial Statements in Item 8 for further discussion.
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2017 | 2016 | Amount | Percent | ||||||||||
Revenue | $ | 57,880 | $ | 88,683 | $ | (30,803 | ) | (34.7 | )% | ||||
Gross (loss) profit | (1,941 | ) | 5,276 | (7,217 | ) | (136.8 | )% | ||||||
Gross (loss) profit percentage | (3.4 | )% | 5.9 | % | |||||||||
General and administrative expense | 3,416 | 3,776 | 360 | 9.5 | % | ||||||||
Asset impairments and (gain) loss on assets held for sale, net | 6,683 | — | (6,683 | ) | nm | ||||||||
Other (income) expense, net | (30 | ) | (509 | ) | (479 | ) | (94.1 | )% | |||||
Operating (loss) income | (12,010 | ) | 2,009 | (14,019 | ) | nm |
Gross loss – Gross loss for 20172019 and 20162018 was $57.9$17.0 million (5.6% of revenue) and $88.7$7.2 million respectively, representing a decrease(3.3% of 34.7%.revenue), respectively. The decreasegross loss for 2019 was primarily due to an overall decrease in work as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore fabrication projects. We classified our South Texas Properties as held for sale in the first quarter 2017, in response to the underutilization of our Fabrication assets. At December 31, 2017, all of our projects at our South Texas Properties were completed or transferred to our fabrication yard in Houma, Louisiana.
• | Project charges of $12.3 million and $4.9 million within our Shipyard Division and Fabrication & Services Division, respectively, |
• | The partial under-recovery of overhead costs (primarily associated with the under-utilization of our facilities within our Fabrication & Services Division, and to a lesser extent within our Shipyard Division), and |
• | Holding costs of $1.2 million related to the two MPSV vessels which remain in our possession and are subject to dispute. |
The decreaseincrease in gross profitloss relative to 2018 was primarily due to lower revenue from decreased fabrication work related to decreases in fabrication demandto:
• | The aforementioned project charges of $17.2 million for 2019, |
• | A lower margin mix for our Shipyard Division (excluding the aforementioned project charges), offset partially by, |
• | Higher revenue and a reduction in the under-recovery of overhead costs due to higher activity, |
• | A higher margin mix for our Fabrication & Services Division (excluding the aforementioned project charges), and |
• | Project charges of $6.7 million and $2.4 million for 2018 within our Shipyard Division and Fabrication & Services Division, respectively. |
See “Operating Segments” below and approximately $5.5 million of costs for our South Texas Properties that were held for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we completed projects at our South Texas Properties, reduced depreciation for our South Texas Properties as these assets were classified as held for sale in the first quarter 2017, and additional cost minimization efforts implemented during the period.
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2017 | 2016 | Amount | Percent | ||||||||||
Revenue | $ | 52,699 | $ | 109,502 | $ | (56,803 | ) | (51.9 | )% | ||||
Gross (loss) profit | (44,870 | ) | 7,801 | (52,671 | ) | (675.2 | )% | ||||||
Gross profit (loss) percentage | (85.1 | )% | 7.1 | % | |||||||||
General and administrative expense | 3,926 | 5,426 | 1,500 | 27.6 | % | ||||||||
Asset impairments and (gain) loss on net assets sold, net | 1,248 | — | (1,248 | ) | nm | ||||||||
Other (income) expense, net | — | (61 | ) | (61 | ) | nm | |||||||
Operating (loss) income | (50,044 | ) | 2,436 | (52,480 | ) | nm |
General and administrative expense
• | Lower incentive plan costs and board of director compensation costs, and |
• | Lower legal and advisory fees related to customer disputes and shareholder matters, offset partially by, |
• | Higher professional fees and other costs associated with the evaluation of strategic alternatives and initiatives to diversify and enhance our business. |
General and administrative personnelexpense includes legal and advisory fees related to consolidation of personnel duties from the LEEVAC acquisition and lower incentive plan costs due to a reduced workforce, our operating loss and cost reduction efforts implementedcontract dispute for a completed project that was settled during the first partquarter 2020 and a contract dispute associated with our MPSV projects which are subject to purported termination and for which construction has been suspended. Legal and advisory fees related to such disputes totaled $1.4 million and $1.7 million for 2019 and 2018, respectively, and were reflected within our Corporate Division in 2019 and our operating divisions in 2018. See Note 1 of 2016.
Impairments and (gain) loss on netassets held for sale – Impairments and (gain) loss on assets held for sale net
The loss for sale, net2019 was primarily due to:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory within our Fabrication & Services Division, |
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard within our Shipyard Division, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard within our Shipyard Division, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold within our Shipyard Division, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale within our Fabrication & Services Division. |
The gain for 20172018 was an impairment of $1.2 million related to certain assets held for sale. We had no asset impairments during 2016. primarily due to:
• | A gain of $3.9 million from the sale of our Texas South Yard and a gain of $4.1 million from the sale of our Texas North Yard within our Fabrication & Services Division; and |
• | A gain of $3.6 million from the settlement of an insurance claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017 within our Fabrication & Services Division; offset partially by, |
• | Impairments of $4.4 million and a loss of $0.3 million related to inventory and assets held for sale and/or sold within our Fabrication & Services Division and Shipyard Division. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2017 | 2016 | Amount | Percent | ||||||||||
Revenue | $ | 65,445 | $ | 91,414 | $ | (25,969 | ) | (28.4 | )% | ||||
Gross profit | 4,575 | 12,420 | (7,845 | ) | (63.2 | )% | |||||||
Gross profit percentage | 7.0 | % | 13.6 | % | |||||||||
General and administrative expense | 2,701 | 3,314 | 613 | 18.5 | % | ||||||||
Other (income) expense, net | — | (111 | ) | (111 | ) | nm | |||||||
Operating income | 1,874 | 9,217 | (7,343 | ) | (79.7 | )% |
Other (income) expense, net– Other (income) expense, net for 20172019 and 20162018 was $65.4income of $0.1 million and $91.4expense of $0.3 million, respectively, representing a decreaserespectively. Other (income) expense, net generally represents recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of 28.4%.property and equipment other than assets held for sale, and income or expense associated with certain nonrecurring items. The decreaseincome for 2019 and expense for 2018 was primarily due to an overall decrease in worknet gains and net losses, respectively, on the sales of equipment.
Interest (expense) income, net –Interest (expense) income, net for 2019 and 2018 was income of $0.5 million and expense of $0.1 million, respectively. The net interest income for 2019 was primarily due to interest earned on our cash and short-term investment balances, offset partially by interest amortization associated with our long-term lease liability. The net interest expense for 2018 was primarily due to borrowings under our LC Facility during 2018.
Income tax (expense) benefit –Income tax (expense) benefit for 2019 and 2018 was a benefit of $0.1 million and expense of $0.6 million, respectively. The tax benefit for 2019 and expense for 2018 represent state income taxes. No federal income tax benefit was recorded for losses during 2019 or 2018 as a resultfull valuation allowance was recorded against our deferred tax assets generated during the periods. See Note 6 of depressed oilour Financial Statements in Item 8 for further discussion of our NOLs, deferred tax assets and gas prices and the corresponding reduction in customer demand for oil and gas related service projects.
Operating Segments
Shipyard Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 251,424 |
|
| $ | 216,771 |
|
| $ | 34,653 |
|
|
| 16.0 | % |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 168,466 |
|
| $ | 96,424 |
|
| $ | 72,042 |
|
|
| 74.7 | % |
Gross loss |
|
| (16,025 | ) |
|
| (10,472 | ) |
|
| (5,553 | ) |
|
| (53.0 | )% |
Gross loss percentage |
|
| (9.5 | )% |
|
| (10.9 | )% |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 2,445 |
|
|
| 2,801 |
|
|
| 356 |
|
|
| 12.7 | % |
Impairments and (gain) loss on assets held for sale |
|
| 7,920 |
|
|
| 964 |
|
|
| (6,956 | ) |
| nm |
| |
Other (income) expense, net |
|
| 38 |
|
|
| 159 |
|
|
| 121 |
|
| nm |
| |
Operating loss |
|
| (26,428 | ) |
|
| (14,396 | ) |
|
| (12,032 | ) |
|
| (83.6 | )% |
(1) | In the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2019 and 2018 were $251.4 million and $216.8 million, respectively. Significant new project awards for 2019 include.
• | The exercise of options by the U.S. Navy for a second and third towing, salvage and rescue ship in the second quarter 2019, |
• | The exercise of an option by Oregon State University for a third research vessel in the second quarter 2019, and |
• | A seventy-vehicle ferry in the third quarter 2019. |
Significant new project awards for 2018 include:
• | A towing, salvage and rescue ship for the U.S. Navy in the first quarter 2018, |
• | The exercise of an option by Oregon State University for a second research vessel in the second quarter 2018, |
• | The exercise of customer options for a ninth and tenth harbor tug in the second quarter 2018, |
• | A towboat in the second quarter 2018 and the exercise of a customer option for a second towboat in the third quarter 2018, and |
• | Two forty-vehicle ferries in the fourth quarter 2018. |
Revenue – Revenue for 2019 and 2018 was $168.5 million and $96.4 million, respectively, representing an increase of 74.7%. The increase was primarily due to:
• | Progress on our research vessel projects, towing, salvage and rescue ship projects and forty-vehicle ferry projects, offset partially by, |
• | Lower revenue for our harbor tug projects, and |
• | No revenue for our two MPSV contracts which were suspended during the first quarter 2018. |
See Note 8 of our Financial Statements in Item 8 for further discussion of our MPSV dispute.
Gross profit -loss– Gross profitloss for 2019 and 2018 was $4.6$16.0 million (7.0%(9.5% of revenue) for 2017, compared to $12.4and $10.5 million (13.6%(10.9% of revenue), respectively. The decreasegross loss for 2019 was primarily due to:
• | Project charges of $4.9 million related to forecast cost increases and liquidated damages on our harbor tug projects, |
• | Project charges of $5.1 million related to forecast cost increases and liquidated damages on our forty-vehicle ferry projects, |
• | Project charges of $1.5 million related to forecast cost increases on our ice-breaker tug project, |
• | Project charges of $0.8 million related to the reversal of gross profit recognized prior to 2019 on our research vessel projects, |
• | Holding costs of $1.2 million related to the two MPSV vessels which remain in our possession and are subject to dispute, and |
• | The partial under-recovery of overhead costs. |
The increase in gross loss for 2019 relative to decreased revenue and lower margins on new work performed during 2017.2018 was primarily due to:
• | The aforementioned project charges of $12.3 million for 2019, and |
• | A lower margin mix (excluding the aforementioned project charges) as project gross profit on our research vessel projects and towing, salvage and rescue ship projects was not material because the projects were approximately break-even, offset partially by, |
• | Higher revenue and a reduction in the under-recovery of overhead costs due to higher activity, and |
• | Project charges of $6.7 million for 2018 on our harbor tug projects. |
See Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense -– General and administrative expense for 20172019 and 20162018 was $2.7$2.4 million (4.1%(1.5% of revenue) and $3.3$2.8 million (3.6%(2.9% of revenue), respectively, representing a decrease of 18.5%12.7%. The decrease was primarily due to lower incentive planlegal and advisory fees related to a customer dispute as the costs are reflected within the Corporate Division in 2019.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2019 and 2018 was a loss of $7.9 million and $1.0 million, respectively. The loss for 2019 was primarily due to:
• | Impairments of $4.6 million for lease assets and fixed assets attributable to our Jennings Yard, |
• | Impairments of $3.0 million for lease assets and fixed assets (primarily drydocks) attributable to our Lake Charles Yard, and |
• | An impairment of $0.3 million for an asset that was held for sale and sold. |
The loss for 2018 was primarily due to a reduced workforceimpairments of assets held for sale and/or sold.
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and our consolidated operating loss.
Fabrication & Services Division(1)
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
New Awards |
| $ | 132,659 |
|
| $ | 138,319 |
|
| $ | (5,660 | ) |
|
| (4.1 | )% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
| $ | 137,169 |
|
| $ | 126,695 |
|
| $ | 10,474 |
|
|
| 8.3 | % |
Gross profit (loss) |
|
| (657 | ) |
|
| 4,607 |
|
|
| (5,264 | ) |
| nm |
| |
Gross profit (loss) percentage |
|
| (0.5 | )% |
|
| 3.6 | % |
|
|
|
|
|
|
|
|
General and administrative expense |
|
| 4,308 |
|
|
| 7,973 |
|
|
| 3,665 |
|
|
| 46.0 | % |
Impairments and (gain) loss on assets held for sale |
|
| 8,933 |
|
|
| (7,814 | ) |
|
| (16,747 | ) |
| nm |
| |
Other (income) expense, net |
|
| (202 | ) |
|
| (110 | ) |
|
| 92 |
|
| nm |
| |
Operating income (loss) |
|
| (13,696 | ) |
|
| 4,558 |
|
|
| (18,254 | ) |
| nm |
|
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, segment results (including the effects of eliminations) for our Fabrication and Services Divisions for 2019 have been combined to conform to the presentation of our reportable segments for 2020. In addition, in the first quarter 2020, management and project execution responsibility for our two forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division. Accordingly, revenue of $9.2 million and gross loss and operating loss of $5.1 million associated with these projects for 2019 was reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
New Project Awards – New project awards for 2019 and 2018 were $132.7 million and $138.3 million, respectively. Significant new project awards for 2019 include:
• | An offshore jacket and deck project in the first quarter 2019, |
• | A subsea components project in the first quarter 2019, |
Years Ended December 31, | Favorable (Unfavorable) Change | ||||||||||||
2017 | 2016 | Amount | Percent | ||||||||||
Revenue (eliminations) | $ | (5,200 | ) | $ | (3,273 | ) | $ | (1,927 | ) | (58.9 | )% | ||
Gross loss | (730 | ) | (644 | ) | (86 | ) | (13.4 | )% | |||||
Gross loss percentage | n/a | n/a | |||||||||||
General and administrative expense | 7,757 | 7,154 | (603 | ) | (8.4 | )% | |||||||
Other (income) expense | (16 | ) | — | 16 | nm | ||||||||
Operating loss | (8,471 | ) | (7,798 | ) | (673 | ) | (8.6 | )% |
• | Additional scopes of work for an onshore maintenance project in the third quarter 2019, and |
• | A material supply project and offshore modules project in the fourth quarter 2019 within our Fabrication & Services Division. |
Significant new project awards for 2018 include:
• | A meteorological tower and platform for an offshore wind project in the first quarter 2018, and |
• | The expansion of a paddlewheel riverboat in the third quarter 2018. |
Revenue –Revenue for 2019 and 2018 was $137.2 million and $126.7 million, respectively, representing an increase of 8.3%. The increase was primarily due to:
• | Progress on our paddle wheel riverboat project and jacket and deck project, offset partially by, |
• | No revenue for our petrochemical modules project which was completed in 2018. |
Gross loss (profit)– Gross loss for 2019 was $0.7 million (3.1% of revenue) and gross profit for 2018 was $4.6 million (6.3% of revenue), respectively. The gross loss for 2019 was primarily due to:
• | Project charges of $2.0 million related to forecast cost increases on our jacket and deck project, |
• | Project charges of $1.3 million related to forecast cost increases on our paddle wheel riverboat project, |
• | Project charges of $1.6 million related to forecast cost increases and liquidated damages on our subsea components project, and |
• | The partial under-recovery of overhead costs. |
The gross loss for 2019 relative to the gross profit for 2018 was primarily due to:
• | The aforementioned project charges of $4.9 million for 2019 (with no gross profit recognized on these projects during 2019), and |
• | A lower margin mix (excluding the aforementioned project charges), offset partially by, |
• | Higher revenue and a reduction in the under-recovery of overhead costs due to higher activity, and |
• | Project charges of $2.4 million for 2018 on our petrochemical modules project. |
See Note 2 of our Financial Statements in Item 8 for further discussion of our project impacts.
General and administrative expense
• | Lower costs associated with our former EPC Division (which was combined with our Fabrication & Services Division in 2019), |
• | Lower legal and advisory fees related to a customer dispute as the costs are reflected within the Corporate Division in 2019, and |
• | Lower incentive plan costs and other cost reductions. |
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2019 and 2018 was a loss of $8.9 million and a gain of $7.8 million, (4.5%respectively. The loss for 2019 was primarily due:
• | Impairments of $9.3 million for assets held for sale, assets removed from held for sale and inventory, offset partially by, |
• | A gain of $0.4 million from the sale of assets held for sale. |
The gain for 2018 was primarily due to:
• | A gain of $3.9 million from the sale of our Texas South Yard and a gain of $4.1 million from the sale of our Texas North Yard, and |
• | A gain of $3.6 million from the settlement of an insurance claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017, offset partially by, |
• | Impairments of $3.5 million and a loss of $0.3 million related to inventory and assets held for sale and/or sold. |
See Note 3 of our Financial Statements in Item 8 for further discussion of our impairments and assets held for sale.
Corporate Division
|
| Years Ended December 31, |
|
| Favorable (Unfavorable) Change |
| ||||||||||
|
| 2019 |
|
| 2018 |
|
| Amount |
|
| Percent |
| ||||
Revenue (eliminations) |
| $ | (2,327 | ) |
| $ | (1,872 | ) |
| $ | (455 | ) |
|
| (24.3 | )% |
Gross loss |
|
| (317 | ) |
|
| (1,331 | ) |
|
| 1,014 |
|
|
| 76.2 | % |
Gross loss percentage |
| n/a |
|
| n/a |
|
|
|
|
|
|
|
|
| ||
General and administrative expense |
|
| 8,875 |
|
|
| 8,241 |
|
|
| (634 | ) |
|
| (7.7 | )% |
Impairments and (gain) loss on assets held for sale |
|
| 675 |
|
|
| - |
|
|
| (675 | ) |
| nm |
| |
Other (income) expense, net |
|
| 30 |
|
|
| 255 |
|
|
| 225 |
|
| nm |
| |
Operating loss |
|
| (9,897 | ) |
|
| (9,827 | ) |
|
| (70 | ) |
|
| (0.7 | )% |
(1) | In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form a new division called Fabrication & Services. Accordingly, the effects of related eliminations on our Corporate Division for 2019 and 2018 have been conformed to the presentation of our reportable segments for 2020. See Note 10 of our Financial Statements in Item 8 for further discussion of our realigned operating divisions. |
Gross loss– Gross loss for 2019 and 2018 was $0.3 million and $1.3 million, respectively. The decrease in gross loss relative to the 2018 period was primarily due to lower costs associated with supporting our former EPC Division (which was combined with our Fabrication & Services Division in 2019).
General and administrative expense – General and administrative expense for 2019 and 2018 was $8.9 million (2.9% of consolidated revenue) and $7.2$8.2 million (2.5%(3.7% of consolidated revenue), respectively, representing an increase of 8.4%7.7%. The increase was primarily due to:
• | Increased legal and advisory fees related to customer disputes as the costs were reflected within the operating divisions in 2018, and |
• | Higher professional fees and other cost associated with the evaluation of strategic alternatives and initiatives to diversify and enhance our business, offset partially by, |
• | Lower incentive plan costs and board of director compensation costs. |
General and administrative expense for 2019 includes legal and advisory fees related to a contract dispute for a completed project that was settled during the first quarter 2020 and a contract dispute associated with our MPSV projects which are subject to reductionspurported termination and for which construction has been suspended. Legal and advisory fees related to such disputes were reflected within our Corporate Division in the allocation of personnel costs to2019 and our operating divisions in 2018. See Note 1 of our Financial Statements in Item 8 for further discussion of our settlement of the completed project dispute and Note 8 for further discussion of our MPSV dispute.
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale for 2019 was a loss of $0.7 million, primarily related to shared services that are now included within our Corporate Division. The increase was also due to professional fees associated with the evaluation$0.5 million of strategic alternatives in anticipation of the proceeds to be received from the sale of our South Texas Properties and legal fees related to the pursuit of claims against two customers. The increase was offset partially by lower incentive plan costs dueamounts payable to our consolidated operating loss.
Liquidity and Capital Resources
Available Liquidity
Our primary sources of liquidity are our cash, and cash equivalents and scheduled maturities of our short-term investments, and availability under our Credit Agreement (discussed below). Atwhich totaled $51.2 million at December 31, 2018, our cash, cash equivalents and short-term investments totaled $79.2 million, and our immediately available liquidity was as follows (in thousands):
Available Liquidity | Total | |||
Cash and cash equivalents (1) | $ | 70,457 | ||
Short-term investments (2) | 8,720 | |||
Total cash, cash equivalents and short-term investments | 79,177 | |||
Credit Agreement total capacity | 40,000 | |||
Outstanding letters of credit | (2,917 | ) | ||
Credit Agreement available capacity | 37,083 | |||
Total available liquidity | $ | 116,260 |
|
| December 31, |
|
| Change During the Period(3) |
| ||||||||||
|
| 2020 |
|
| 2019 |
|
| 2020 |
|
| 2019 |
| ||||
Contract assets |
| $ | 67,521 |
|
| $ | 52,128 |
|
| $ | (15,393 | ) |
| $ | (22,146 | ) |
Contract liabilities(1) |
|
| (15,129 | ) |
|
| (26,271 | ) |
|
| (11,142 | ) |
|
| 9,426 |
|
Contracts in progress, net(2) |
|
| 52,392 |
|
|
| 25,857 |
|
|
| (26,535 | ) |
|
| (12,720 | ) |
Contract receivables and retainage, net |
|
| 15,393 |
|
|
| 26,095 |
|
|
| 10,702 |
|
|
| (3,590 | ) |
Inventory, prepaid expenses and other assets |
|
| 5,077 |
|
|
| 6,624 |
|
|
| 1,547 |
|
|
| 2,732 |
|
Accounts payable, accrued expenses and other liabilities |
|
| (77,784 | ) |
|
| (71,573 | ) |
|
| 6,211 |
|
|
| 32,317 |
|
Total |
| $ | (4,922 | ) |
| $ | (12,997 | ) |
| $ | (8,075 | ) |
| $ | 18,739 |
|
December 31, | Change During the Period | |||||||||||||||
2018 | 2017 | 2018 | 2017 | |||||||||||||
Contract assets | $ | 29,982 | $ | 28,373 | $ | (1,609 | ) | $ | (1,544 | ) | ||||||
Contract liabilities(1) | (16,845 | ) | (12,754 | ) | 4,091 | 8,390 | ||||||||||
Contracts in progress, net(2) | 13,137 | 15,619 | 2,482 | 6,846 | ||||||||||||
Contracts receivable and retainage, net | 22,505 | 28,466 | 5,961 | (8,297 | ) | |||||||||||
Inventory, prepaid expenses and other assets | 9,356 | 8,766 | (590 | ) | 6,429 | |||||||||||
Deferred revenue, current | — | (4,676 | ) | (4,676 | ) | (7,205 | ) | |||||||||
Accounts payable, accrued expenses and other liabilities | (39,256 | ) | (31,235 | ) | 8,021 | 12,132 | ||||||||||
Total | $ | 5,742 | $ | 16,940 | $ | 11,198 | $ | 9,905 |
(1) | Contract liabilities at December 31, |
(2) | Represents our cash position relative to revenue recognized on projects, with contract assets representing unbilled amounts that reflect future cash inflows on projects, and contract liabilities representing (i) advance payments that reflect future cash expenditures and non-cash earnings on projects and (ii) accrued contract losses that represent future cash expenditures on projects. |
(3) | Changes referenced in the cash flow activity section below may differ from the changes in this table due to non-cash reclassifications and due to certain changes in balance sheet accounts being reflected within other line items on the Statement of Cash Flows, including bad debt expense, gains and losses on sales of fixed assets and other assets, and accruals for capital expenditures. |
(4) | Accounts payable includes progress accruals associated with engineered equipment manufactured by vendors, and services provided by subcontractors, that are not contractually billable or have not been billed by the vendors and subcontractors. Such accruals totaled $48.5 million and $34.7 million at December 31, 2020 and December 31, 2019, respectively, and result in an increase in percentage of completion on our projects and an increase in our contract assets. |
Fluctuations in our working capital, and its components, are not unusual in our business and are impacted by the size of our projects and the mix of our backlog. Our working capital is particularly impacted by the timing of new project awards and related payments in advance of performing work, and the subsequent achievement of billing milestones or project progress on backlog as we complete certain phases of work.backlog. Working capital is also impacted at period-end by the timing of contracts receivablecontract receivables collections and accounts payable payments on our projects.
Cash Flow Activity
(in thousands):
|
| Years Ended December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Net cash used in operating activities |
| $ | (19,008 | ) |
| $ | (7,140 | ) |
Net cash provided by (used in) investing activities |
| $ | 2,609 |
|
| $ | (12,771 | ) |
Net cash provided by (used in) financing activities |
| $ | 9,855 |
|
| $ | (843 | ) |
December 31, | |||||||
2018 | 2017 | ||||||
Net cash used in operating activities | $ | (20,392 | ) | $ | (39,385 | ) | |
Net cash provided by (used in) investing activities | $ | 82,718 | $ | (1,135 | ) | ||
Net cash used in financing activities | $ | (852 | ) | $ | (1,664 | ) |
Operating Activities
2020 Activity
• | Operating loss excluding depreciation and amortization of $8.7 million, non-cash asset impairments of $3.3 million, net losses from asset sales of $0.2 million, and stock-based compensation expense of $1.1 million; |
• | Increase in contract assets of $15.4 million related to the timing of billings on projects, primarily due to increased unbilled positions on our second and third towing, salvage and rescue ship projects and seventy-vehicle ferry project within our Shipyard Division, offset partially by decreased unbilled positions on our harbor tug projects within our Shipyard Division and paddlewheel riverboat project within our Fabrication & Services Division; |
• | Decrease in contract liabilities of $11.1 million, primarily due to the unwind of advance payments on our third towing, salvage and rescue ship project and forty-vehicle ferry projects within our Shipyard Division and our offshore jacket and deck project and material supply project within our Fabrication & Services Division, offset partially by advance payments on our fifth towing, salvage and rescue ship project within our Shipyard Division; |
• | Decrease in contract receivables and retainage of $10.7 million related to the timing of billings and collections on projects, primarily due to collections on our two forty-vehicle ferry projects within our Shipyard Division and our material supply project within our Fabrication & Services Division, offset partially by increased receivable positions on various other projects within our Fabrication & Services Division; |
• | Decrease in prepaid expenses, inventory and other assets of $1.6 million, primarily due to prepaid expenses and the associated timing of certain prepayments; |
• | Increase in accounts payable, accrued expenses and other current liabilities of $7.6 million, primarily due to increased procurement activity and progress accruals for engineered equipment manufactured by vendors for our three research vessel projects, fourth and fifth towing, salvage and rescue ship projects, and seventy-vehicle ferry project within our Shipyard Division, offset partially by decreased accounts payable positions for our two forty-vehicle ferry projects within our Shipyard Division and various other projects within our Fabrication & Services Division; and |
• | Change in noncurrent assets and liabilities, net of $1.6 million, primarily due to the collection of long-term retention that was billed and collected during 2020. |
2019 Activity
• | Operating loss excluding depreciation and amortization expense of $9.6 million, bad debt expense of $0.1 million, non-cash asset impairments of $17.2 million, net gains from asset sales of $1.0 million, and stock-based compensation expense of $1.8 million; |
• | Increase in contract assets of $22.1 million related to the timing of billings on projects, primarily due to increased unbilled positions on our three research vessel projects and first towing, salvage and rescue ship project within our Shipyard Division, offset partially by decreased unbilled positions on our harbor tug projects within our Shipyard Division; |
• | Increase in contract liabilities of $9.4 million, primarily due to advance payments on our third towing, salvage and rescue ship project and advance payments and an increase in accrued contract losses on our forty-vehicle ferry projects within our Shipyard Division, and advance payments on two projects within our Fabrication & Services Division, offset partially by the unwind of advance payments on a project within our Fabrication & Services Division; |
• | Increase in contract receivables and retainage of $3.7 million related to the timing of billings and collections on projects, primarily due to an increase in billings on two projects within our Fabrication & Services Division; |
• | Decrease in prepaid expenses, inventory and other assets of $2.6 million, primarily due to lower inventory for our Fabrication & Services Division; |
• | Increase in accounts payable, accrued expenses and other current liabilities of $29.9 million, primarily due to the timing of payments and increased procurement activities and progress accruals for engineered equipment manufactured by vendors, for our three research vessel projects and three towing, salvage and rescue ship projects within our Shipyard Division; and |
• | Change in noncurrent assets and liabilities, net of $1.5 million. |
Investing Activities – Cash provided by investing activities for 2020 was $2.6 million, and cash used in investing activities for 2019 was $12.8 million. Cash provided by investing activities for 2020 was primarily due to the net gains on assets held for salematurities of short-term investments of $11.8 million and insurance recoveries of $11.2 million, loss onproceeds from the sale of fixed assets and other assets of $0.3 million, depreciation expense of $10.4 million, non-cash asset impairments of $4.4 million, and stock-based compensation expense of $2.8 million;
Financing Activities – Cash provided by financing activities for 2020 was $9.9 million, and insurance recoveries of $1.5 million.
Credit Facilities
LC Facility – On March 26, 2021, we amended our revolving credit facility with Hancock Whitney Bank ("Credit Agreement"(“Whitney Bank”) that can be used. The facility previously provided for up to $40.0 million of borrowings or letters of credit. On August 27, 2018, we amended our Credit Agreement which, among other things, extended its maturity date to June 9, 2020. Our amendedcredit and included certain quarterly financial covenants duringand restrictions on our ability to take certain actions. In connection with the remaining termamendment, the facility was modified to provide for up to $20.0 million of letters of credit, subject to our cash securitization of existing and future letters of credit, and the Credit Agreement are as follows:
Loan Agreement–On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with Whitney Bank pursuant to supportthe Paycheck Protection Program (“PPP”), which is sponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met. The most significant of the conditions are:
• | Only amounts expended for Permissible Expenses during the eight-week or 24-week period, as elected by us, following April 17, 2020 (the “Covered Period”) are eligible for loan forgiveness. We have elected an eight-week Covered Period; |
• | Of the total amount of Permissible Expenses for which forgiveness can be granted, at least 60% must be for payroll costs, or a proportionate reduction of the maximum loan forgiveness amount will occur; and |
• | If employee headcount is reduced, or employee compensation is reduced by more than 25%, during the Covered Period, a further reduction of the maximum loan forgiveness amount will occur, subject to certain safe harbors added by the Flexibility Act. |
The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum and is payable in monthly installments commencing on the earlier of the date on which the amount of loan forgiveness is determined or March 17, 2021. During the Covered Period the PPP Loan proceeds were used only for Permissible Expenses, of which approximately 93% was related to payroll costs. On September 29, 2020, we submitted our projects, providing $37.1application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million. Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the SBA for review. As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made no loan payments. Because the amount borrowed exceeded $2.0 million, the PPP Loan and our loan forgiveness application is subject to audit by the SBA. Any portion of available capacity. Atthe PPP Loan that is not forgiven, together with accrued interest, will be repaid based on the terms and conditions of the PPP Loan and in accordance with the PPP as amended by the Flexibility Act, unless the SBA were to determine that we were not eligible to participate in the PPP, in which case the SBA could seek immediate repayment of the PPP Loan. While we believe we are a qualifying business and have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds only for Permissible Expenses, we can provide no assurances that we will be eligible for forgiveness of the PPP Loan, in whole or in part. Accordingly, we have recorded the full amount of the PPP Loan as debt, which is included in long-term debt, current and long-term debt, noncurrent on our Balance Sheet at December 31, 2018,2020. The current and noncurrent debt classification is based on the terms and conditions of the PPP Loan and in accordance with the PPP as amended by the Flexibility Act, and timing of required repayment absent any loan forgiveness. We intend to reflect the benefit of any loan forgiveness if, and when, our loan forgiveness application is approved by the SBA and after we were in compliance with allhave reasonable assurance from the SBA that we have met the eligibility and loan forgiveness requirements of the PPP. See Note 5 of our financial covenants, with a tangible net worthFinancial Statements in Item 8 for further discussion of $199.2 million (as defined by the Credit Agreement), a ratio of current assets to current liabilities of 2.85 to 1.0 and a ratio of funded debt to tangible net worth of 0.01:1.00.
Surety Bonds
Registration Statement
We have a shelf registration statement that is effective with the SEC that expires on November 27, 2020.2023. The shelf registration statement enables us to issue up to $200.0 million in either debt or equity securities, or a combination thereof, from time to time subsequent to the filing of a prospectus supplement, which among other things, identifies the sales agent, specifies the number and value of securities that may be sold, and provides a time frame over which the securities may be offered.
Liquidity Outlook
As discussed in our Overview, we continue to focus on maintaining liquidity and securing meaningfulprofitable new project awards and backlog in the near-term and generating operating income and cash flow from operationsflows in the longer-term. We have made significant progress in our efforts to increase our backlogpreserve and improve and preserve our liquidity, including ongoing cost reductions (including reducing the cashsize of our board and reducing the compensation paid toof our directors and the salaries of our executive officers) and, the sale of underutilized assets.under-utilized assets and facilities and an improved overall cashflow position on our projects in backlog. In addition, at December 31, 2018,2020, we continue to have $18.9$8.2 million of assets held for sale; however, we can provide no assurances that we will successfully sell these assets or that we will recover their carrying value. Further, as discussed above, we received the PPP Loan in the second quarter 2020, which provided funding necessary to offset the immediate and anticipated impacts of COVID-19. It also provided us important additional liquidity as a strong balance sheet is required to execute our backlog and compete for new projects awards, and we experience significant monthly fluctuations in our working capital. The primary uses of our liquidity for 20192021 and the foreseeable future are to fund:
• | Overhead costs associated with the under-utilization of our facilities within our Fabrication & Services Division and Shipyard Division, until we secure and/or begin to execute sufficient backlog to fully recover our overhead costs; |
• | Capital expenditures (including enhancements to our Shipyard Division facilities to execute our backlog); |
• | Accrued contract losses recorded at December 31, 2020; |
• | Working capital requirements for our projects (including the unwind of advance payments on projects); |
• | Legal and other costs associated with our MPSV dispute; and |
• | Corporate administrative expenses and initiatives to diversify and enhance our business. |
A significant portion of our facilities withincapital expenditures of $11.2 million for 2020 represent capital investments required by our Fabrication Division,contract for our five towing, salvage and rescue ships, primarily for the construction of vessel erection sites and a warehouse for storage. While the capital investments were required by the contracts, the assets will benefit our construction operations going forward. In addition, $0.9 million of our capital expenditures for 2020 were associated with retaining hourly craft employees to a lesser extent within our Shipyard Division, until we secure and/or begin to execute sufficient backlog to fully recover our overhead costs;
We believe that our cash, cash equivalents and short-term investments at December 31, 2018, and availability under our Credit Agreement,2020, will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the date of this Report. Our evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecast for 20192021 and 2020,2022, which is impacted by our existing backlog and estimates of future new project awards.awards and may be further impacted by COVID-19 and low and volatile oil prices. We can provide no assurances that
Total | Payments Due by Period | ||||||||||||||||||
Less Than 1 Year | 1 to 3 Years | 3 to 5 Years | Thereafter | ||||||||||||||||
Purchase commitment – equipment (1) | $ | 577 | $ | 577 | $ | — | $ | — | $ | — | |||||||||
Purchase commitment – material and services (2) | 132,299 | 96,967 | 35,332 | — | — | ||||||||||||||
Operating leases (3) | 3,624 | 660 | 1,352 | 1,055 | 557 | ||||||||||||||
Total | $ | 136,500 | $ | 98,204 | $ | 36,684 | $ | 1,055 | $ | 557 |
Off-Balance Sheet Arrangements
We are not a party to any contract or other obligation not included on our Balance Sheet that has, or is reasonably likely to have, a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
In this Report our Financial Statements and the accompanying notes appear on pages F-1 through F-25F-30 and are incorporated herein by reference. See Index to Financial Statements on Pagepage 48
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. Management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this Report.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of management, including our principal executive officerChief Executive Officer and principal financial officer,Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in
Changes in Internal Controls Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fourth quarter 2018,2020, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
Not applicable.
PART III
Item 10. Directors, Executive Officers and Corporate Governance
We have adopted a Code of Ethics for the Chief Executive Officer, the Chief Financial Officer, (the principal financial officer), and the Chief Accounting Officer (the principal accounting officer) and persons performing similar functions (the “Code of Ethics”) and a Code of Business Conduct and Ethics, which applies to all employees and directors, including the Chief Executive Officer, the Chief Financial Officer, the Chief Accounting Officer and persons performing similar functions. These codes are available to the public on our Internet website at www.gulfisland.com. Any substantive amendments to the Code of Ethics or any waivers granted under the Code of Ethics will be disclosed within four business days of such event on our website. Such information will remain available on our website for at least 12twelve months.
The remaining information called for by this item may be found in our definitive proxy statement prepared in connection with our 20192021 annual meeting of shareholders and is incorporated herein by reference.
Item 11. Executive Compensation
Information called for by this item may be found in our definitive proxy statement prepared in connection with our 20192021 annual meeting of shareholders and is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters
Information regarding security ownership of certain beneficial owners and management called for by this item may be found in our definitive proxy statement prepared in connection with our 20192021 annual meeting of shareholders and is incorporated herein by reference.
Equity Compensation Plan Information
The following table provides information about our shares of common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2018.2020.
Plan Category |
| Number of securities to be issued upon exercise of outstanding options, warrants and rights |
|
| Weighted- average exercise price of outstanding options, warrants and rights |
| Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1) |
|
| ||
Equity compensation plans approved by security holders |
|
| 615,644 |
|
| N/A |
|
| 1,611,928 |
|
|
Equity compensation plans not approved by security holders |
|
| — |
|
|
|
|
| — |
|
|
Total |
|
| 615,644 |
| (1) |
|
|
| 1,611,928 |
| (2) |
Plan Category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column 1) | ||||
Equity compensation plans approved by security holders | 526,438 | N/A | 527,357 | ||||
Equity compensation plans not approved by security holders | — | — | |||||
Total | 526,438 | (1) | 527,357 | (2) |
(1) | Represents shares issuable pursuant to the terms of outstanding restricted stock awards. These awards are not reflected in the next column as they do not have an exercise price. |
(2) | Represents aggregate shares available for future issuance under our Incentive |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Information called for by this item may be found in our definitive proxy statement prepared in connection with our 20192021 annual meeting of shareholders and is incorporated herein by reference.
Item 14. Principal Accounting Fees and Services
Information called for by this item may be found in our definitive proxy statement prepared in connection with our 20192021 annual meeting of shareholders and is incorporated herein by reference.
PART IV
Item 15. Exhibits, Financial Statement Schedules
Our required financial statements,statement schedules and exhibits are filed as part of this Report:
(i) Financial Statements
Page | |
F-1 | |
Consolidated Balance Sheets at December 31, | F-3 |
F-4 | |
F-5 | |
F-6 | |
F-7 |
(ii) Schedules
Other schedules have not been included because they are not required, not applicable, immaterial, or the information required has been included elsewhere herein.
(iii) Exhibits
See Exhibit Index on page E-1. We will furnish to any eligible shareholder, upon written request, a copy of any exhibit listed upon payment of a reasonable fee equal to the Company’s expenses in furnishing such exhibit. Such requests should be addressed to:
Investor Relations
Gulf Island Fabrication, Inc.
16225 Park Ten Place, Suite 300
Houston, Texas 77084
Item 16. Form 10-K Summary
None.
Report of Independent Registered Public Accounting Firm
To the Shareholders and Board of Directors of Gulf Island Fabrication, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gulf Island Fabrication, Inc. (the Company) as of December 31, 20182020 and 2017,2019, the related consolidated statements of operations, changes in shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2018,2020, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 20182020 and 2017,2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2018,2020, in conformity with U.S. generally accepted accounting principles.
Basis for Opinion
These financial statements are the responsibility of the Company‘sCompany’s management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOBPublic Company Accounting Oversight Board (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue recognition for fixed-price and unit-rate contracts | ||
Description of the Matter | As described in Note 1 to the consolidated financial statements, the Company recognizes revenue for fixed-price and unit-rate contracts over time using the percentage-of-completion method based on contract costs incurred to date compared to total estimated contract costs (an input method). Under this approach, the determination of the progress towards completion requires management to prepare estimates of the costs to complete the contracts. Significant estimates impacting the costs to complete a contract include: forecast costs of engineering, materials, equipment and subcontracts; forecast costs of labor and labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Auditing management’s estimate of the progress towards completion of fixed-price and unit-rate contracts was complex and subjective because of the judgment required to evaluate management’s determination of the estimated costs to complete such contracts.Further, the evaluation of significant estimates impacting the costs to complete a contract discussed above involved significant auditor judgment. |
How We Addressed the Matter in Our Audit | To test the Company’s estimated costs to complete fixed-price and unit-rate contracts, our audit procedures included, among others, evaluating the significant estimates discussed above used to develop the estimated costs to complete and testing the completeness and accuracy of the underlying data. To evaluate the significant estimates, we performed audit procedures that included, among others, comparing amounts to supporting documentation, conducting interviews with project personnel, analyzing trends of labor productivity, inspecting support for estimates of project contingencies, and performing lookback analyses by comparing historical actual costs to previous estimates. We also involved our specialists in evaluating the estimated costs to complete certain contracts. |
/s/ Ernst & Young LLP
We have served as the Company's auditor since 1997.
New Orleans, Louisiana
March 1, 2019
GULF ISLAND FABRICATION, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
ASSETS |
|
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 43,159 |
|
| $ | 49,703 |
|
Short-term investments |
|
| 7,998 |
|
|
| 19,918 |
|
Contract receivables and retainage, net |
|
| 15,393 |
|
|
| 26,095 |
|
Contract assets |
|
| 67,521 |
|
|
| 52,128 |
|
Prepaid expenses and other assets |
|
| 2,815 |
|
|
| 3,948 |
|
Inventory |
|
| 2,262 |
|
|
| 2,676 |
|
Assets held for sale |
|
| 8,214 |
|
|
| 9,006 |
|
Total current assets |
|
| 147,362 |
|
|
| 163,474 |
|
Property, plant and equipment, net |
|
| 67,458 |
|
|
| 70,484 |
|
Other noncurrent assets |
|
| 16,523 |
|
|
| 18,819 |
|
Total assets |
| $ | 231,343 |
|
| $ | 252,777 |
|
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
|
Accounts payable |
| $ | 70,114 |
|
| $ | 61,542 |
|
Contract liabilities |
|
| 15,129 |
|
|
| 26,271 |
|
Accrued expenses and other liabilities |
|
| 7,670 |
|
|
| 10,031 |
|
Long-term debt, current |
|
| 5,499 |
|
|
| — |
|
Total current liabilities |
|
| 98,412 |
|
|
| 97,844 |
|
Long-term debt, noncurrent |
|
| 4,501 |
|
|
| — |
|
Other noncurrent liabilities |
|
| 2,068 |
|
|
| 2,248 |
|
Total liabilities |
|
| 104,981 |
|
|
| 100,092 |
|
Shareholders’ equity: |
|
|
|
|
|
|
|
|
Preferred stock, no par value, 5,000 shares authorized, 0 shares issued and outstanding |
|
| — |
|
|
| — |
|
Common stock, no par value, 30,000 shares authorized, 15,359 issued and outstanding at December 31, 2020 and 15,263 at December 31, 2019 |
|
| 11,223 |
|
|
| 11,119 |
|
Additional paid-in capital |
|
| 104,072 |
|
|
| 103,124 |
|
Retained earnings |
|
| 11,067 |
|
|
| 38,442 |
|
Total shareholders’ equity |
|
| 126,362 |
|
|
| 152,685 |
|
Total liabilities and shareholders’ equity |
| $ | 231,343 |
|
| $ | 252,777 |
|
December 31, | |||||||
2018 | 2017 | ||||||
ASSETS | |||||||
Current assets: | |||||||
Cash and cash equivalents | $ | 70,457 | $ | 8,983 | |||
Short-term investments | 8,720 | — | |||||
Contracts receivable and retainage, net | 22,505 | 28,466 | |||||
Contract assets | 29,982 | 28,373 | |||||
Prepaid expenses and other assets | 3,268 | 3,833 | |||||
Inventory | 6,088 | 4,933 | |||||
Assets held for sale | 18,935 | 104,576 | |||||
Total current assets | 159,955 | 179,164 | |||||
Property, plant and equipment, net | 79,930 | 88,899 | |||||
Other noncurrent assets | 18,405 | 2,777 | |||||
Total assets | $ | 258,290 | $ | 270,840 | |||
LIABILITIES AND SHAREHOLDERS’ EQUITY | |||||||
Current liabilities: | |||||||
Accounts payable | $ | 28,969 | $ | 18,375 | |||
Contract liabilities | 16,845 | 12,754 | |||||
Deferred revenue | — | 4,676 | |||||
Accrued expenses and other liabilities | 10,287 | 12,860 | |||||
Total current liabilities | 56,101 | 48,665 | |||||
Deferred revenue, noncurrent | — | 769 | |||||
Other noncurrent liabilities | 1,089 | 1,913 | |||||
Total liabilities | 57,190 | 51,347 | |||||
Shareholders’ equity: | |||||||
Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding | — | — | |||||
Common stock, no par value, 20,000 shares authorized, 15,090 issued and outstanding at December 31, 2018 and 14,910 at December 31, 2017 | 11,021 | 10,823 | |||||
Additional paid-in capital | 102,243 | 100,456 | |||||
Retained earnings | 87,836 | 108,214 | |||||
Total shareholders’ equity | 201,100 | 219,493 | |||||
Total liabilities and shareholders’ equity | $ | 258,290 | $ | 270,840 |
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Revenue |
| $ | 250,959 |
|
| $ | 303,308 |
|
| $ | 221,247 |
|
Cost of revenue |
|
| 268,710 |
|
|
| 320,307 |
|
|
| 228,443 |
|
Gross loss |
|
| (17,751 | ) |
|
| (16,999 | ) |
|
| (7,196 | ) |
General and administrative expense |
|
| 13,858 |
|
|
| 15,628 |
|
|
| 19,015 |
|
Impairments and (gain) loss on assets held for sale |
|
| 4,130 |
|
|
| 17,528 |
|
|
| (6,850 | ) |
Other (income) expense, net |
|
| (8,580 | ) |
|
| (134 | ) |
|
| 304 |
|
Operating loss |
|
| (27,159 | ) |
|
| (50,021 | ) |
|
| (19,665 | ) |
Interest (expense) income, net |
|
| (268 | ) |
|
| 531 |
|
|
| (142 | ) |
Loss before income taxes |
|
| (27,427 | ) |
|
| (49,490 | ) |
|
| (19,807 | ) |
Income tax (expense) benefit |
|
| 52 |
|
|
| 96 |
|
|
| (571 | ) |
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per common share |
| $ | (1.79 | ) |
| $ | (3.24 | ) |
| $ | (1.36 | ) |
Years Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Revenue | $ | 221,247 | $ | 171,022 | $ | 286,326 | |||||
Cost of revenue | 228,443 | 213,947 | 261,473 | ||||||||
Gross profit (loss) | (7,196 | ) | (42,925 | ) | 24,853 | ||||||
General and administrative expense | 19,015 | 17,800 | 19,670 | ||||||||
Asset impairments and (gain) loss on assets held for sale, net | (6,850 | ) | 7,931 | — | |||||||
Other (income) expense, net | 304 | (46 | ) | (681 | ) | ||||||
Operating income (loss) | (19,665 | ) | (68,610 | ) | 5,864 | ||||||
Interest income (expense), net | (142 | ) | (349 | ) | (308 | ) | |||||
Net income (loss) before income taxes | (19,807 | ) | (68,959 | ) | 5,556 | ||||||
Income tax (expense) benefit | (571 | ) | 24,193 | (2,041 | ) | ||||||
Net income (loss) | $ | (20,378 | ) | $ | (44,766 | ) | $ | 3,515 | |||
Per share data: | |||||||||||
Basic and diluted income (loss) per common share | $ | (1.36 | ) | $ | (3.02 | ) | $ | 0.24 | |||
Cash dividends per common share | $ | — | $ | 0.04 | $ | 0.04 |
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(in thousands)
|
| Common Stock |
|
| Additional Paid-In |
|
| Retained |
|
| Total Shareholders' |
| ||||||||
|
| Shares |
|
| Amount |
|
| Capital |
|
| Earnings |
|
| Equity |
| |||||
Balance at January 1, 2018 |
|
| 14,910 |
|
| $ | 10,823 |
|
| $ | 100,456 |
|
| $ | 108,214 |
|
| $ | 219,493 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (20,378 | ) |
|
| (20,378 | ) |
Vesting of restricted stock |
|
| 180 |
|
|
| (81 | ) |
|
| (729 | ) |
|
| — |
|
|
| (810 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 279 |
|
|
| 2,516 |
|
|
| — |
|
|
| 2,795 |
|
Balance at December 31, 2018 |
|
| 15,090 |
|
| $ | 11,021 |
|
| $ | 102,243 |
|
| $ | 87,836 |
|
| $ | 201,100 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (49,394 | ) |
|
| (49,394 | ) |
Vesting of restricted stock |
|
| 173 |
|
|
| (79 | ) |
|
| (716 | ) |
|
| — |
|
|
| (795 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 177 |
|
|
| 1,597 |
|
|
| — |
|
|
| 1,774 |
|
Balance at December 31, 2019 |
|
| 15,263 |
|
| $ | 11,119 |
|
| $ | 103,124 |
|
| $ | 38,442 |
|
| $ | 152,685 |
|
Net loss |
|
| — |
|
|
| — |
|
|
| — |
|
|
| (27,375 | ) |
|
| (27,375 | ) |
Vesting of restricted stock |
|
| 96 |
|
|
| (8 | ) |
|
| (66 | ) |
|
| — |
|
|
| (74 | ) |
Stock-based compensation expense |
|
| — |
|
|
| 112 |
|
|
| 1,014 |
|
|
| — |
|
|
| 1,126 |
|
Balance at December 31, 2020 |
|
| 15,359 |
|
| $ | 11,223 |
|
| $ | 104,072 |
|
| $ | 11,067 |
|
| $ | 126,362 |
|
Common Stock | Additional Paid-In Capital | Retained Earnings | Total Shareholders’ Equity | |||||||||||||||
Shares | Amount | |||||||||||||||||
Balance at January 1, 2016 | 14,580 | $ | 10,352 | $ | 96,194 | $ | 150,651 | $ | 257,197 | |||||||||
Net income | — | — | — | 3,515 | 3,515 | |||||||||||||
Vesting of restricted stock | 115 | (23 | ) | (194 | ) | — | (217 | ) | ||||||||||
Stock-based compensation expense | — | 312 | 2,813 | — | 3,125 | |||||||||||||
Dividends on common stock | — | — | — | (588 | ) | (588 | ) | |||||||||||
Balance at December 31, 2016 | 14,695 | $ | 10,641 | $ | 98,813 | $ | 153,578 | $ | 263,032 | |||||||||
Net loss | — | — | — | (44,766 | ) | (44,766 | ) | |||||||||||
Vesting of restricted stock | 215 | (92 | ) | (824 | ) | — | (916 | ) | ||||||||||
Stock-based compensation expense | — | 274 | 2,467 | — | 2,741 | |||||||||||||
Dividends on common stock | — | — | — | (598 | ) | (598 | ) | |||||||||||
Balance at December 31, 2017 | 14,910 | $ | 10,823 | $ | 100,456 | $ | 108,214 | $ | 219,493 | |||||||||
Net loss | — | — | — | (20,378 | ) | (20,378 | ) | |||||||||||
Vesting of restricted stock | 180 | (81 | ) | (729 | ) | — | (810 | ) | ||||||||||
Stock-based compensation expense | — | 279 | 2,516 | — | 2,795 | |||||||||||||
Balance at December 31, 2018 | 15,090 | $ | 11,021 | $ | 102,243 | $ | 87,836 | $ | 201,100 |
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and lease asset amortization |
|
| 8,617 |
|
|
| 9,564 |
|
|
| 10,350 |
|
Other amortization, net |
|
| 63 |
|
|
| 50 |
|
|
| 80 |
|
Bad debt expense |
|
| — |
|
|
| 59 |
|
|
| 30 |
|
Asset impairments |
|
| 3,310 |
|
|
| 17,223 |
|
|
| 4,445 |
|
(Gain) loss on assets held for sale, net |
|
| 228 |
|
|
| (369 | ) |
|
| (7,724 | ) |
Gain on insurance recoveries |
|
| — |
|
|
| — |
|
|
| (3,571 | ) |
(Gain) loss on sale of fixed assets and other assets, net |
|
| (2 | ) |
|
| (584 | ) |
|
| 268 |
|
Stock-based compensation expense |
|
| 1,126 |
|
|
| 1,774 |
|
|
| 2,795 |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Contract receivables and retainage, net |
|
| 10,702 |
|
|
| (3,650 | ) |
|
| 2,962 |
|
Contract assets |
|
| (15,393 | ) |
|
| (22,145 | ) |
|
| (26,932 | ) |
Prepaid expenses, inventory and other current assets |
|
| 1,644 |
|
|
| 2,556 |
|
|
| (3,162 | ) |
Accounts payable |
|
| 10,042 |
|
|
| 30,950 |
|
|
| 10,515 |
|
Contract liabilities |
|
| (11,142 | ) |
|
| 9,425 |
|
|
| 12,371 |
|
Accrued expenses and other current liabilities |
|
| (2,427 | ) |
|
| (1,099 | ) |
|
| (3,352 | ) |
Noncurrent assets and liabilities, net (including long-term retainage) |
|
| 1,599 |
|
|
| (1,500 | ) |
|
| 911 |
|
Net cash used in operating activities |
|
| (19,008 | ) |
|
| (7,140 | ) |
|
| (20,392 | ) |
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
| (11,212 | ) |
|
| (3,790 | ) |
|
| (3,481 | ) |
Proceeds from sale of property, plant and equipment |
|
| 2,020 |
|
|
| 2,217 |
|
|
| 85,247 |
|
Purchases of short-term investments |
|
| (58,751 | ) |
|
| (65,284 | ) |
|
| (9,610 | ) |
Maturities of short-term investments |
|
| 70,552 |
|
|
| 54,086 |
|
|
| 1,200 |
|
Recoveries from insurance claims |
|
| — |
|
|
| — |
|
|
| 9,362 |
|
Net cash provided by (used in) investing activities |
|
| 2,609 |
|
|
| (12,771 | ) |
|
| 82,718 |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
| 10,000 |
|
|
| — |
|
|
| 15,000 |
|
Repayment of borrowings |
|
| — |
|
|
| — |
|
|
| (15,000 | ) |
Payment of financing cost |
|
| (71 | ) |
|
| (48 | ) |
|
| (42 | ) |
Tax payments for vested stock withholdings |
|
| (74 | ) |
|
| (795 | ) |
|
| (810 | ) |
Net cash provided by (used in) financing activities |
|
| 9,855 |
|
|
| (843 | ) |
|
| (852 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| (6,544 | ) |
|
| (20,754 | ) |
|
| 61,474 |
|
Cash and cash equivalents, beginning of period |
|
| 49,703 |
|
|
| 70,457 |
|
|
| 8,983 |
|
Cash and cash equivalents, end of period |
| $ | 43,159 |
|
| $ | 49,703 |
|
| $ | 70,457 |
|
Supplemental cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
| $ | 376 |
|
| $ | 470 |
|
| $ | 352 |
|
Income taxes paid (refunds received), net |
| $ | (971 | ) |
| $ | 63 |
|
| $ | 6 |
|
Reclassification of property, plant and equipment to assets held for sale |
| $ | 2,115 |
|
| $ | 294 |
|
| $ | — |
|
Reclassification of assets held for sale to property, plant and equipment |
| $ | — |
|
| $ | 1,162 |
|
| $ | 866 |
|
Accounts payable included in capital expenditures |
| $ | 153 |
|
| $ | 1,623 |
|
| $ | — |
|
Reclassification of accrued expenses to assets held for sale |
| $ | — |
|
| $ | — |
|
| $ | 3,245 |
|
Years Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Cash flows from operating activities: | |||||||||||
Net income (loss) | $ | (20,378 | ) | $ | (44,766 | ) | $ | 3,515 | |||
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | |||||||||||
Depreciation and amortization | 10,430 | 12,909 | 25,448 | ||||||||
Amortization of deferred revenue | — | (2,008 | ) | (5,223 | ) | ||||||
Bad debt expense | 30 | 21 | 493 | ||||||||
Asset impairments | 4,363 | 7,672 | — | ||||||||
(Gain) loss on assets held for sale, net | (7,642 | ) | 259 | — | |||||||
Gain on insurance recoveries | (3,571 | ) | — | — | |||||||
Loss (gain) on the sale of fixed assets and other assets | 268 | (35 | ) | (757 | ) | ||||||
Deferred income taxes | 200 | (23,234 | ) | 1,409 | |||||||
Stock-based compensation expense | 2,795 | 2,741 | 3,125 | ||||||||
Changes in operating assets and liabilities: | |||||||||||
Contracts receivable and retainage, net | 2,962 | (8,319 | ) | 28,067 | |||||||
Contract assets | (26,932 | ) | (1,544 | ) | (13,984 | ) | |||||
Prepaid expenses, inventory and other assets | (3,294 | ) | 744 | 6,731 | |||||||
Accounts payable | 10,515 | 9,354 | (12,757 | ) | |||||||
Contract liabilities | 12,371 | 8,390 | (12,305 | ) | |||||||
Deferred revenue | (852 | ) | (4,917 | ) | (11,656 | ) | |||||
Deferred compensation | 843 | 1,608 | 305 | ||||||||
Accrued expenses and other liabilities | (2,500 | ) | 1,740 | 2,157 | |||||||
Net cash (used in) provided by operating activities | (20,392 | ) | (39,385 | ) | 14,568 | ||||||
Cash flows from investing activities: | |||||||||||
Cash received in acquisition | — | — | 3,035 | ||||||||
Capital expenditures | (3,481 | ) | (4,834 | ) | (6,795 | ) | |||||
Purchase of short-term investments | (9,610 | ) | — | — | |||||||
Maturities of short-term investments | 1,200 | — | — | ||||||||
Proceeds from the sale of property, plant and equipment | 85,247 | 2,155 | 6,458 | ||||||||
Recoveries from insurance claims | 9,362 | 1,544 | — | ||||||||
Net cash provided by (used in) investing activities | 82,718 | (1,135 | ) | 2,698 | |||||||
Cash flows from financing activities: | |||||||||||
Proceeds from borrowings under Credit Agreement | 15,000 | 2,000 | — | ||||||||
Repayment of borrowings under Credit Agreement | (15,000 | ) | (2,000 | ) | — | ||||||
Payment of financing cost | (42 | ) | (150 | ) | (122 | ) | |||||
Tax payments made on behalf of employees from vested stock withholdings | (810 | ) | (916 | ) | (217 | ) | |||||
Payments of dividends on common stock | — | (598 | ) | (588 | ) | ||||||
Net cash used in financing activities | (852 | ) | (1,664 | ) | (927 | ) | |||||
Net increase (decrease) in cash and cash equivalents | 61,474 | (42,184 | ) | 16,339 | |||||||
Cash and cash equivalents, beginning of period | 8,983 | 51,167 | 34,828 | ||||||||
Cash and cash equivalents, end of period | $ | 70,457 | $ | 8,983 | $ | 51,167 | |||||
Supplemental cash flow information: | |||||||||||
Interest paid | $ | 352 | $ | 349 | $ | 332 | |||||
Income taxes paid (refunds received), net | $ | 6 | $ | 189 | $ | 377 | |||||
Reclassification of property, plant and equipment to assets held for sale | $ | — | $ | 109,488 | $ | — | |||||
Reclassification of assets held for sale to property, plant and equipment | $ | 866 | $ | — | $ | — | |||||
Reclassification of accrued expenses to assets held for sale | $ | 3,245 | $ | — | $ | — |
The accompanying notes are an integral part of these financial statements.
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2018
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
Gulf Island Fabrication, Inc. ("Gulf Island"), together(together with its subsidiaries, ("the“Gulf Island,” “the Company," "we," "us"” “we,” “us” and "our"“our”), is a leading fabricator of complex steel structures, modules and marine vessels, used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy and shipping and marine transportation operations. We also providea provider of project management, for engineering, procurement and construction ("EPC") projects along with installation, hookup, commissioning, repair, maintenance and repair and maintenancecivil construction services. In addition, we perform civil, drainage and other work for state and local governments. Our customers include United States ("U.S.") and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial, power and marine operators; EPC companies; and certain agencies of the U.S. government. We operate and manage our business through four2 operating divisions ("Fabrication", "Shipyard", "Services"(“Shipyard” and "EPC"“Fabrication & Services”) and one1 non-operating division ("Corporate"(“Corporate”), which represent our reportable segments. Our corporate headquarters is located in Houston, Texas with fabricationand our operating facilities are located in Houma, Louisiana. See Note 3 for discussion of our closures of the Jennings Yard and Lake Charles Louisiana.
Significant projects in our backlog include the expansionfabrication of a paddle wheel riverboat, themodules for an offshore facility and marine docking structures; material supply for an offshore jacket and deck; and construction of nine remaining harbor tug vessels, two offshore3 regional class marine research vessels, (with a customer option for a third vessel), two3 vehicle ferries, two towboats, an ice-breaker tug, and a5 towing, salvage and rescue ship for the U.S. Navy (with customer options for seven additional vessels). Recentlyships. Projects completed projectsin recent years include the expansion of a paddlewheel riverboat; fabrication of complexan offshore jacket and deck, modules for a newbuild petrochemical facility, and a meteorological tower and platform for an offshore wind project, and construction of two technologically-advanced OSVs,10 harbor tugs, an ice-breaker tug and a harbor tug vessel. Previous2 towboats. Other completed projects also include the fabrication of wind turbine foundations for the first offshore wind project in the U.S.,; and construction of 2 technologically advanced OSVs, two of the largest liftboats servicing the Gulf of Mexico ("GOM"(“GOM”), one of the deepest production jackets in the GOM, and the first single point anchor reservoir ("SPAR") hull fabricated in the U.S.
Basis of Presentation
The accompanying Consolidated Financial Statements ("(“Financial Statements"Statements”) reflect all wholly owned subsidiaries. Intercompany balances and transactions have been eliminated in consolidation. The Financial Statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission (the "SEC"“SEC”) and accounting principles generally accepted in the U.S. ("GAAP"(“GAAP”). The Financial Statements reflect all majority owned subsidiaries. Intercompany balances
Liquidity Outlook
In recent years our operating results and transactionscash flows have been eliminated in consolidation. Certain balances at December 31, 2017, have been reclassified withinimpacted by lower margins due to competitive pricing, a significant under-utilization of our Consolidated Balance Sheets ("Balance Sheet")facilities and losses on certain projects. As a result, we implemented initiatives to conform toimprove and maintain our presentation at December 31, 2018,liquidity (including further reducing the compensation of our executive officers and certain amounts for 2017directors and 2016 have been reclassified withinreducing the size of our Consolidated Statements of Operations ("Statement of Operations") to conform toboard), reduce our presentation for 2018. See below for further discussion of the reclassification of certain balances for prior years.
Operating Cycle
The durations of our contracts vary, but typically extend beyond twelve months from the date of contract award. Consistent with industry practice, assets and liabilities have been classified as current under the operating cycle concept whereby all contract-related items are classified as current regardless of whether cash will be received or paid within a twelve monthtwelve-month period. Assets and liabilities classified as current which may not be received or paid within the next twelve months include contract retainage,
F-7
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Use of Estimates
General – The preparation of our Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We believe our most significant estimates and judgments are associated with revenue recognition for our contracts, including application of the percentage-of-completion method, estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims and liquidated damages; fair value and recoverability assessments that must be periodically performed with respect to long-lived assets and our assets held for sale; determination of deferred income tax assets, liabilities and related valuation allowances; reserves for bad debts; and liabilities related to self-insurance programs.programs; and the impacts of COVID-19 and volatile oil prices on our business, estimates and judgments as discussed further below. If the underlying estimates and assumptions upon which our Financial Statements are based change in the future, actual amounts may differ materially from those included in the Financial Statements.
COVID-19 and Volatile Oil Prices – COVID-19 is a widespread public health crisis that continues to adversely affect global economies and financial markets. In March 2020, the World Health Organization declared COVID-19 a pandemic and the U.S. President announced a national emergency relating to COVID-19. National, state and local authorities recommended physical distancing and many authorities imposed quarantine and isolation measures on large portions of the population, including mandatory business closures. Authorities in some areas of the U.S. began to relax these restrictions in the second quarter 2020. However, the country, including areas where we have our headquarters and operating facilities, experienced multiple periods of resurgence in the numbers of cases of the virus in both the third and fourth quarters of 2020. Authorities have reacted to these resurgences by deferring the phasing out of these restrictions and, in some instances, re-imposing quarantine and isolation measures during the fourth quarter 2020. The measures taken, while intended to protect human life, have had and are expected to continue to have a serious adverse impact on domestic and foreign economies of uncertain severity and duration. Moreover, governmental and commercial responses to COVID-19 have exacerbated the already weakened condition of the energy industry, further reducing the demand for oil, and further depressing and creating volatility in oil prices. On June 8, 2020, the National Bureau of Economic Research indicated that the U.S. economy entered a recession in February 2020, and the duration and severity of this recession, which is ongoing, remains unclear at this time. Any prolonged period of economic slowdown or recession could have a significant adverse effect on our financial condition and financial condition of our customers, subcontractors and other counterparties. The longer-term effectiveness of economic stabilization efforts, including government payments to impacted citizens and industries, is uncertain. Although the U.S. Food and Drug Administration has authorized three COVID-19 vaccines for emergency use, the overall supply of these vaccines may be limited or otherwise hampered by delivery issues, and distribution may therefore be delayed. Even with widespread distribution and acceptance of these vaccines, their long-term efficacy is unknown. The extent to which COVID-19 and the related contraction in oil demand and the resulting reduction and volatility in crude oil prices may adversely impact our business, prospects, financial condition, operating results and cash flows depends on future developments that are highly uncertain and unpredictable. This current level of uncertainty means the ultimate business and financial impacts of COVID-19 and reduction and volatility in crude oil prices cannot be reasonably estimated at this time, but have included, or may include, among other things, reduced bidding activity, suspension or termination of backlog, deterioration of customer financial condition, potential supply disruptions and unanticipated project costs due to project disruptions and schedule delays, lower labor productivity, increased employee and contractor absenteeism and turnover, craft labor hiring challenges, lack of performance by subcontractors and suppliers, and contract disputes. Events and changes in circumstances arising after this Report resulting from the impacts of COVID-19 and volatile oil prices, if any, will be reflected in management’s estimates for future periods.
Income (Loss) Per Share
Basic income (loss) per share ("EPS") usingis calculated by dividing net income or loss by the "two-class" method as required under GAAP. The calculation of EPS using the two-class method is required when a company has two or more classesweighted average number of common stock or participating securities. Certainshares outstanding for the period. Diluted income (loss) per share reflects the assumed conversion of our unvested restricted stock (which are not included in our basic or diluted weighted average shares outstanding) contain the right to receive non-refundable dividends and therefore represent participatingdilutive securities. See Note 69 for calculations of our basic and diluted EPS.
Cash Equivalents
Cash Equivalents – We consider investments with original maturities of three months or less when purchased to be cash equivalents.
Short-term investments
F-8
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Inventory
Inventory is recorded at the lower of cost or net realizable value determined using the first-in-first-out basis. The cost of inventory includes acquisition costs, production or conversion costs, and other costs incurred to bring the inventory to a current location and condition. Net realizable value is our estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation. An allowance for excess or inactive inventory is recorded based on an analysis that considers current inventory levels, historical usage patterns, estimates of future sales and salvage value. See Note 53 for further discussion of our inventory.
Allowance for Doubtful Accounts
In the normal course of business, we extend credit to our customers on a short-term basis and contract receivables are generally not collateralized; however, we typically have the right to place liens on our projects in the event of nonpayment by our customers. We routinely review individual contract receivable balances for collectibilitycollectability and make provisions for probable uncollectible amounts as necessary. Among the factors considered in our review are the financial condition of our customer and its access to financing, underlying disputes with the customer, the age and value of the receivable balance, and economic conditions in general.
Stock-Based Compensation
Awards under our stock-based compensation plans are calculated using a fair value basedvalue-based measurement method. Compensation expense for share based awards is recognized only for those awards that are expected to vest. We use the straight-
Tax payments made on behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations from the vesting of shares under our stock-based compensation plans are classified as a financing activity inon our Consolidated Statements of Cash Flows (“Statement of Cash Flows ("Statement of Cash Flows"Flows”).
Assets Held for Sale
Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. See Note 3 for further discussion of our assets held for sale.
Depreciation Expense
Property, plant and equipment are depreciated on a straight-line basis over estimated useful lives ranging from three to 25 years, absent any indicators of impairment.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. See Note 4 for further discussion of our property, plant and equipment.
Long-Lived Assets
Long-lived assets, for impairment, which include property, plant and equipment and finite-lived intangibleour lease assets included within other noncurrent assets, are reviewed for impairment when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, we compare the estimated future undiscounted cash flow associated with the assets or asset groups are compared to their respective carrying amounts to determine if an impairment exists. 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 asto determine if an impairment charge.exists. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and the excess of the carrying amount of the asset or asset group over its fair value is recorded as an impairment charge. Fair value is determined based on discounted cash flows, appraised values or third partythird-party indications of value, as appropriate. See Note 53 for further discussion of impairments recordedour long-lived asset impairments.
Leases
We record a right-of-use asset and an offsetting lease liability on our Balance Sheet equal to the present value of our lease payments for leases with an original term of longer than twelve months. We do not record an asset or liability for leases with an original term of twelve months or less and we do not separate lease and non-lease components for our long-lived assets.
F-9
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Fair Value Measurements
Fair value determinations for financial assets and liabilities are based on the particular facts and circumstances. Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:
• | Level 1 – inputs are based upon quoted prices for identical instruments traded in active markets. |
• | Level 2 – inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the market. |
• | Level 3 – inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques. |
The carrying amounts of our financial instruments, including cash and cash equivalents, short-term investments, accounts receivable and accounts payable approximate their fair values. We determined that our impairments of inventory, long-lived assets and assets held for sale are based upon quoted prices for identical instruments traded in active markets.
Revenue Recognition
General
Topic 606 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. Additionally, provisions of Topic 606 specify which goods and services are distinct and represent separate performance obligations (representing the unit of account in Topic 606) within a contract and which goods and services (which could include multiple contracts or agreements) should be aggregated. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Revenue for performance obligations satisfied over time are recognized as the work progresses. Revenue for performance obligations that do not meet the criteria for over time recognition are recognized at a point-in-time when a performance obligation is complete and athe customer has obtained control of a promised asset.
Fixed-Price and Unit-Rate Contracts -
T&M Contracts -
F-10
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Variable Consideration
Additional Disclosures
Pre-Contract Costs
Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At December 31, 20182020 and 2017,2019, we had no0 deferred pre-contract costs.
Other (Income) Expense, Net
Other (income) expense, net, generally represents (gains)recoveries or provisions for bad debts, gains or losses associated with the sale or disposition of property and equipment other than assets held for sale.
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 differences are expected to reverse. Due to changing tax laws, significant judgment is required to estimate the effective tax rate expected to apply to tax differences that are expected to reverse in the future.
A valuation allowance is provided to reserve for deferred tax assets ("(“DTA(s)"”) if, based upon the available evidence, it is more likely than not that some or all of the DTAs will not be realized. The realization of our DTAs depends on our ability to generate sufficient taxable income of the appropriate character and in the appropriate jurisdictions.
Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense. See Note 86 for further discussion of our income taxes and DTAs.
New Accounting Standards
Financial instruments -
Income taxes – In December 2019, the FASB issued ASU 2019-12, “Income Taxes,” to simplify the accounting for income taxes by removing certain exceptions to the general principles and simplify areas such as franchise taxes, step-up in tax basis goodwill, separate entity financial statements and interim recognition of enacted tax laws or rate changes. The new standard will be effective for us in the first quarter 2021. We do not believe the new standard will have a material effect on our financial position, results of operations or related disclosures.
F-11
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS
As discussed in Note 1, we recognize revenue for our contracts in accordance with Topic 606, which was adopted by us on January 1, 2018, and supersedes previous revenue recognition guidance, including industry-specific guidance.606. Summarized below are required disclosures under Topic 606 and other relevant guidance.
Disaggregation of Revenue
The following tables summarize revenue for each of our operating segments, disaggregated by contract type, for 2020, 2019 and timing of revenue recognition, for 2018 2017 and 2016 (in thousands):
|
| Year Ended December 31, 2020 |
| |||||||||||||
Contract Type |
| Shipyard |
|
| F&S |
|
| Eliminations |
|
| Total |
| ||||
Fixed-price and unit-rate (1) |
| $ | 151,508 |
|
| $ | 66,790 |
|
| $ | (148 | ) |
| $ | 218,150 |
|
T&M (2) |
|
| 2,190 |
|
|
| 25,294 |
|
|
| (388 | ) |
|
| 27,096 |
|
Other |
|
| — |
|
|
| 7,401 |
|
|
| (1,688 | ) |
|
| 5,713 |
|
Total |
| $ | 153,698 |
|
| $ | 99,485 |
|
| $ | (2,224 | ) |
| $ | 250,959 |
|
|
| Year Ended December 31, 2019 (3) |
| |||||||||||||
Contract Type |
| Shipyard |
|
| F&S |
|
| Eliminations |
|
| Total |
| ||||
Fixed-price and unit-rate (1) |
| $ | 161,839 |
|
| $ | 86,211 |
|
| $ | (430 | ) |
| $ | 247,620 |
|
T&M (2) |
|
| 6,627 |
|
|
| 41,014 |
|
|
| — |
|
|
| 47,641 |
|
Other |
|
| — |
|
|
| 9,944 |
|
|
| (1,897 | ) |
|
| 8,047 |
|
Total |
| $ | 168,466 |
|
| $ | 137,169 |
|
| $ | (2,327 | ) |
| $ | 303,308 |
|
|
| Year Ended December 31, 2018 (3) |
| |||||||||||||
Contract Type |
| Shipyard |
|
| F&S |
|
| Eliminations |
|
| Total |
| ||||
Fixed-price and unit-rate (1) |
| $ | 88,887 |
|
| $ | 77,318 |
|
| $ | (700 | ) |
| $ | 165,505 |
|
T&M (2) |
|
| 7,537 |
|
|
| 43,481 |
|
|
| — |
|
|
| 51,018 |
|
Other |
|
| — |
|
|
| 5,896 |
|
|
| (1,172 | ) |
|
| 4,724 |
|
Total |
| $ | 96,424 |
|
| $ | 126,695 |
|
| $ | (1,872 | ) |
| $ | 221,247 |
|
(1) | Revenue is recognized as the contract is progressed over time. |
(2) | Revenue is recognized at contracted rates when the work is performed and costs are incurred. |
2018 | ||||||||||||||||||||||||
Fabrication | Shipyard | Services | EPC | Eliminations | Total | |||||||||||||||||||
Contract Type | ||||||||||||||||||||||||
Fixed-price and unit-rate (1) | $ | 37,943 | $ | 88,887 | $ | 38,612 | $ | 2,477 | $ | (2,414 | ) | $ | 165,505 | |||||||||||
T&M (2) | — | 7,537 | 43,481 | — | — | 51,018 | ||||||||||||||||||
Other | — | — | 6,137 | — | (1,413 | ) | 4,724 | |||||||||||||||||
Total | $ | 37,943 | $ | 96,424 | $ | 88,230 | $ | 2,477 | $ | (3,827 | ) | $ | 221,247 |
(3) | See Note 10 for discussion of our realigned operating divisions. |
2017 | ||||||||||||||||||||||||
Fabrication | Shipyard | Services | EPC | Eliminations | Total | |||||||||||||||||||
Contract Type | ||||||||||||||||||||||||
Fixed-price and unit-rate (1) | $ | 57,880 | $ | 47,787 | $ | 28,465 | $ | 198 | $ | (5,096 | ) | $ | 129,234 | |||||||||||
T&M (2) | — | 4,912 | 35,180 | — | — | 40,092 | ||||||||||||||||||
Other | — | — | 1,800 | — | (104 | ) | 1,696 | |||||||||||||||||
Total | $ | 57,880 | $ | 52,699 | $ | 65,445 | $ | 198 | $ | (5,200 | ) | $ | 171,022 |
2016 | ||||||||||||||||||||||||
Fabrication | Shipyard | Services | EPC | Eliminations | Total | |||||||||||||||||||
Contract Type | ||||||||||||||||||||||||
Fixed-price and unit-rate (1) | $ | 88,683 | $ | 95,958 | $ | 31,191 | $ | — | $ | (3,062 | ) | $ | 212,770 | |||||||||||
T&M (2) | 13,544 | 58,882 | — | — | 72,426 | |||||||||||||||||||
Other | — | — | 1,341 | — | (211 | ) | 1,130 | |||||||||||||||||
Total | $ | 88,683 | $ | 109,502 | $ | 91,414 | $ | — | $ | (3,273 | ) | $ | 286,326 |
Future Performance Obligations Required Under Contracts
The following tables summarize the remaining revenue to be earned under performance obligations for the portion of contracts not yet completed as of December 31, 2018 (in thousands).
Segment | Performance Obligations at December 31, 2018 | |||
Fabrication | $ | 63,498 | ||
Shipyard (1) | 259,644 | |||
Services | 11,046 | |||
EPC | 385 | |||
Total | $ | 334,573 |
Segment |
| Performance Obligations |
| |
Shipyard |
| $ | 352,181 |
|
F&S |
|
| 19,381 |
|
Total |
| $ | 371,562 |
|
We expect to recognize revenue for our remaining performance obligations at December 31, 2020, in the following periods (in thousands):
Year |
| Total |
| |
2021 |
| $ | 161,370 |
|
2022 |
|
| 140,018 |
|
2022 and beyond |
|
| 70,174 |
|
Total |
| $ | 371,562 |
|
Year | Total | |||
2019 | $ | 233,987 | ||
2020 | 81,464 | |||
2021 | 19,122 | |||
Total | $ | 334,573 |
F-12
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Contracts Assets and Liabilities
Revenue recognition and customer invoicing for our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed in Note 1; however, customer invoicing is generally dependent upon predetermined billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contractscontract assets on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Information with respect to uncompleted contracts at December 31, 20182020 and 20172019 is as follows (in thousands):
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Costs incurred on uncompleted contracts |
| $ | 328,229 |
|
| $ | 386,932 |
|
Estimated loss incurred to date |
|
| (19,617 | ) |
|
| (48,895 | ) |
Sub-total |
|
| 308,612 |
|
|
| 338,037 |
|
Billings to date |
|
| (256,220 | ) |
|
| (295,136 | ) |
Deferred revenue (1) |
|
| — |
|
|
| (4,592 | ) |
Total |
| $ | 52,392 |
|
| $ | 38,309 |
|
December 31, | |||||||
2018 | 2017 | ||||||
Costs incurred on uncompleted contracts | $ | 253,871 | $ | 266,902 | |||
Estimated profit (loss) earned to date | (35,470 | ) | (26,954 | ) | |||
Prepaid subcontractor costs | 2,368 | — | |||||
Sub-total | 220,769 | 239,948 | |||||
Billings to date | (190,588 | ) | (224,329 | ) | |||
Deferred revenue (1) | (4,592 | ) | — | ||||
Total | $ | 25,589 | $ | 15,619 |
The above amounts are included inwithin the accompanyingfollowing captions on our Balance Sheet at December 31, 20182020 and 2017 under the following captions2019 (in thousands):
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Contract assets (2) |
| $ | 67,521 |
|
| $ | 52,128 |
|
Contract liabilities (2), (3), (4) |
|
| (15,129 | ) |
|
| (26,271 | ) |
Sub-total |
|
| 52,392 |
|
|
| 25,857 |
|
Contract assets, noncurrent (1) |
|
| — |
|
|
| 12,452 |
|
Total |
| $ | 52,392 |
|
| $ | 38,309 |
|
December 31, | |||||||
2018 | 2017 | ||||||
Contract assets | $ | 29,982 | $ | 28,373 | |||
Contract liabilities (1), (2), (3) | (16,845 | ) | (12,754 | ) | |||
Sub-total | 13,137 | 15,619 | |||||
Contract assets, noncurrent (1) | 12,452 | — | |||||
Total | $ | 25,589 | $ | 15,619 |
(1) | We have contracts for |
(2) | The increase in contract assets compared to December 31, 2019, was primarily due to increased unbilled positions on three projects in our Shipyard Division, offset partially by decreased unbilled positions on four projects in our Shipyard Division and a project in our Fabrication & Services Division. The decrease in contract liabilities compared to December 31, 2019, was primarily due to the unwind of advance payments on two projects in our Shipyard Division and two projects in our Fabrication & Services Division, offset partially by advance payments on a project in our Shipyard Division. |
(3) | Revenue recognized during 2020, 2019 and 2018 related to amounts included in our contract liabilities balance at December 31, 2019, 2018 and 2017, was $18.2 million, $14.3 million and $5.1 |
(4) |
F-13
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Contract liabilities at December 31, |
Significant Customers
We are not dependent on any one customer, and the revenue derived from each customer varies from year to year based on new project awards for each customer. However, for 2018, 20172020, 2019 and 2016,2018, certain customers individually accounted for 10% or more of our consolidated revenue as follows (in thousands):
|
| Years Ended December, 31 |
| |||||||||
Customer |
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
A |
| $ | 37,986 |
|
| $ | 52,310 |
|
| * |
| |
B |
|
| 77,342 |
|
|
| 39,897 |
|
| * |
| |
C |
| * |
|
|
| 36,175 |
|
|
| 49,123 |
| |
D |
| * |
|
|
| 34,448 |
|
| * |
| ||
E |
| * |
|
| * |
|
|
| 25,873 |
| ||
F |
| * |
|
| * |
|
|
| 23,279 |
| ||
G |
| * |
|
| * |
|
| * |
|
* | The customer revenue was less than 10% of consolidated revenue for the year. |
December 31, | ||||||||||
Customer | 2018 | 2017 | 2016 | |||||||
A | $ | 49,123 | $ | 21,781 | * | |||||
B | 25,873 | * | * | |||||||
C | 23,279 | * | * | |||||||
D | * | 44,724 | * | |||||||
E | * | 65,981 |
Allowance for Doubtful Accounts
Our provision for bad debts is included in other (income) expense, net on our Statement of Operations. Our provision for bad debts for 2020, 2019 and 2018, 2017 and 2016 was $30,000, $21,000 and $0.5 million, respectively. Ourour allowance for doubtful accounts at December 31, 2020 and 2019, were not significant.
Variable Consideration
For 2019, 2018 and 2017, was $0.4 million and $1.9 million, respectively. Our allowancewe had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at December 31, 2018 was primarily2020 and 2019, certain uncompleted projects reflected a reduction in contract price for liquidated damages of $0.6 million and $12.9 million, respectively, of which $11.2 million of the liquidated damages at December 31, 2019 relate to purported liquidated damages on our contracts for the construction of 2 MPSVs that are subject to purported notices of termination by our customer. As discussed under “Contract Assets and Liabilities” above, we had a net contract asset at December 31, 2020 and 2019, of $12.5 million (inclusive of the impact of the purported liquidated damages previously recorded) related to storagethese contracts; however, the liquidated damages with respect to these contracts is not presented in our variable consideration disclosure at December 31, 2020. See Note 8 for further discussion of a vessel for a customer within our Fabrication Division, and our allowance at December
Changes in Project Estimates
Changes in Project Estimates
Shipyard Division
• | Towing, Salvage and Rescue Ship Projects – Negative impact for 2020 of $7.3 million resulting from increased forecast costs for our 5 towing, salvage and rescue ship projects, primarily associated with increased craft labor and subcontracted services costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects and higher cost estimates for subcontracted services resulting from the current and forecasted impacts of COVID-19 associated primarily with engineering delays, increased employee and contractor absenteeism and turnover, challenges recruiting and hiring craft labor, physical distancing measures, and disruption and inefficiencies related to the aforementioned and the need to re-sequence construction activities. The impacts were also due to additional anticipated craft labor associated with more complex piping and other construction activities identified as we achieved further completion of production engineering. We have submitted a request for equitable adjustment to our customer, the U.S. Navy, to extend our project schedules and recover the increased forecast costs associated with the impacts of COVID-19; however, we can provide no assurances that we will be successful recovering these costs. Our forecasts at December 31, 2020 do not reflect potential future benefits, if any, from the favorable resolution of the request for equitable adjustment. Our forecasts reflect minimal craft labor productivity improvements from the first vessel to each follow-on vessel. At December 31, 2020, the projects were at varying stages of completion ranging from approximately 10% to 60% and are forecast to be completed at varying dates from 2022 through 2024, subject to the potential schedule impacts referenced above. The first three vessels were in a loss position at December 31, 2020 and our reserve for estimated losses was $3.2 million. The last two vessels were approximately break-even. If future craft labor productivity and subcontractor costs differ from our current estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, we are unable to achieve our progress estimates or our schedules are further extended, the projects would experience further losses. See “Other Project Matters” below for further discussion of our towing, salvage and rescue ship projects. |
F-14
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Harbor Tug Projects – Negative impact for 2020 of $1.0 million resulting from increased forecast costs for our final 2 (ninth and tenth) harbor tug projects in our Jennings Yard, primarily associated with increased craft labor and subcontracted services costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the wind down of the Jennings Yard in connection with its closure in the fourth quarter 2020 and the impacts of COVID-19 associated primarily with physical distancing measures. The ninth vessel was completed in the fourth quarter 2020 and the tenth vessel was completed in January 2021. |
• | Forty-Vehicle Ferry Projects – Negative impact for 2020 of $7.2 million resulting from increased forecast costs and forecast liquidated damages for our 2 forty-vehicle ferry projects ($6.2 million for the first vessel and $1.0 million for the second vessel), primarily associated with increased craft labor and material costs and extensions of schedules. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the current and forecasted impacts of COVID-19 and additional factors specific to each vessel as described further below: |
- | Second Forty-Vehicle Ferry Project (see discussion of first vessel below) –The impacts for the second vessel were also due to construction rework and disruptions caused by structural design deficiencies for the vessel, which resulted in deflection issues within the plating of the vessel. We believe the impacts of the design deficiencies should be the responsibility of the customer. Accordingly, we will be submitting a claim to our customer to extend our project schedules and recover the increased forecast costs associated with the impacts of the design deficiencies; however, we can provide no assurances that we will be successful recovering these costs. Our forecast at December 31, 2020 does not reflect potential future benefits, if any, from the favorable resolution of the claim. At December 31, 2020, the second vessel was approximately 80% complete and is forecast to be completed in the second quarter 2021. |
- | First Forty-Vehicle Ferry Project –The impacts for the first vessel were also due to construction rework, including reconstruction of previously completed portions of the vessel, resulting from the determination that portions of the vessel structure were outside of acceptable tolerance levels. The previous construction activities were performed by our former Fabrication Division prior to transferring management and project execution responsibility of the vessels to our Shipyard Division in the first quarter 2020 as discussed further in Note 10. The impacts were also due to the determination that construction of a new hull for the vessel is the most appropriate course of action as further discussed below. |
During the third quarter 2020, the first vessel was damaged by an overhead crane, which disengaged from its tracks, and landed on the hull that was under construction. As a result of this damage to the hull, coupled with prior rework on the vessel, and associated concerns regarding the acceptable tolerance levels of the hull, in October 2020 our customer issued a rejection letter indicating that they would not accept a reconstructed hull, and requested the fabrication of a new hull. Accordingly, we ceased construction activities on the vessel as we evaluated our options, including remediation actions that could potentially be taken in lieu of fabricating a new hull. We also began discussions with our insurer regarding the impacts of the crane incident and the coverage that would apply to any cost increases for remediation actions or the fabrication of a new hull. Based on our preliminary estimates, we believed the incremental forecast costs resulting from the aforementioned could range from $1.0 million to $4.0 million (before consideration of insurance coverage), with such range of cost being highly dependent on the course of action ultimately taken with respect to the hull, which ranged from remediation actions to repair the hull to the fabrication of a new hull. Further, the ultimate cost to us was dependent upon any insurance proceeds received in connection with the crane incident. Due to the uncertainty with respect to the corrective actions that potentially could be taken regarding the hull and any insurance coverage that would apply, we were unable to estimate the amount we would likely incur from the crane incident. Accordingly, at September 30, 2020, we accrued our deductible of $0.1 million associated with our insurance coverage, representing the minimum amount we would incur for the crane incident. However, we have now determined that fabrication of a new hull is the most appropriate course of action due to, among other things, quality and cost uncertainties associated with repairing the hull, resulting in an increase in our operating lossforecast costs of $9.1$4.1 million ($2.4 million for our petrochemical module project within our Fabrication Division and $6.7 million for our ten harbor tug projects within our Shipyard Division).
We have also determined that the structural design deficiencies identified for the second vessel are applicable to the first vessel, which contributed to the aforementioned rework and construction challenges experienced on the first vessel. We will be submitting a claim to our customer to extend our project wereschedules and recover the result of increased costs associated primarily with subcontracted work scopes. The project was complete asthe impacts of the design deficiencies; however, we can provide no assurances that we will be successful recovering these costs. Our forecast at December 31, 2018.
F-15
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
The harbor tug projects were in a loss position at December 31, 20182020 and our reserve for estimated losses on the projects totaled $2.1was $4.8 million. The nine uncompleted vessels are scheduled to be completed at various dates ranging from the first quarter 2019 through 2020. If future craft labor productivity differsand subcontractor costs differ from our current estimates, we are unable to achieve our progress estimates, our schedules are further extended or the projects incur additional schedule liquidated damages, the projects would experience further losses. We would also experience further losses if we were to incur further unanticipated costs associated with the design deficiencies, including fabrication of the new hull for the first vessel.
• | Seventy-Vehicle Ferry Project – Negative impact for 2020 of $1.1 million resulting from increased forecast costs for our seventy-vehicle ferry project, primarily associated with increased craft labor and subcontracted services costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity and progress on the projects resulting from the current and forecasted impacts of COVID-19 and our inability to achieve previously anticipated improvements in productivity. The impacts were also due to additional anticipated craft labor associated with more complex piping and other construction activities identified as we achieved further completion of production engineering. At December 31, 2020, the vessel was approximately 55% complete and is forecast to be completed in the fourth quarter 2021. The project was in a loss position at December 31, 2020 and our reserve for estimated losses was $0.5 million. If future craft labor productivity and subcontractor costs differ from our current estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, we are unable to achieve our progress estimates, our schedules are further extended or the project incurs schedule liquidated damages, the project would experience further losses. |
• | Research Vessel Projects – As discussed further below, we agreed to a change order with our customer for our research vessel projects that, among other things, provided for the customer’s assumption of responsibility for production engineering for the project. Further, we made a collective decision with our customer to delay construction activities on the projects until production engineering achieves a satisfactory level of completion to limit the impacts on construction, including disruption and rework. These construction delays are expected to continue in the near term due to production engineering delays experienced by our customer’s engineering subcontractor as a result of COVID-19. We are currently working collaboratively with the customer to identify opportunities to commence construction activities in advance of full completion of production engineering to minimize the schedule impacts to the projects. Based on our current forecast cost to complete the projects, the change order and collaborative nature of our discussions with the customer, we are not forecasting losses on the projects. However, as discussed further below, we are continuing to recognize revenue equal to costs on the projects until we are able to reasonably estimate the amount of gross profit, if any, expected to be realized on the projects. We anticipate being able to make such an estimate upon substantial completion of production engineering. If the projects experience further delays associated with production engineering or other matters, we are unable to achieve our progress estimates, piping or other construction activities are determined to be more complex than anticipated upon finalization of production engineering, our schedules are further extended or the projects incur schedule liquidated damages, future craft labor productivity and subcontractor costs differ from our current estimates, or we are unable to recover the costs of any of the aforementioned from our customer, the projects would experience losses. |
Fabrication & Services Division
• | Jacket and Deck Project – Positive impact for 2020 of $1.2 million resulting from reduced forecast costs and increased contract price for our jacket and deck project, primarily associated with reduced subcontracted services costs, approved change orders and incentives. The impacts were primarily due to favorable resolution of customer and subcontractor change orders and realization of project incentives. At December 31, 2020, the project was complete. |
• | Paddlewheel Riverboat and Subsea Components Projects – Positive impact for 2020 of $1.5 million resulting from reduced forecast costs and increased contract price for our paddlewheel riverboat and subsea components projects, primarily associated with reduced craft labor and subcontracted services costs and approved change orders. The impacts were primarily due to better than anticipated labor productivity and favorable resolution of customer and subcontractor change orders. At December 31, 2020, both projects were complete. |
Changes in Estimates for 2019 – For 2017,2019, significant changes in estimated margins on our two multi-purpose service vessel (“MPSV”) projects resulted in an increase in ournegatively impacted operating loss of $34.5 millionresults for our Shipyard Division.Division by $12.3 million and negatively impacted operating results for our Fabrication & Services Division by $4.9 million. The changes in estimates were associated with the following:
Shipyard Division
• | Harbor Tug Projects – Negative impact for 2019 of $4.9 million resulting from increased forecast costs and forecast liquidated damages for our harbor tug projects, primarily associated with increased craft labor, subcontracted services costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity and progress resulting from limitations in craft labor availability and the required use of contract labor in lieu of direct hire labor, the need to supplement and re-perform work for an under-performing paint subcontractor, higher than anticipated costs for paint scopes that were assumed by us from our paint subcontractor, higher cost estimates from our electrical and instrumentation subcontractor, our inability to achieve previously anticipated labor productivity improvements, and expectations of future labor productivity. The projects were in a loss position at December 31, 2019 and our reserve for estimated losses was $1.6 million. See “Changes in Estimates for 2020” above for further discussion of the status of these projects. |
F-16
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Forty-Vehicle Ferry Projects – Negative impact for 2019 of $5.1 million resulting from increased forecast costs and forecast liquidated damages for our 2 forty-vehicle ferry projects, primarily associated with increased craft labor and subcontracted services and materials costs. The impacts were primarily due to greater than anticipated rework, lower than anticipated productivity experienced primarily during the fourth quarter 2019, and our expectations of future labor productivity. The projects were in a loss position at December 31, 2019 and our reserve for estimated losses was $3.0 million. See “Changes in Estimates for 2020” above for further discussion of the status of these projects. |
• | Ice-Breaker Tug Project – Negative impact for 2019 of $1.5 million resulting from increased forecast costs for our ice-breaker tug project, primarily associated with increased craft labor, subcontracted services costs and extension of schedule. The impacts were primarily due to construction rework and disruption and lower than anticipated craft labor productivity and progress on the project resulting from incomplete and deficient subcontracted production engineering, higher cost estimates from our various subcontractors, difficulties encountered to launch the vessel, and anticipated higher costs to deliver the vessel. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.1 million. At December 31, 2020, the project was complete. |
• | Research Vessel Projects – Negative impact for 2019 of $0.8 million resulting from the reversal of gross profit recognized prior to 2019 for our 3 research vessel projects. The projects experienced difficulties with subcontracted production engineering, due in part to vessel size constraints and complexities associated with vessel functionality, which resulted in incomplete and deficient production engineering and construction delays, disruption and rework. As a result, we made a collective decision with our customer to delay construction activities on the projects until production engineering achieves a satisfactory level of completion to limit further impacts on construction, including disruption and rework. In addition, we agreed to a change order with the customer that included the following: |
- | The replacement of the current subcontracted production engineering firm with a different engineering subcontractor that was contracted directly by the customer; |
- | Extensions of the schedule liquidated damages dates for the projects; and |
- | Increases in project price for the contracts to account for the estimated cost impacts of the production engineering and construction delays. |
Based on our forecast cost to complete the projects, the change order and collaborative nature of increased forecast costs associated primarily with complexities related to the installation of the power and communications systems and reductions in project price of $11.2 million for liquidated damages (representing the maximum amount of liquidated damages under the contracts) which are in dispute. The projects were in a loss position at December 31, 2018 and 2017. We are currently in a disputeour discussions with the customer, regardingwe are not forecasting losses on the two MPSV projects. As a result of our dispute and uncertaintyHowever, due to uncertainties with respect to the timing of resolution, all contract assets, accrued contract losses,completion of production engineering and deferred revenue balances associatedthe potential impacts on our construction schedules and costs, as well as ongoing discussions with the customer, we are unable to reasonably estimate the amount of gross profit, if any, that will ultimately be realized on the projects. Accordingly, during the fourth quarter 2019 we reversed all previously recognized gross profit on the projects have been reclassified(including the reversal of $2.5 million of gross profit that was recognized prior to other noncurrent assets, resultingthe fourth quarter 2019) and are recognizing revenue equal to costs on the projects until we are able to reasonably estimate the amount of gross profit, if any, expected to be realized on the projects. See “Changes in a net contract asset balance of $12.5 millionEstimates for these projects within other noncurrent assets on our Balance Sheet at December 31, 2018. See Note 112020” above for further discussion of the dispute.status of these projects.
Fabrication & Services Division
• | Paddle Wheel River Boat Project – Negative impact for 2019 of $1.3 million resulting from increased forecast costs for our paddle wheel river boat project, primarily associated with increased craft labor costs. The impacts were primarily due to difficulties encountered in commissioning the vessel and the need to accelerate our schedule, including performing out of sequence work scopes, to enable subcontracted works scopes to commence and mitigate the schedule and cost impacts of delaying the subcontracted work scopes. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.2 million. At December 31, 2020, the project was complete. |
• | Jacket and Deck Project – Negative impact for 2019 of $2.0 million resulting from increased forecast costs and forecast liquidated damages for our jacket and deck project, primarily associated with increased subcontracted services costs and extensions of schedule. The impacts were primarily due to higher than anticipated cost estimates from our commissioning subcontractors and delays associated with customer related directives. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $1.1 million. At December 31, 2020, the project was complete. |
• | Subsea Components Project – Negative impact for 2019 of $1.6 million resulting from increased forecast costs and liquidated damages for our subsea components project, primarily associated with increased craft labor, subcontracted services and materials costs and extensions of schedule. The impacts were primarily due to additional craft labor, materials costs and subcontracted services costs and support resulting from stringent welding procedure requirements and customer specifications. The project was in a loss position at December 31, 2019 and our reserve for estimated losses was $0.2 million. At December 31, 2020, the project was complete. |
F-17
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Changes in estimates for 2018 – For 2016, individual projects with2018, significant changes in estimated margins resulted in a decrease inon projects negatively impacted operating results for our income from operationsShipyard Division by $2.4 million and negatively impacted operating results of $1.8our Fabrication & Services Division by $6.7 million. The changes in estimates were associated with the following:
Shipyard Division
• | Harbor Tug Projects – Negative impact for 2018 of $6.7 million resulting from increased forecast costs and liquidated damages for our harbor tug projects, primarily associated with craft labor costs and extensions of schedule. The impacts were primarily due to lower than anticipated craft labor productivity related to pipe installation and testing. See “Changes in Estimates for 2020” above for further discussion of the status of these projects. |
Fabrication & Services Division
• | Petrochemical Modules Project – Negative impact for 2018 of $2.4 million resulting from increased forecast costs for our petrochemical modules project, primarily associated with increased subcontracted services costs. The impacts were primarily due to higher cost estimates from our insulation and other subcontractors. At December 31, 2020, the project was complete. |
Other Project Matters
Hurricane Laura – In August 2020, Hurricane Laura made landfall as a high-end Category 4 hurricane in Lake Charles, Louisiana, where its high winds and flooding caused significant damage throughout the region. At our Lake Charles Yard, Hurricane Laura primarily damaged drydocks, warehouses, bulkheads and our ninth harbor tug project which was nearing completion and subsequently completed in the fourth quarter 2020. As a result, during 2020, we recorded charges of $1.3 million related to deductibles associated with our Fabricationbuilder’s risk, equipment, property and Shipyard Divisionsmarine liability insurance coverages, and our preliminary estimates of cost associated with uninsurable damage, primarily for bulkheads. The charges are included in other (income) expense, net on our Statement of Operations.
Project Tariffs –Certain imported materials used, or forecast to be used, for our projects are currently subject to existing, new or increased tariffs or duties. We believe such amounts, if incurred, are recoverable from our customers under the contractual provisions of our contracts; however, we can provide no assurances that we will successfully recover such amounts.
Towing, Salvage and Rescue Ship Project Change Order– Our contract for the construction of our 5 towing, salvage and rescue ships contains options which grant our customer, the U.S. Navy, the right, if exercised, for the construction of 3 additional vessels at contracted prices. During the first quarter 2021, the U.S. Navy determined it would not exercise the 3 remaining options under our contract. In connection therewith, we agreed to a change order of $13.1 million with the U.S. Navy to facilitate the transfer of technology, plans and know-how to the customer to enable it to contract with other contractors for the construction of additional vessels. The majority of the change order will be included within contract price for our existing vessel projects and recognized as revenue on a percentage-of-completion basis as the projects progress and the projects were completeremainder will be recognized as revenue as we facilitate the transfer of December 31, 2018.
3. IMPAIRMENTS AND (GAIN) LOSS ON ASSETS HELD FOR SALE
Impairments and (gain) loss on assets held for sale – Impairments and (gain) loss on assets held for sale (“AHFS”) generally represents asset impairments, gains or losses on the sale of assets held for sale and certain nonrecurring items. A summary of our impairments and (gain) loss on assets held for sale at December 31,for 2020, 2019 and 2018, is as follows (in thousands):follows:
|
| Year Ended December 31, 2020 |
| |||||||||||||
Impairments and (gain) loss on assets held for sale |
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Impairments of AHFS |
| $ | — |
|
| $ | 1,400 |
|
| $ | — |
|
| $ | 1,400 |
|
Impairments of Jennings Yard assets |
|
| 29 |
|
|
| — |
|
|
| — |
|
|
| 29 |
|
Impairments of Lake Charles Yard assets |
|
| 1,006 |
|
|
| — |
|
|
| — |
|
|
| 1,006 |
|
Impairments of other assets |
|
| 6 |
|
|
| 868 |
|
|
| — |
|
|
| 874 |
|
Loss on AHFS and other |
|
| 598 |
|
|
| 223 |
|
|
| — |
|
|
| 821 |
|
Total |
| $ | 1,639 |
|
| $ | 2,491 |
|
| $ | — |
|
| $ | 4,130 |
|
• | Impairments of AHFS – At December 31, 2020, our assets held for sale totaled $8.2 million and primarily consisted of 3 660-ton crawler cranes and 2 drydocks (which were classified as held for sale for sale in the fourth quarter 2020). As discussed below, during 2019 we recorded partial impairments of the crawler cranes. During 2020, we recorded additional impairments of $1.4 million associated with the partial impairment of the cranes. Our estimates of fair value for the cranes were based on broker opinions of value, which were lower than our previous estimates due to changes in market conditions (including the impacts of COVID-19), the limited interest received in the cranes during the period, the specific use nature and |
Assets | Fabrication Division | Shipyard Division | Total | ||||||||||
Machinery and equipment | $ | 25,882 | $ | 1,222 | $ | 27,104 | |||||||
Accumulated depreciation | (7,871 | ) | (298 | ) | (8,169 | ) | |||||||
Total assets held for sale | $ | 18,011 | $ | 924 | $ | 18,935 |
F-18
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
size of the cranes, and our expectation of a shorter marketing period due to concerns regarding future deterioration of the cranes. See “Impairments of Lake Charles Yard assets” below for discussion of the partial impairments of our drydocks in connection with their classification as held for sale. |
• | Impairments of Jennings Yard assets – During the fourth quarter 2020, we closed our Jennings Yard, which is subject to a long-term lease. As discussed below, during 2019 we recorded full impairments of our lease asset and non-moveable facility improvements and partial impairments of our moveable equipment. In connection with the facility’s fourth quarter 2020 closure, we had no material additional impairments of moveable equipment, which was relocated to our Houma Yards. See below for further discussion of the impairments recorded in 2019 and Note 4 for discussion of our Jennings Yard lease. We do not believe the closure of the Jennings Yard will impact our ability to operate our Shipyard Division, and it does not qualify for discontinued operations presentation as we will continue to operate our Shipyard Division from our Houma Yards. |
• | Impairment of Lake Charles Yard assets – During the fourth quarter 2020, we closed our Lake Charles Yard, which is subject to a long-term lease. As discussed below, during 2019 we recorded a full impairment of our non-moveable facility improvements and partial impairments of the lease asset, three drydocks and moveable equipment. In connection with the facility’s fourth quarter 2020 closure, we recorded additional impairments of $1.0 million associated with the full impairment of the lease asset and partial impairment of our moveable equipment and drydocks. The moveable equipment and one of the drydocks were relocated to our Houma Yards to be used in our Shipyard Division operations. The remaining two drydocks were relocated to our Houma Yards and are held for sale at December 31, 2020. Our estimates of fair value for the drydocks were based on appraisals for such assets. See below for further discussion of impairments recorded in 2019 and discussion of our assets held for sale and Note 4 for discussion of our Lake Charles Yard lease. We do not believe the closure of the Lake Charles Yard will impact our ability to operate our Shipyard Division, and it does not qualify for discontinued operations presentation as we will continue to operate our Shipyard Division from our Houma Yards. |
• | Impairments of other assets – During the fourth quarter 2020, we relocated and consolidated certain assets (including our pipe mill) between our Shipyard Division and F&S Division, and abandoned certain other assets, within our Houma Yards to improve operational efficiency. As a result, during 2020 we recorded impairments of $0.9 million associated with the partial or full impairment of such assets. We determined our impairments of the assets based on scrap value estimates of fair value. |
• | Loss on AHFS and other – During 2020, we incurred costs of $0.6 million, primarily associated with the closures of our Jennings Yard and Lake Charles Yard, as discussed above. We also sold a deck barge, 2 plate roll machines and certain other assets which were classified as held for sale for total proceeds of $1.7 million, resulting in a loss of $0.2 million. |
|
| Year Ended December 31, 2019 |
| |||||||||||||
Impairments and (gain) loss on assets held for sale |
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Impairments of AHFS |
| $ | 324 |
|
| $ | 7,842 |
|
| $ | — |
|
| $ | 8,166 |
|
Impairments of assets removed from AHFS |
|
| — |
|
|
| 1,060 |
|
|
| — |
|
|
| 1,060 |
|
Impairments of Jennings Yard assets |
|
| 4,578 |
|
|
| — |
|
|
| — |
|
|
| 4,578 |
|
Impairments of Lake Charles Yard assets |
|
| 2,998 |
|
|
| — |
|
|
| — |
|
|
| 2,998 |
|
Impairments of inventory and other assets |
|
| — |
|
|
| 400 |
|
|
| 21 |
|
|
| 421 |
|
(Gain) loss on AHFS and other |
|
| 20 |
|
|
| (369 | ) |
|
| 654 |
|
|
| 305 |
|
Total |
| $ | 7,920 |
|
| $ | 8,933 |
|
| $ | 675 |
|
| $ | 17,528 |
|
• | Impairments of AHFS – At December 31, 2019, our assets held for sale totaled $9.0 million and primarily consisted of 3 660-ton crawler cranes, 2 plate bending roll machines and a deck barge. During 2019, we revised our estimates of fair value for the crawler cranes based on updated broker opinions of value and revised our estimates of fair value for the plate bending roll machines based on third party indications of value. Our revised estimates of fair value for these assets were lower than our previous estimates due to changes in market conditions, the limited interest received in the assets during the period, the specific use nature of the assets (and the size of the assets in the case of the cranes), and our expectation of a shorter marketing period due to concerns regarding future deterioration of the assets. As a result of the aforementioned, during 2019 we recorded impairments of $7.8 million associated with the partial impairment of the crawler cranes and plate bending roll machines. During 2019, we also recorded an impairment of $0.3 million associated with the partial impairment of a drydock that was held-for-sale and sold during 2019 for proceeds of $0.6 million. |
• | Impairments of assets removed from AHFS – During 2019, we determined that we no longer intended to sell a deck barge (separate from the aforementioned deck barge) and panel line equipment that was previously classified as held for sale, and the assets were reclassified as property, plant and equipment. In connection therewith, the assets were recorded at the lower of their fair value or net book value as if they had been depreciated while being classified as held for sale, which resulted in impairments of $1.1 million during 2019. |
F-19
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Impairments of Jennings Yard assets – During 2019, we reassessed our previous estimates of the future cashflows expected to be generated by our leased Jennings Yard. Our revised forecast gave consideration to recent operating losses experienced on our harbor tug projects in the Jennings Yard and our intention to close the facility. Based on our revised forecast, we determined that the net book value of the Jennings Yard assets exceeded our estimates of future cashflows, which indicated that the assets were impaired. Our Jennings Yard assets primarily consisted of a lease asset, non-moveable facility improvements and certain moveable equipment. We based our impairments of the lease asset and non-moveable facility improvements on our expectation to close the facility, and we based our impairments of the moveable equipment on broker opinions of value for such assets. As a result of the aforementioned, during 2019 we recorded impairments of $4.6 million associated with the full impairment of the lease asset and non-moveable facility improvements and partial impairment of moveable equipment. See above for discussion of our closure of the Jennings Yard in the fourth quarter 2020 and Note 4 for further discussion of our Jennings Yard lease. |
• | Impairments of Lake Charles Yard assets – During 2019, we reassessed our previous estimates of the future cashflows expected to be generated by our leased Lake Charles Yard. Our revised forecast gave consideration to previous and then current under-utilization of the facility, our expectations of future work for the facility and the required future capital investment in the facility and its assets. Based on our revised forecast, we determined that the net book value of the Lake Charles Yard assets exceeded our estimates of future cashflows, which indicated that the assets were impaired. Our Lake Charles Yard assets primarily consisted of a lease asset, non-moveable facility improvements, three drydocks and certain moveable equipment. We based our impairments of the lease asset and non-moveable facility improvements on our anticipated cashflows from such assets, and we based our impairments of the drydocks and moveable equipment on appraisals and broker opinions of value for such assets. As a result of the aforementioned, during 2019 we recorded impairments of $3.0 million associated with the full impairment of the non-moveable facility improvements and partial impairment of the lease asset, drydocks and moveable equipment. See above for discussion of our closure of the Lake Charles Yard in the fourth quarter 2020 and Note 4 for further discussion of our Lake Charles Yard lease. |
• | Impairments of inventory and other assets – During 2019, we abandoned certain inventory and fixed assets and recorded impairments of $0.4 million associated with the partial impairment of the assets. We determined our impairments of the assets based on scrap value estimates of fair value. |
• | Loss on AHFS and other – During 2019, we recorded charges of $0.5 million associated with amounts payable to our former chief executive officer in connection with his retirement during the fourth quarter 2019. Such amounts were paid during 2020 and did not require any future service. We also recorded a gain of $0.4 million associated with the sale of assets held for sale. |
|
| Year Ended December 31, 2018 |
| |||||||||||||
Impairments and (gain) loss on assets held for sale |
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Gain on sale of South Texas Properties, net |
| $ | — |
|
| $ | (7,724 | ) |
| $ | — |
|
| $ | (7,724 | ) |
Impairments of AHFS |
|
| 964 |
|
|
| 1,387 |
|
|
| — |
|
|
| 2,351 |
|
Impairments of inventory and other assets |
|
| — |
|
|
| 2,094 |
|
|
| — |
|
|
| 2,094 |
|
Gain from insurance proceeds |
|
| — |
|
|
| (3,571 | ) |
|
| — |
|
|
| (3,571 | ) |
Total |
| $ | 964 |
|
| $ | (7,814 | ) |
| $ | — |
|
| $ | (6,850 | ) |
• | South Texas Properties and Gain on Sale of South Texas Properties, net – During 2017, we classified our fabrication yards and certain associated equipment in Ingleside, Texas (“Texas South Yard”) and Aransas Pass, Texas (“Texas North Yard”) (collectively, “South Texas Properties”) as held for sale. During 2018, we completed the sale of portions of the South Texas Properties, which consisted of the following: |
- | The sale of certain equipment prior to the sale of the South Texas Properties for proceeds of $1.3 million, and a loss of $0.3 million; |
- | The sale of our Texas South Yard for $55.0 million, less selling costs of $1.2 million, for total net proceeds received during 2018 of $53.8 million and a gain of $3.9 million; and |
- | The sale of our Texas North Yard for $28.0 million, less selling costs of $0.6 million, for total net proceeds of $27.4 million during 2018 and a gain of $4.1 million. |
Remaining equipment from the Texas North Yard totaling $18.8 million was not included in the Texas North Yard sale, of which $0.8 million was placed back in use and reclassified to property, plant and equipment, net and $18.0 million continues to bewas classified as held for sale. The assets held for sale ("Fabrication AHFS") at December 31, 2018. The Fabrication AHFS primarily consist of threeconsisted of3 660-ton crawler cranes, a deck barge, two2 plate bending roll machines and panel line equipment, which were relocated to our fabrication yard in Houma Louisiana. See "Impairments" section below for further discussion of the determination of the carrying value of the Fabrication AHFS.
F-20
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
• | Impairments of AHFS –During 2018, we recorded impairments of $1.4 million for certain equipment previously associated with the South Texas Properties prior to their sale, but not sold in connection with the Texas South Yard or Texas North Yard transactions. In addition, during 2018 we recorded an impairment of $1.0 million for a drydock that was held for sale. Our impairments were based on our best estimate of the fair value of the assets. |
• | Impairments of inventory and other assets – During 2018, we abandoned certain inventory and other assets and recorded impairments of $2.1 million. We determined our impairments of the assets based on scrap value estimates of fair value. |
• | Gain from insurance proceeds – During 2017, buildings and equipment located at our South Texas Properties were damaged by Hurricane Harvey. During 2018, we agreed to a global settlement with our insurance carriers for total insurance payments of $15.4 million, of which $6.0 million had been received in 2017 and $9.4 million was received during 2018. We allocated the insurance recoveries as follows: |
- | $1.3 million, recorded during 2017, which offset clean-up and repair related costs incurred directly related to the damage as a result of Hurricane Harvey, resulting in 0 net gain or loss, |
- | $1.5 million recorded during 2017, which offset impairments of 2 buildings which were determined to be a total loss as a result of Hurricane Harvey, resulting in 0 net gain or loss; |
- | $9.0 million, recorded during 2018, which offset impairments of property and equipment, primarily at our Texas North Yard, resulting in 0 net gain or loss. The impairments were based upon our best estimate of the decline in fair value of the asset group as a result of Hurricane Harvey; and |
- | $3.6 million gain recorded during 2018. |
Assets held for sale – As discussed above, at December 31, 2020, our assets held for sale primarily consisted of 3 660-ton crawler cranes within our Fabrication & Services Division Assets Held for Sale
|
| December 31, |
| |||||||||||||||||||||
|
| 2020 |
|
| 2019 |
| ||||||||||||||||||
Assets |
| Shipyard |
|
| F&S |
|
| Total |
|
| Shipyard |
|
| F&S |
|
| Total |
| ||||||
Machinery and equipment |
| $ | 3,619 |
|
| $ | 12,780 |
|
| $ | 16,399 |
|
| $ | — |
|
| $ | 17,618 |
|
| $ | 17,618 |
|
Accumulated depreciation |
|
| (1,605 | ) |
|
| (6,580 | ) |
|
| (8,185 | ) |
|
| — |
|
|
| (8,612 | ) |
| $ | (8,612 | ) |
Total assets held for sale |
| $ | 2,014 |
|
| $ | 6,200 |
|
| $ | 8,214 |
|
| $ | — |
|
| $ | 9,006 |
|
| $ | 9,006 |
|
4. PROPERTY, PLANT AND EQUIPMENT AND LEASED FACILITIES AND EQUIPMENT
Property, plant and equipment
Property, plant and equipment consisted of the following at December 31, 20182020 and 20172019 (in thousands):
|
| Estimated |
|
| December 31, |
| ||||||
|
| Useful Life |
|
| 2020 |
|
| 2019 |
| |||
|
| (in Years) |
|
|
|
|
|
|
|
|
| |
Land |
|
| — |
|
| $ | 4,972 |
|
| $ | 4,972 |
|
Buildings |
|
| 25 |
|
|
| 36,581 |
|
|
| 35,580 |
|
Machinery and equipment |
| 3 to 25 |
|
|
| 99,621 |
|
|
| 126,622 |
| |
Furniture and fixtures |
| 3 to 5 |
|
|
| 1,375 |
|
|
| 2,288 |
| |
Transportation equipment |
| 3 to 5 |
|
|
| 2,195 |
|
|
| 2,521 |
| |
Improvements |
|
| 15 |
|
|
| 38,934 |
|
|
| 40,377 |
|
Construction in progress |
|
| — |
|
|
| 8,120 |
|
|
| 2,636 |
|
Total property, plant and equipment |
|
|
|
|
|
| 191,798 |
|
|
| 214,996 |
|
Accumulated depreciation |
|
|
|
|
|
| (124,340 | ) |
|
| (144,512 | ) |
Property, plant and equipment, net |
|
|
|
|
| $ | 67,458 |
|
| $ | 70,484 |
|
December 31, | |||||||||
Estimated Useful Life | 2018 | 2017 | |||||||
(in Years) | |||||||||
Land | - | $ | 4,972 | $ | 4,972 | ||||
Buildings | 25 | 34,696 | 34,653 | ||||||
Machinery and equipment | 3 to 25 | 132,155 | 141,704 | ||||||
Furniture and fixtures | 3 to 5 | 2,497 | 4,450 | ||||||
Transportation equipment | 3 to 5 | 2,627 | 2,667 | ||||||
Improvements | 15 | 42,182 | 42,975 | ||||||
Construction in progress | - | 1,944 | 96 | ||||||
Total property, plant and equipment | 221,073 | 231,517 | |||||||
Accumulated depreciation | (141,143 | ) | (142,618 | ) | |||||
Property, plant and equipment, net | $ | 79,930 | $ | 88,899 |
Depreciation expense for 2020, 2019 and 2018 2017 and 2016, was $10.4$8.6 million, $12.9$9.6 million and $25.4$10.4 million, respectively. The reductiondecrease in depreciation expense for 20182020 compared to 2019 was due to assets becoming fully depreciated and 2017 isassets being impaired in the result of classifying our South Texas Properties as assets held for sale during the firstfourth quarter of 2017, and suspending the recognition of2019. The decrease in depreciation expense for those assets.
F-21
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Leased Facilities and Equipment
At December 31, 2020, our leased facilities and equipment. Our significant leases subject to long-term agreements arewere as follows:
• | Corporate office in Houston, Texas consisting of approximately 17,000 square feet of office space. The lease expires in May 2025. |
• | Jennings Yard located near Jennings, Louisiana, consisting of a 180-acre yard on the west bank of the Mermentau River approximately 25 miles north of the U.S. Intracoastal Waterway. The lease expires in January 2025 with 2 ten-year renewal options that would extend the lease through January 2045. During the fourth quarter 2020, we closed our Jennings Yard and do not intend to exercise our renewal options. See Note 3 for discussion of our closure of the Jennings Yard. |
• | Lake Charles Yard located near Lake Charles, Louisiana, consisting of a 10-acre yard on the Calcasieu River approximately 17 miles from the GOM, that we sublease from a third party. The sublease expires in July 2023 with 3, five-year renewal options (subject to sublessor renewals) that would extend the lease through July 2038. During the fourth quarter 2020, we closed our Lake Charles Yard and do not intend to exercise our renewal options. See Note 3 for discussion of our closure of the Lake Charles Yard. |
• | Engineering office in Metairie, Louisiana, consisting of approximately 7,600 square feet of office space. The lease expires in December 2025. |
At December 31, 2020, our lease in Houston, Texas consisting of approximately 17,000 square feet of office space. Theasset, current lease expires in May 2025.
Future minimum payments under leases having initial terms of one year or more than twelve months are as follows (in thousands):
|
| Minimum Payments |
| |
2021 |
| $ | 726 |
|
2022 |
|
| 737 |
|
2023 |
|
| 653 |
|
2024 |
|
| 564 |
|
2025 |
|
| 219 |
|
Total lease payments |
|
| 2,899 |
|
Less: interest |
|
| (278 | ) |
Present value of lease liabilities |
| $ | 2,621 |
|
Minimum Payments | |||
2019 | $ | 660 | |
2020 | 672 | ||
2021 | 680 | ||
2022 | 578 | ||
2023 | 477 | ||
Thereafter | 557 | ||
Total | $ | 3,624 |
Total lease expense for our leased facilities and financial instruments -
The carrying amountsdiscount rate used to determine the present value of our financial instruments, including cash and cash equivalents, accounts receivables and accounts payables approximate their fair values.
Years Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Net income (loss) | $ | (20,378 | ) | $ | (44,766 | ) | $ | 3,515 | |||
Less: distributed and undistributed income (loss) from unvested restricted stock | — | 3 | 30 | ||||||||
Net income (loss) attributable to common shareholders | $ | (20,378 | ) | $ | (44,769 | ) | $ | 3,485 | |||
Weighted average shares (1) | 15,032 | 14,838 | 14,631 | ||||||||
Basic and diluted income (loss) per common share | $ | (1.36 | ) | $ | (3.02 | ) | $ | 0.24 |
5. CREDIT FACILITIES
LC Facility
On March 26, 2021, we amended our revolving credit facility with Hancock Whitney Bank ("Credit Agreement"(“Whitney Bank”) that can be used, which previously provided for up to $40.0 million of borrowings or letters of credit. On August 27, 2018, we amended our Credit Agreement which, among other things, extended itscredit, had a maturity date toof June 9, 2020. Our amended30, 2022, included certain quarterly financial covenants during the remaining term of the Credit Agreement are as follows:
F-22
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Loan Agreement
On April 17, 2020, we entered into an unsecured loan in the aggregate amount of $10.0 million (“PPP Loan”) with Whitney Bank pursuant to supportthe Paycheck Protection Program (“PPP”), which is sponsored by the Small Business Administration (“SBA”), and is part of the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), as amended by the Paycheck Protection Program Flexibility Act of 2020 (“Flexibility Act”). The PPP provides for loans to qualifying businesses, the proceeds of which may only be used for payroll costs, rent, utilities, mortgage interest, and interest on other pre-existing indebtedness (the “Permissible Expenses”). The PPP Loan may be prepaid at any time prior to maturity with 0 prepayment penalties. The PPP Loan, and accrued interest, may be forgiven partially or in full, if certain conditions are met. The most significant of the conditions are:
• | Only amounts expended for Permissible Expenses during the eight-week or 24-week period, as elected by us, following April 17, 2020 (the “Covered Period”) are eligible for loan forgiveness. We have elected an eight-week Covered Period; |
• | Of the total amount of Permissible Expenses for which forgiveness can be granted, at least 60% must be for payroll costs, or a proportionate reduction of the maximum loan forgiveness amount will occur; and |
• | If employee headcount is reduced, or employee compensation is reduced by more than 25%, during the Covered Period, a further reduction of the maximum loan forgiveness amount will occur, subject to certain safe harbors added by the Flexibility Act. |
The PPP Loan matures on April 17, 2022, bears interest at a fixed rate of 1.0 percent per annum and is payable in monthly installments commencing on the earlier of the date on which the amount of loan forgiveness is determined or March 17, 2021. During the Covered Period the PPP Loan proceeds were used only for Permissible Expenses, of which approximately 93% was related to payroll costs. On September 29, 2020, we submitted our projects, providing $37.1application to Whitney Bank, requesting PPP Loan forgiveness of $8.9 million. Whitney Bank approved our application for forgiveness on December 14, 2020, and our application was forwarded to the SBA for review. As of the filing of this Report, we have not received an approval or denial of our application for forgiveness from the SBA; in the absence of such action and based on guidance we received from our external advisors, we have taken the position that the date for commencement of loan payments has not yet occurred, and we have made 0 loan payments. Because the amount borrowed exceeded $2.0 million, the PPP Loan and our loan forgiveness application is subject to audit by the SBA. Any portion of available capacity. Atthe PPP Loan that is not forgiven, together with accrued interest, will be repaid based on the terms and conditions of the PPP Loan and in accordance with the PPP as amended by the Flexibility Act, unless the SBA were to determine that we were not eligible to participate in the PPP, in which case the SBA could seek immediate repayment of the PPP Loan. While we believe we are a qualifying business and have met the eligibility requirements for the PPP Loan, and believe we have used the loan proceeds only for Permissible Expenses, we can provide no assurances that we will be eligible for forgiveness of the PPP Loan, in whole or in part. Accordingly, we have recorded the full amount of the PPP Loan as debt, which is included in long-term debt, current and long-term debt, noncurrent on our Balance Sheet at December 31, 2018, we were2020. The current and noncurrent debt classification is based on the terms and conditions of the PPP Loan and in complianceaccordance with all of our financial covenants, with a tangible net worth of $199.2 million (as definedthe PPP as amended by the Credit Agreement), a ratioFlexibility Act, and timing of current assetsrequired repayment absent any loan forgiveness. We intend to current liabilitiesreflect the benefit of 2.85 to 1.0any loan forgiveness if, and a ratiowhen, our loan forgiveness application is approved by the SBA and after we have reasonable assurance from the SBA that we have met the eligibility and loan forgiveness requirements of funded debt to tangible net worth of 0.01:1.00.
Surety Bonds
We issue surety bonds in the ordinary course of business to support our projects. At December 31, 2018,2020, we had $396.6$291.2 million of outstanding surety bonds to support our projects.
F-23
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
6. INCOME TAXES
Income Tax (Expense) Benefit
A reconciliation of the U.S. federal statutory tax rate to our income tax (expense) benefit for 2018, 20172020, 2019 and 2016,2018, is as follows (in thousands):
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
U.S. statutory rate |
|
| 21.0 | % |
|
| 21.0 | % |
|
| 21.0 | % |
Increase (decrease) resulting from: |
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences |
|
| 0.0 | % |
|
| (0.2 | )% |
|
| (1.0 | )% |
State income taxes |
|
| 9.0 | % |
|
| 0.4 | % |
|
| (2.9 | )% |
Other |
|
| 0.0 | % |
|
| 0.0 | % |
|
| 1.9 | % |
Discrete items |
|
|
|
|
|
|
|
|
|
|
|
|
Vesting of common stock |
|
| (0.7 | )% |
|
| 0 |
|
|
| (0.1 | )% |
Change in valuation allowance |
|
| (29.1 | )% |
|
| (21.0 | )% |
|
| (21.7 | )% |
Income tax (expense) benefit |
|
| 0.2 | % |
|
| 0.2 | % |
|
| (2.8 | )% |
Years Ended December 31, | |||||||||||||||||
2018 | 2017 | 2016 | |||||||||||||||
Amount | % | Amount | % | Amount | % | ||||||||||||
U.S. statutory rate | $ | 4,159 | 21.0% | $ | 24,136 | 35.0% | $ | (1,945 | ) | 35.0% | |||||||
Increase (decrease) resulting from: | |||||||||||||||||
Permanent differences | (206 | ) | (1.0)% | (330 | ) | 0.5% | (64 | ) | 1.1% | ||||||||
State income taxes | (571 | ) | (2.9)% | 366 | (0.5)% | (32 | ) | 0.6% | |||||||||
Other | 374 | 1.9% | (118 | ) | 0.2% | — | —% | ||||||||||
Discrete items | |||||||||||||||||
Vesting of common stock | (19 | ) | (0.1)% | (253 | ) | 0.4% | — | —% | |||||||||
Change in valuation allowance | (4,308 | ) | (21.7)% | 392 | (0.5)% | — | —% | ||||||||||
Income tax (expense) benefit | $ | (571 | ) | (2.8)% | $ | 24,193 | 35.1% | $ | (2,041 | ) | 36.7% |
Significant components of our income tax (expense) benefit for 2018, 20172020, 2019 and 2016,2018, were as follows (in thousands):
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Current |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 0 |
|
| $ | 0 |
|
| $ | 0 |
|
State |
|
| (20 | ) |
|
| 86 |
|
|
| (317 | ) |
Total current |
|
| (20 | ) |
|
| 86 |
|
|
| (317 | ) |
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
| 5,553 |
|
|
| 10,308 |
|
|
| 3,410 |
|
State |
|
| 2,487 |
|
|
| 87 |
|
|
| 644 |
|
Valuation allowance |
|
| (7,968 | ) |
|
| (10,385 | ) |
|
| (4,308 | ) |
Total deferred |
|
| 72 |
|
|
| 10 |
|
|
| (254 | ) |
Income tax (expense) benefit |
| $ | 52 |
|
| $ | 96 |
|
| $ | (571 | ) |
Years Ended December 31, | |||||||||||
2018 | 2017 | 2016 | |||||||||
Current | |||||||||||
Federal | $ | — | $ | — | $ | (302 | ) | ||||
State | (317 | ) | (83 | ) | (361 | ) | |||||
Total current | (317 | ) | (83 | ) | (663 | ) | |||||
Deferred | |||||||||||
Federal | 3,410 | 24,219 | (1,549 | ) | |||||||
State | 644 | 449 | 171 | ||||||||
Valuation allowance | (4,308 | ) | (392 | ) | — | ||||||
Total deferred | (254 | ) | 24,276 | (1,378 | ) | ||||||
Income tax (expense) benefit | $ | (571 | ) | $ | 24,193 | $ | (2,041 | ) |
Deferred Taxes
Significant components of our deferred tax assets and liabilities at December 31, 20182020 and 2017,2019, were as follows (in thousands):
|
| December 31, |
| |||||
|
| 2020 |
|
| 2019 |
| ||
Deferred tax assets |
|
|
|
|
|
|
|
|
Impairments of lease assets and inventory |
| $ | 184 |
|
| $ | 644 |
|
Employee benefits |
|
| 751 |
|
|
| 724 |
|
Accrued losses on uncompleted contracts |
|
| 3,716 |
|
|
| 3,335 |
|
Stock based compensation expense |
|
| 225 |
|
|
| 312 |
|
Federal net operating losses |
|
| 19,345 |
|
|
| 14,885 |
|
State net operating losses |
|
| 3,620 |
|
|
| 1,678 |
|
R&D and other tax credits |
|
| 806 |
|
|
| 806 |
|
Other |
|
| 631 |
|
|
| 437 |
|
Total deferred tax assets |
|
| 29,278 |
|
|
| 22,821 |
|
Deferred tax liabilities |
|
|
|
|
|
|
|
|
Property, plant and equipment and AHFS |
|
| (5,825 | ) |
|
| (7,523 | ) |
Prepaid insurance |
|
| (512 | ) |
|
| (402 | ) |
Total deferred tax liabilities |
|
| (6,337 | ) |
|
| (7,925 | ) |
Net deferred tax assets |
|
| 22,941 |
|
|
| 14,896 |
|
Valuation allowance |
|
| (23,054 | ) |
|
| (15,086 | ) |
Net deferred taxes (1) |
| $ | (113 | ) |
| $ | (190 | ) |
(1) | Amounts are included in other noncurrent liabilities on our Balance Sheet. |
December 31, | |||||||
2018 | 2017 | ||||||
Deferred tax assets | |||||||
Employee benefits | $ | 758 | $ | 962 | |||
Uncompleted contracts | 2,380 | 2,664 | |||||
Stock based compensation expense | 266 | 350 | |||||
Allowance for doubtful accounts | 84 | 99 | |||||
Long-term incentive awards | 150 | 280 | |||||
Federal net operating losses | 9,962 | 13,190 | |||||
State net operating losses | 1,155 | 511 | |||||
Other | 395 | 394 | |||||
Total deferred tax assets | 15,150 | 18,450 | |||||
Deferred tax liabilities | |||||||
Property, plant and equipment | (10,199 | ) | (17,605 | ) | |||
Prepaid insurance | (450 | ) | (453 | ) | |||
Total deferred tax liabilities | (10,649 | ) | (18,058 | ) | |||
Net deferred tax assets | 4,501 | 392 | |||||
Valuation allowance | (4,701 | ) | (392 | ) | |||
Net deferred taxes (1) | $ | (200 | ) | $ | — |
F-24
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
At December 31, 20182020 and 2017,2019, we had total DTAs of $15.2$29.3 million and $18.5$22.8 million, respectively (including U.S. federal net operating loss(es) ("(“NOL(s)"”) DTAs of $10.0$19.3 million and $13.2$14.9 million, respectively). On a periodic and ongoing basis, we evaluate our DTAs (including our NOL DTAs) and assess the appropriateness of our valuation allowance(s) ("(“VA(s)"”). In assessing the need for a VA, we consider both positive and negative evidence related to the likelihood of realizing our DTAs. If, based upon the available evidence, our assessment indicates that it is more likely than not that some or all of the DTAs will not be realized, we record a VA. Our assessments include, among other things, the amount of taxable temporary differences that will result in future taxable income, the value and quality of our backlog, evaluations of existing and anticipated market conditions, analysis of recent and historical operating results (including cumulative losses over multiple periods) and projections of future results and strategic plans, as well as asset expiration dates. As a result of our assessment and due to cumulative losses for the three years ended December 31, 2018,2020, we believe the negative evidence outweighs the positive evidence with respect to our ability to realize our U.S. federal NOL DTAs, and accordingly, at December 31, 20182020 and 2017,2019, we had VAs of $4.7$23.1 million and $0.4$15.1 million, respectively, offsetting our total DTAs.
At December 31, 2018,2020, we had gross U.S. federal NOL carryforwards (excluding VAs) of $47.4$92.1 million, of which $42.3 million will expire in 2037 and wewith the remaining U.S. federal NOL carryforwards eligible to be carried forward indefinitely, subject to an 80% limitation on taxable income in each year. We had gross state NOL carryforwards (excluding VAs) of $24.5$45.1 million, which will expire infrom 2035 through 2038.
Uncertain Tax Positions
Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense. At December 31, 2020 and 2019, we had no material reserves for uncertain tax positions. Tax returns subject to examination by the U.S. Internal Revenue Service are open for years after 2014. At December 31, 2018 and 2017, we had no material reserves for uncertain tax positions.
7. RETIREMENT AND LONG-TERM INCENTIVE PLANS
Defined Contribution Plan
We sponsor a defined contribution plan for eligible employees that is qualified under Section 401(k) of the Internal Revenue Code, which includes voluntary employee pre-tax contributions and a Company matching contribution,Company-matching contributions, with potential additional discretionary contributions determined by theour Board of Directors. Effective April 1, 2016, weOur matching contributions were temporarily suspended our matching contribution in response to the downturn in the oilsecond quarter 2016 and gas industry.reinstated in the second quarter 2019. For 2018, 20172020 and 2016,2019, we contributed $0, $0,$0.7 million and $0.7$0.8 million, respectively to the plan.
Long-Term Incentive Plans
Under our long-term incentive plans ("(“Incentive Plans"Plans”), the Compensation Committee of our Board of Directors may grant cash-based and equity-based awards to eligible employees and non-employee directors, including restricted stock awards, stock option awards and restricted stock units, stock optionscash-based and stock-based performance awards. The Compensation Committee determines the numbervalue of shares or stock options subject to each award, as well as the terms, conditions, performance measures, and other provisions of the award. A summary of our Incentive Plans, and the number of shares of our common stock that may be issued under each plan, is as follows:
• | Long-Term Incentive Plan (approved on February 13, 1997) –1,000,000 shares; |
• | 2002 Long-Term Incentive Plan (approved on April 24, 2002 and amended on April 26, 2006) –500,000 shares; |
• | 2011 Stock Incentive Plan (approved on April 28, 2011) –500,000 shares; and |
• | 2015Stock Incentive Plan (approved on April 23, 2015 and amended on May 22, 2020) – 2,500,000 shares. |
At December 31, 2018,2020, we had 527,3571,611,928 aggregate shares available for future issuance under our Incentive Plans. We issue new shares through our transfer agent in connection with issuances under the Incentive Plans.
Restricted Stock and Stock Option Awards -
F-25
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
A summary of activity for our restricted stock awards for 2018, 20172020, 2019 and 20162018 is as follows:
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||||||||||||||
|
| Number of Shares |
|
| Weighted- Average Grant-Date Fair Value Per Share |
|
| Number of Shares |
|
| Weighted- Average Grant-Date Fair Value Per Share |
|
| Number of Shares |
|
| Weighted- Average Grant-Date Fair Value Per Share |
| ||||||
Restricted shares, beginning of period |
|
| 286,148 |
|
| $ | 8.30 |
|
|
| 526,438 |
|
| $ | 11.56 |
|
|
| 445,126 |
|
| $ | 12.83 |
|
Granted |
|
| 470,004 |
|
|
| 3.80 |
|
|
| 170,936 |
|
|
| 6.09 |
|
|
| 440,185 |
|
|
| 11.16 |
|
Vested |
|
| (113,988 | ) |
|
| 8.89 |
|
|
| (255,449 | ) |
|
| 11.41 |
|
|
| (250,219 | ) |
|
| 10.93 |
|
Forfeited |
|
| (26,520 | ) |
|
| 12.14 |
|
|
| (155,777 | ) |
|
| 11.81 |
|
|
| (108,654 | ) |
|
| 12.01 |
|
Restricted shares, end of period |
|
| 615,644 |
|
|
| 4.61 |
|
|
| 286,148 |
|
|
| 8.30 |
|
|
| 526,438 |
|
|
| 11.56 |
|
Years Ended December 31, | ||||||||||||||||||||
2018 | 2017 | 2016 | ||||||||||||||||||
Number of Shares | Weighted- Average Grant-Date Fair Value Per Share | Number of Shares | Weighted- Average Grant-Date Fair Value Per Share | Number of Shares | Weighted- Average Grant-Date Fair Value Per Share | |||||||||||||||
Restricted shares, beginning of period | 445,126 | $ | 12.83 | 370,565 | $ | 12.99 | 262,964 | $ | 18.33 | |||||||||||
Granted | 440,185 | 11.16 | 383,121 | 13.02 | 259,699 | 8.55 | ||||||||||||||
Vested | (250,219 | ) | 10.93 | (215,478 | ) | 12.52 | (114,804 | ) | 14.37 | |||||||||||
Forfeited | (108,654 | ) | 12.01 | (93,082 | ) | 12.53 | (37,294 | ) | 15.48 | |||||||||||
Restricted shares, end of period | 526,438 | 11.56 | 445,126 | 12.83 | 370,565 | 12.99 |
Compensation expense for our restricted stock awards was $1.1 million, $1.8 million and $2.8 million $2.7 millionfor 2020, 2019 and $3.1 million for 2018, 2017 and 2016, respectively. The total income tax benefit (expense) recognized for our share-based compensation arrangements was $19,000, $0.3 million and $0 for 2018, 2017 and 2016, respectively. At December 31, 2018,2020, we had $3.4$1.9 million of unrecognized compensation expense related to our restricted stock awards. This cost is expected to be recognized over a weighted-average period of two1.9 years. The total fair value of restricted stock awards granted during 20182020 was $4.9$1.8 million and the total fair value of restricted stock awards that vested during 20182020 was $2.7$0.4 million. At December 31, 20182020, we had no0 outstanding stock option awards and no0 stock option awards were made during 2018, 20172020, 2019 or 2016.
Stock-Based Performance Awards -
During 2020, we did 0t recognize any compensation expense forrelated to our stock-based performance awards with a performance period ended December 31, 2020, as the minimum target for pay-out was not achieved. During 2019, we recognized a benefit of $1.7 million (due to the reversal of previously recognized expense) and during 2018 we recognized compensation expense of $1.1 million, $1.5 million and $1.3 million for 2018, 2017 and 2016, respectively. The total fair value ofrelated to our stock-based performance awards granted during 2018, 2017 and 2016 was $3.8 million, $4.7 million and $1.6 million, respectively, as determined usingwith a Monte Carlo simulation model.
Cash-Based Performance Awards – Cash-based performance awards represent awards payable in cash based on the achievement of annual income targets. The cash payment occurs in the period immediately following the completion of the assets and assumed certain liabilities of LEEVAC Shipyards, L.L.C. and its affiliates forperformance period. During 2019, cash-based performance awards were granted with a purchase price of $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-dollar reduction for the assumption of certain net liabilitiesthree-year performance period ending December 31, 2021. One-third of the seller and settlement payments applied from sureties on certain ongoing projects that were assigned to usaward is earned each year in the transaction. After taking into account these adjustments,performance period, provided the applicable annual income target is achieved, or is forfeited if the applicable annual income target is not achieved. During 2020 and 2019, we received approximately $3.0 million in cash fromrecognized 0 compensation expense related to cash-based performance awards as the seller. In connectionminimum income target for 2020 and 2019 was not achieved. The target amount payable associated with the transaction, we acquired2021 performance period is approximately $121.2$0.5 million of backlog, inclusive of approximately $9.2 million of fair value adjustments and seller reimbursements allocated to four newbuild construction projects for two customers.
8. COMMITMENTS AND CONTINGENCIES
We are subject to various routine legal proceedings in the normal conduct of our business, primarily involving commercial disputes and claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the U.S. and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, we believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on our financial position, results of operations or cash flows.
MPSV Termination Letter
During the first quarter 2018, we received notices of termination from our customer of the contracts for the construction of two2 MPSVs from one ofwithin our Shipyard Division customers.Division. We dispute the purported terminations and disagree with the customer’s reasons for such terminations. Pending the resolution of the dispute, we have ceased all work and the partially completed MPSVsvessels and associated equipment and materials remain at our shipyardfacility in Houma, Louisiana. The customer also notified our Surety of its purported terminations of the construction contracts and made claims under the performance bonds issued by the Surety in connection with the construction of the two MPSVs.vessels, which total $50.0 million. We have notified and metdiscussed with ourthe Surety regarding our disagreement with and objection to, the customer's purported terminationterminations and its claims. Discussionsclaims and continue to confer with the Surety are ongoing. regarding the dispute with the customer.
F-26
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
On October 2, 2018, we filed a lawsuit against the customer to enforce our rights and remedies under the applicable construction contracts. Our lawsuit disputes the propriety of the customer’s purported terminationterminations of the construction contracts and seeks to recover damages associated with the customer’s actions. The customer filed its response to our lawsuit denying many of the allegations in the lawsuit and asserting a counterclaim against us seeking, among other things, declaratory judgment as to the validity of the customer’s purported terminations of the construction contracts and other purported claims for which the customer is seeking damages in an unspecified amount. We have filed a response to the counterclaim denying all of the customer’s claims. SubsequentThe customer subsequently filed an amendment to December 31, 2018,its counterclaim to add claims by the customer against the Surety. The customer also filed a motion for partial summary judgment with the trial court seeking, among other things, to obtain possession of the two MPSVs. We intend to respond tovessels. A hearing on the motion atwas held on May 28, 2019, and the appropriate time.
On May 19, 2020, the customer filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. The customer’s prepackaged Chapter 11 plan of reorganization was subsequently confirmed by the bankruptcy court and that plan of reorganization is effective. In connection with its bankruptcy case, on June 3, 2020, the customer filed a separate bankruptcy adversary proceeding against us in which it again sought to obtain possession of the vessels. In response, we filed a motion to dismiss the adversary proceeding and to allow the dispute regarding the vessels and the construction contracts to continue in state court where our lawsuit against the customer is currently pending. On September 1, 2020, a hearing was held in connection with the motion to dismiss; however, the bankruptcy court’s decision was delayed to allow the parties an opportunity to mediate their dispute. The parties engaged in mediation until January 26, 2021 when the customer unilaterally and voluntarily dismissed its adversary proceeding seeking possession of the vessels. The mediation between the parties was not successful.
We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contracts and defend against the customer’s claims. At December 31, 2018,2020 and December 31, 2019, other noncurrent assets on our Balance Sheet included a net contract asset of $12.5 million, which consisted of our contract asset, accrued contract losses, and deferred revenue balances at the time of the customer's purported terminationterminations of the contracts.
Insurance
We maintain insurance coverage for various aspects of our business and operations. However, we may be exposed to future losses through our use of deductibles and self-insured retentions for our exposures related to third party liability and workers' compensation.compensation claims. We expect liabilities in excess of any deductibles and self-insured retentions to be covered by insurance. To the extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to change.
Letters of Credit and Surety Bonds
We obtain letters of credit under our Credit AgreementLC Facility or surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. With respect to a letterLetters of credit under our Credit Agreement, any advance payment inLC Facility are subject to cash securitization of the full amount of the outstanding letters of credit. In the event of non-performance under a contract, our cash securitization with respect to the letter of credit supporting such contract would become a borrowing under our Credit Agreement and thus a direct obligation.property of Whitney Bank. With respect to a surety bond, any advance payment in the event of non-performance is subject to indemnification of the suretySurety by us, which may require us to borrow under our Credit Agreement.us. When a contract is complete, the contingent obligation terminates, and letters of credit or surety bonds are returned. See Note 75 for further discussion of our Credit AgreementLC Facility and surety bonds.
Environmental Matters
Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the laws of other countries, that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of hazardous substances and wastes. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes.
F-27
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation.
Leases
We maintain operating leases for our corporate office and certain operating facilities and equipment. See Note 4 for further discussion of our leases.
9. INCOME (LOSS) PER SHARE
The following table presents the computation of basic and diluted loss per share for 2020, 2019 and 2018 (in thousands, except per share data):
|
| Years Ended December 31, |
| |||||||||
|
| 2020 |
|
| 2019 |
|
| 2018 |
| |||
Net loss |
| $ | (27,375 | ) |
| $ | (49,394 | ) |
| $ | (20,378 | ) |
Weighted average shares (1) |
|
| 15,308 |
|
|
| 15,227 |
|
|
| 15,032 |
|
Basic and diluted loss per common share |
| $ | (1.79 | ) |
| $ | (3.24 | ) |
| $ | (1.36 | ) |
(1) We have 0 dilutive securities.
10. OPERATING SEGMENTS
During 2019, we operated and managed our business through 3 operating divisions (“Fabrication”, “Shipyard”, and “Services”) and 1 non-operating division (“Corporate”), which represented our reportable segments. In the first quarter 2020, our Fabrication and Services Divisions were operationally combined to form an integrated new division called Fabrication & Services. The operational combination will enable us to capitalize on the best practices and execution experience of the former divisions and maximize the utilization of our resources. As a result, we currently operate and manage our business through four2 operating divisions ("Fabrication", "Shipyard", "Services"(“Shipyard” and "EPC"“Fabrication & Services”) and one1 non-operating division ("Corporate"(“Corporate”), which represent our reportable segments.We believe thatsegments. Accordingly, the segment results (including the effects of eliminations) for our operating divisionsFabrication and Services Divisions for each meetof 2019 and 2018 were combined to conform to the criteriapresentation of our reportable segments under GAAP.for 2020. In addition to the division combination, in the first quarter 2020, management and project execution responsibility for our 2 forty-vehicle ferry projects was transferred from our former Fabrication Division to our Shipyard Division to better align the supervision and construction of these vessels with the capabilities and expertise of our Shipyard Division. Accordingly, results for these projects for 2019 (the projects had no results for 2018) were reclassified from our former Fabrication Division to our Shipyard Division to conform to the presentation of these projects for 2020. Our fourtwo operating divisions and Corporate Division are discussed below.
Shipyard Division -
Fabrication & Services Division
F-28
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
Corporate Division
We generally evaluate the performance of, and allocate resources to, our divisions based upon gross profit (loss)or loss and operating income (loss).or 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, 2018,2020, is as follows (in thousands):
|
| Year Ended December 31, 2020 |
| |||||||||||||
|
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Revenue |
| $ | 153,698 |
|
| $ | 99,485 |
|
| $ | (2,224 | ) |
| $ | 250,959 |
|
Gross profit (loss) (1) |
|
| (19,274 | ) |
|
| 1,523 |
|
|
| — |
|
|
| (17,751 | ) |
Operating income (loss) (1) |
|
| (24,343 | ) |
|
| 5,893 |
|
|
| (8,709 | ) |
|
| (27,159 | ) |
Depreciation and amortization expense |
|
| 3,254 |
|
|
| 5,061 |
|
|
| 302 |
|
|
| 8,617 |
|
Capital expenditures |
|
| 6,499 |
|
|
| 4,522 |
|
|
| 191 |
|
|
| 11,212 |
|
Total assets (4) |
|
| 121,992 |
|
|
| 54,966 |
|
|
| 54,385 |
|
|
| 231,343 |
|
|
| Year Ended December 31, 2019 |
| |||||||||||||
|
| Shipyard (5) |
|
| F&S (5) |
|
| Corporate |
|
| Total |
| ||||
Revenue |
| $ | 168,466 |
|
| $ | 137,169 |
|
| $ | (2,327 | ) |
| $ | 303,308 |
|
Gross loss (2) |
|
| (16,025 | ) |
|
| (657 | ) |
|
| (317 | ) |
|
| (16,999 | ) |
Operating loss (2) |
|
| (26,428 | ) |
|
| (13,696 | ) |
|
| (9,897 | ) |
|
| (50,021 | ) |
Depreciation and amortization expense |
|
| 4,167 |
|
|
| 4,984 |
|
|
| 413 |
|
|
| 9,564 |
|
Capital expenditures |
|
| 1,827 |
|
|
| 1,963 |
|
|
| — |
|
|
| 3,790 |
|
Total assets (4) |
|
| 103,409 |
|
|
| 77,402 |
|
|
| 71,966 |
|
|
| 252,777 |
|
|
| Year Ended December 31, 2018 |
| |||||||||||||
|
| Shipyard |
|
| F&S |
|
| Corporate |
|
| Total |
| ||||
Revenue |
| $ | 96,424 |
|
| $ | 126,695 |
|
| $ | (1,872 | ) |
| $ | 221,247 |
|
Gross profit (loss) (3) |
|
| (10,472 | ) |
|
| 4,607 |
|
|
| (1,331 | ) |
|
| (7,196 | ) |
Operating income (loss) (3) |
|
| (14,396 | ) |
|
| 4,558 |
|
|
| (9,827 | ) |
|
| (19,665 | ) |
Depreciation and amortization expense |
|
| 4,229 |
|
|
| 5,826 |
|
|
| 295 |
|
|
| 10,350 |
|
Capital expenditures |
|
| 2,003 |
|
|
| 1,460 |
|
|
| 18 |
|
|
| 3,481 |
|
Total assets (4) |
|
| 97,197 |
|
|
| 102,719 |
|
|
| 58,374 |
|
|
| 258,290 |
|
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 |
(1) | Gross profit (loss) and operating income (loss) for 2020 includes project charges of $16.6 million for our Shipyard Division and project improvements of $2.7 million for our F&S Division. Operating income (loss) also includes impairment charges and net losses on the sales of assets held for sale of $1.6 million and $2.5 million for our Shipyard Division and F&S Division, respectively, charges of $1.3 million associated with damage caused by Hurricane Laura at our Lake Charles Yard for our Shipyard Division, and a gain of $10.0 million associated with the settlement of a contract dispute for our F&S Division. See Note 2 for further discussion of our project and hurricane impacts and Note 3 for further discussion of our facility closures and impairments. |
(2) | Gross loss and operating loss for |
(3) | Gross profit (loss) and operating income (loss) for 2018 includes project charges of $6.7 million and $2.4 million for our Shipyard Division and F&S Division, respectively. Operating income (loss) also includes impairment charges of $1.0 million for our Shipyard Division and a net benefit of |
(4) | Cash and |
(5) | Revenue of $9.2 million and gross loss and operating loss of $5.1 million for |
F-29
GULF ISLAND FABRICATION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
11. QUARTERLY OPERATING RESULTS (UNAUDITED)
The following table presents selected unaudited consolidated financial information on a quarterly basis for 20182020 and 20172019 (in thousands, except per share data):
March 31, 2018 | June 30, 2018 | September 30, 2018 | December 31, 2018 (1) |
| March 31, 2020 |
|
| June 30, 2020 |
|
| September 30, 2020 |
|
| December 31, 2020 (1) |
| ||||||||||||||||
Revenue | $ | 57,290 | $ | 54,014 | $ | 49,712 | $ | 60,231 |
| $ | 78,555 |
|
| $ | 59,974 |
|
| $ | 54,869 |
|
| $ | 57,561 |
| |||||||
Gross profit (loss) | 679 | (699 | ) | (3,212 | ) | (3,964 | ) | ||||||||||||||||||||||||
Gross loss |
|
| (254 | ) |
|
| (1,703 | ) |
|
| (7,817 | ) |
|
| (7,977 | ) | |||||||||||||||
Net income (loss) | (5,296 | ) | 549 | (10,949 | ) | (4,682 | ) |
| �� | 5,905 |
|
|
| (5,537 | ) |
|
| (12,337 | ) |
|
| (15,406 | ) | ||||||||
Basic and diluted EPS | (0.36 | ) | 0.04 | (0.73 | ) | (0.31 | ) | ||||||||||||||||||||||||
Basic and diluted income (loss) per share |
|
| 0.39 |
|
|
| (0.36 | ) |
|
| (0.81 | ) |
|
| (1.01 | ) |
March 31, 2017 | June 30, 2017 | September 30, 2017 | December 31, 2017 (2) |
| March 31, 2019 |
|
| June 30, 2019 |
|
| September 30, 2019 |
|
| December 31, 2019 (2) |
| ||||||||||||||||
Revenue | $ | 37,993 | $ | 45,868 | $ | 49,884 | $ | 37,277 |
| $ | 67,605 |
|
| $ | 80,456 |
|
| $ | 75,802 |
|
| $ | 79,445 |
| |||||||
Gross loss | (4,897 | ) | (11,620 | ) | (494 | ) | (25,914 | ) | |||||||||||||||||||||||
Gross profit (loss) |
|
| 553 |
|
|
| (1,598 | ) |
|
| (2,685 | ) |
|
| (13,269 | ) | |||||||||||||||
Net loss | (6,454 | ) | (10,923 | ) | (3,110 | ) | (24,279 | ) |
|
| (3,042 | ) |
|
| (5,248 | ) |
|
| (6,779 | ) |
|
| (34,325 | ) | |||||||
Basic and diluted EPS | (0.45 | ) | (0.73 | ) | (0.21 | ) | (1.63 | ) | |||||||||||||||||||||||
Basic and diluted loss per share |
|
| (0.20 | ) |
|
| (0.34 | ) |
|
| (0.44 | ) |
|
| (2.26 | ) |
(1) | Gross loss and net loss for the fourth quarter |
(2) | Gross loss and net loss for the fourth quarter |
12. SUBSEQUENT EVENTS
On March 26, 2021, we amended our revolving credit facility with Whitney Bank. See Note 5 for further discussion of our amendment.
GULF ISLAND FABRICATION, INC.
EXHIBIT INDEX
EXHIBIT NUMBER | ||
3.1 | ||
3.2 | ||
4.1 | ||
4.2 | ||
10.1 | ||
10.2 | ||
10.3 | ||
10.4 | ||
10.5 | ||
10.6 | ||
10.7 | ||
10.8 | ||
10.9 | ||
10.10 | ||
10.11 | ||
10.12 | ||
10.13 | ||
10.14 | ||
10.15 | ||
10.16 | ||
10.17 |
EXHIBIT NUMBER | ||
10.18 | ||
10.19 | ||
10.20 | ||
10.21 | ||
10.22 | Waiver and Seventh Amendment to Credit Agreement dated March 26, 2021.* | |
10.23 | ||
10.24 | ||
10.25 | ||
21 | Subsidiaries of the Company - The | |
22 | Subsidiary guarantors and issuers of guaranteed securities – From time to time, the Company may issue debt securities under a registration statement on Form S-3 filed with the SEC that are fully and unconditionally guaranteed by Gulf Island, L.L.C., Gulf Island Shipyards, LLC and Gulf Island Services, L.L.C., each a wholly-owned subsidiary of the Company. | |
23.1 | ||
31.1 | ||
31.2 | ||
32 | ||
101 INS | Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the | |
101.SCH | Inline XBRL Taxonomy Extension Schema Linkbase Document. | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
104 | The cover page for the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, has been formatted in Inline XBRL | |
† | |
Management Contract or Compensatory Plan. |
* | Filed herewith. |
^ | |
SEC File Number 000-22303. |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on March 1, 2019.
GULF ISLAND FABRICATION, INC. (Registrant) | |||
By: | /S/ | ||
Richard W. Heo | |||
President and Chief Executive Officer |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 1, 2019.
Signature | Title | ||
/S/ | President, Chief Executive Officer and Director (Principal Executive Officer) | ||
Richard W. Heo | |||
/S/ WESTLEY S. STOCKTON | Executive Vice President, Chief Financial Officer, Treasurer and Secretary (Principal Financial Officer) | ||
Westley S. Stockton | |||
/S/ ROBERT A. WALLIS | Chief Accounting Officer (Principal Accounting Officer) | ||
Robert A. Wallis | |||
/S/ ROBERT M. AVERICK | Director | ||
Robert M. Averick | |||
/S/ MURRAY W. BURNS | Director | ||
Murray W. Burns | |||
/S/ WILLIAM E. CHILES | Director | ||
William E. Chiles | |||
/S/ MICHAEL A. FLICK | Chairman of the Board | ||
Michael A. Flick | |||
/S/ MICHAEL J. KEEFFE | Director | ||
Michael J. Keeffe | |||
/S/ CHERYL D. RICHARD | Director | ||
Cheryl D. Richard | |||
S-1