NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
We are a leading fabricator of complex steel structures and marine vessels used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy projects and shipping and marine transportation operations. We also provide related installation, hookup, commissioning, repair and maintenance services with specialized crews and integrated project management capabilities for EPC projects. We recently completed the fabrication of complex modules for the construction of a new petrochemical plant, and we are completing newbuild construction of a technologically-advanced OSV with scheduled delivery in the second quarter of 2018. We fabricated wind turbine pedestals for the first offshore wind power project in the United States. We also constructed one of the largest liftboats servicing the GOM, one of the deepest production jackets in the GOM and the first SPAR hull fabricated in the United States. Our customers include U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power and marine operators. We operate and manage our business through
four
operating divisions: Fabrication, Shipyard, Services and our recently formed EPC Division. Our corporate headquarters is located in Houston, Texas, with fabrication facilities located in Houma, Jennings and Lake Charles, Louisiana. As of the date of this Report, our Texas South Yard in Ingleside, Texas, has been sold and our Texas North Yard in Aransas Pass, Texas, is marketed for sale.
The consolidated financial statements include the accounts of Gulf Island Fabrication, Inc. and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.
The accompanying unaudited, consolidated financial statements have been prepared in accordance with GAAP for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the
three months ended March 31, 2018
, are not necessarily indicative of the results that may be expected for the year ending
December 31, 2018
.
The balance sheet at
December 31, 2017
, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. For further information, refer to the consolidated financial statements and notes thereto included in the Company’s 2017 Annual Report.
Business Outlook
Given the ongoing challenging business environment in several of our core segments, our primary focus continues to be generating liquidity and securing meaningful backlog in the near-term and generating cash flows from operations in the longer-term. Beginning in 2015 and through the date of this Report, we have implemented a number of initiatives to strategically reposition the Company to attract new customers, participate in the buildup of petrochemical facilities, pursue offshore wind markets, enter the EPC industry and diversify our customers within our Shipyard Division. Additionally, we initiated efforts to rebuild liquidity, preserve cash and lower costs including reducing our workforce, reducing the compensation paid to our directors and the salaries of our executive officers as well as developing a plan to sell certain underutilized assets.
On
April 20, 2018
, we closed the sale of our Texas South Yard for a sales price of
$55 million
, less selling costs of
$1.5 million
. We received approximately
$52.7 million
at closing, which was in addition to the
$750,000
of earnest money previously received on January 3, 2018, related to the option to purchase the Texas South Yard. We plan to use the net proceeds to rebuild our liquidity, to support upcoming projects, continue investing in our newly created EPC Division and for other general corporate purposes. See further discussion of our the sale of our Texas South Yard in Note 2. We currently believe that cash on hand coupled with proceeds received from the sale of our Texas South Yard and funds available under our Credit Agreement will enable the Company to meet its working capital needs, capital expenditure requirements, any debt service obligations and other funding requirements for at least twelve months from the date of this Report.
If industry conditions for offshore oil and gas do not improve, we are unable to sell our Texas North Yard or the sale is delayed, or we are unable to increase our backlog, we would expect to take additional measures to preserve our cash flows until such time when we are able to generate cash flows from operations.
Income Taxes
As of
December 31, 2017
we had gross, federal net operating losses that are eligible for carryforward to offset future net income of
$62.8 million
, of which
$4 million
will expire on December 31, 2035. Our remaining federal net operating loss carryforwards will expire December 31, 2037. We have provided a valuation allowance to reserve for deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. As of March 31, 2018 and December 31, 2017, we had a valuation allowance of
$1.4 million
and
$392,000
, respectively offsetting our deferred tax assets.
We continue to evaluate the impact of the Tax Cuts and Jobs Act of 2017. No revisions were recorded during the three months ended March 31, 2018, and we have not made a material adjustment to the provisional tax amounts we recorded under Staff Accounting Bulletin 118 at December 31, 2017.
New Accounting Standards
On May 28, 2014, the FASB issued ASU No. 2014-09, Topic 606 “Revenue from Contracts with Customers” which supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition.” 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. Revenue from our fixed-price and unit-rate contracts is recognized under the percentage-of-completion method, computed by the significant inputs method which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. Revenue from T&M contracts is recognized at the contracted rates as the work is performed, the costs are incurred and when collection is reasonably assured.
We adopted Topic 606, as required, effective January 1, 2018. Our implementation included a detailed review of our significant contracts that were not substantially complete. We concluded that Topic 606 did not impact the timing of recognition of revenue from T&M contracts which is recognized as the work is performed and the costs are incurred at the contracted rates. Our evaluation concluded revenue from our fixed-price and unit-rate contracts using the percentage-of-completion method, computed by measuring the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract is still appropriate. Adoption of Topic 606, however, did require us to include contract labor amounts and certain costs from outside services within our measure of progress of percent complete in order to comply with Topic 606. Previously, we treated certain of these costs as "pass-through costs." Our assessment of these costs for the significant contracts in place at the time of adoption concluded that adoption of Topic 606 effective January 1, 2018, was immaterial to the consolidated financial statements and no cumulative adjustment was required. To the extent our contracts in future periods have significant contract labor and outside services, the timing of recognition of revenues and costs of revenues could be materially impacted. See Note 3 for further discussion regarding the adoption of Topic 606.
In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to record most leases on their balance sheet but recognize expenses in a manner similar to current guidance. ASU 2016-02 will be effective for annual periods beginning after December 15, 2018. The guidance is required to be applied using a modified retrospective approach. We are currently evaluating the effect that ASU 2016-02 will have on our financial position, results of operations and related disclosures; however, we expect to record our lease obligations on our balance sheet.
In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, held-to-maturity debt securities, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. ASU 2016-13 will be effective for annual periods beginning after December 15, 2019. Early adoption is permitted for all entities for annual periods beginning after December 15, 2018. We have not elected to early adopt this guidance. The guidance must be applied using a cumulative-effect transition method. We are currently evaluating the effect that ASU 2016-13 will have on our financial position, results of operations and related disclosures.
NOTE 2 – ASSETS HELD FOR SALE
South Texas Properties:
We measure and record assets held for sale at the lower of their carrying amount or fair value less costs to sell. Our Texas North Yard in Aransas Pass, Texas, is located along the U.S. Intracoastal Waterway and is approximately three miles north of the Corpus Christi Ship Channel. This property represents excess capacity within our Fabrication Division.
On
April 20, 2018
, we closed the sale of our Texas South Yard for a sale price of
$55 million
, less selling costs of
$1.5 million
. We received approximately
$52.7 million
at closing which was in addition to the
$750,000
of earnest money previously received on January 3, 2018, related to the option to purchase the Texas South Yard. We plan to use the net proceeds to rebuild liquidity, to support upcoming projects, continue investing in our newly created EPC Division and for other general corporate purposes. We expect to recognize a gain of approximately
$3.8 million
from the sale during the second quarter of 2018; however, we do not anticipate any material cash tax liability given our NOLs. Subsequent to
March 31, 2018
, and in connection with the sale, our cash increased approximately
$52.7 million
and our assets held for sale decreased approximately
$49.9 million
.
As of the date of this Report, our Texas North Yard and machinery and equipment remains held for sale. We have and will continue to incur costs associated with maintaining these assets until their sale. These costs include insurance, general maintenance of the assets in their current state, property taxes and retained employees which will be expensed as incurred. We do not expect the sale of these assets to impact our ability to operate our Fabrication Division. Our South Texas Properties do not qualify for discontinued operations presentation as we continue to operate our Fabrication Division at other facilities.
On August 25, 2017, our South Texas Properties were impacted by Hurricane Harvey, which made landfall as a Category 4 hurricane. As a result, we suffered damages to buildings and equipment at our South Texas Properties. We maintain coverage on these assets up to a maximum of
$25 million
, subject to a
3%
deductible with a minimum deductible of
$500,000
. Our estimate of the claim that we believe is recoverable through our property and casualty insurance is approximately
$17.8 million
; however, final settlement with our insurance carrier could be less and such difference could be material. We have not accrued for any insurance recovery at
March 31, 2018
, in excess of insurance claim payments received to date.
To date, our insurance underwriters have made advance insurance claim payments of
$8.2 million
in the aggregate, including
$2.2 million
that was received during the
three months ended March 31, 2018
. We have applied the
$8.2 million
received to date as follows:
|
|
•
|
Clean-up and repair related costs of
$1.6 million
that we have incurred since August 25, 2017, through
March 31, 2018
;
|
|
|
•
|
A building at our Texas South Yard and a building at our Texas North Yard were determined to be total losses. As a result, we impaired the remaining net book value of
$1.5 million
related to these buildings and recorded a corresponding insurance recovery offsetting the impairment during the fourth quarter of 2017; and
|
|
|
•
|
During the first quarter of 2018, we determined that we do not expect to repair the damaged buildings and equipment at the Texas North Yard. Accordingly, we impaired our Texas North Yard by
$5.1 million
, which represents our best estimate of the decline in the fair value of the property and equipment as a result of our decision to not repair the facility and recorded a corresponding insurance recovery offsetting the impairment.
|
As we work with our insurance agents and adjusters to finalize our estimate of the damage, it is our belief that final settlement of our claim will most likely be based upon a global settlement. Our final assessment of the damages incurred to our South Texas Properties as well as the amount of insurance proceeds we actually receive could be less than our estimate of the above claim when it is ultimately settled and such difference could be material.
We recorded an impairment of
$750,000
during the
three months ended March 31, 2018
, related to a piece of equipment at our Texas North Yard that we intend to sell at auction. This piece of equipment was not damaged by Hurricane Harvey. The impairment was calculated as management's estimated net proceeds from the sale less its net book value.
Based upon our assessment of the damages and the estimated fair value of the assets held for sale management believes that there is no basis to record additional impairment at this time.
Shipyard Division Assets:
Our Shipyard Division assets held for sale at
March 31, 2018
, primarily consist of a
2,500
-ton drydock located at our Houma Shipyard. During the first quarter of 2017, management placed the assets at our former Prospect Shipyard for sale, and we recorded an impairment of
$389,000
related to those assets based upon their estimated sale price. During the second quarter of 2017, we sold
two
drydocks for proceeds of
$2 million
and recorded a loss on sale of
$259,000
. During the fourth quarter of 2017, we recorded an additional impairment of
$600,000
as we terminated the former Prospect Shipyard lease. Our net book value of property, plant and equipment for these assets was
$1.9 million
at
March 31, 2018
. Our shipyard assets held for sale do not qualify for discontinued operations presentation.
A summary of the significant assets included in assets held for sale as of
March 31, 2018
, at our South Texas Properties and the Shipyard Division assets is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
South Texas Properties
|
|
|
|
|
Assets
|
Texas South Yard
(1)
|
|
Texas North Yard
|
|
Shipyard Division Assets
|
|
Consolidated
|
Land
|
$
|
3,335
|
|
|
$
|
2,157
|
|
|
$
|
—
|
|
|
$
|
5,492
|
|
Buildings and improvements
|
90,370
|
|
|
30,692
|
|
|
—
|
|
|
121,062
|
|
Machinery and equipment
|
—
|
|
|
66,305
|
|
|
2,187
|
|
|
68,492
|
|
Less: accumulated depreciation
|
(43,808
|
)
|
|
(52,554
|
)
|
|
(298
|
)
|
|
(96,660
|
)
|
Total assets held for sale
|
$
|
49,897
|
|
|
$
|
46,600
|
|
|
$
|
1,889
|
|
|
$
|
98,386
|
|
______________
(1) We closed on the sale of these assets on
April 20, 2018
, for net proceeds of
$53.5 million
.
NOTE 3 – REVENUE RECOGNITION
The Company uses the percentage-of-completion accounting method to recognize revenue from fixed-price and unit-rate contracts computed using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. Revenue recognized in a period for a contract is the pro rata portion of the contract value (excluding pass-through costs) based upon the labor hours incurred to the total labor hours estimated to complete the contract plus pass-through costs incurred during the period.
Materials and subcontractor services that represent an insignificant portion of the work to complete the project do not reflect an accurate measure of project completion are considered pass-through costs. Prior to the adoption of Topic 606, we defined pass-through costs as material, freight, equipment rental, and sub-contractor services when they are not significant to the progress of the project. Pass-through costs are included in revenue and direct costs of revenue with no impact on the gross profit realized for that particular period.
Revenue from T&M contracts is recognized as the work is performed, costs are incurred at the contracted rates and when collection is reasonably assured.
Revenue and gross profit on contracts can be significantly affected by variable consideration, which can be in the form of unpriced change orders, claims, incentives, penalties, and liquidating damages that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. We estimate variable consideration based on the most likely amount to which we expect to be entitled and include estimated amounts in the transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. For the three months ended
March 31, 2018
and 2017, we included
no
amounts in revenue related to unpriced change orders, claims, or incentives. As disclosed in our 2017 Annual Report, we recorded a reduction to our estimated contract price of
$11.7 million
of variable consideration related to liquidating damages on projects in our Shipyard Division.
Adoption of Topic 606
As discussed in Note 1, we adopted Topic 606 on January 1, 2018. The reported results for the three months ended
March 31, 2018
, reflect the application of Topic 606 guidance while the reported results for 2017 were prepared under the guidance of Topic 605. Topic 606 represents a change in accounting principle and also requires enhanced disclosures related to the disaggregation of revenue and the anticipated timing and completion of remaining performance obligations.
Our adoption of Topic 606 required us to review our fixed-price and unit-rate contracts to assess if revenue should be recognized "over time" (as the work is performed) or "at a point in time" (upon completion of the work). We determined that ownership and control of the work related to our fixed-price and unit-rate contracts transfer to our customers as the work progresses. Additionally, our customers retain the right and ability to change, modify or discontinue further fabrication or construction at any stage of the project. In the event our customers discontinue work, they are required to compensate us for the work performed to date. We determined that the significant inputs based upon labor hours most accurately reflects our primary profit generating activity as it best represents our efforts to construct the asset for our customer.
The Company's 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 the Company’s performance completed at the time of invoicing. Accordingly, the Company has elected to adopt the “right to invoice” practical expedient for T&M contracts. The adoption of this practical expedient allows the Company to recognize revenue in the amount it has the right to invoice (as the work is performed and costs are incurred at the contracted rates). Our adoption of this practical expedient determined that the impact of the adoption of Topic 606 to our revenue for the
three months ended March 31, 2018
, was immaterial and that it will not have an impact on future financial results.
Disaggregation of Revenue
The following tables detail our revenue within each division disaggregated by contract type and timing of revenue recognition for the
three months ended March 31, 2018
and
2017
(in thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
|
Fabrication Division
|
|
Shipyard Division
|
|
Services Division
|
|
EPC Division
|
|
Eliminations
|
|
Total
|
Contract Type
|
|
|
|
|
|
|
|
|
|
|
|
Lump sum and fixed-price construction
(1)
|
$
|
17,270
|
|
|
$
|
17,222
|
|
|
$
|
11,285
|
|
|
$
|
—
|
|
|
$
|
(488
|
)
|
|
$
|
45,289
|
|
Service contract revenue
(2)
|
—
|
|
|
1,343
|
|
|
10,585
|
|
|
—
|
|
|
—
|
|
|
11,928
|
|
Other
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
73
|
|
Total
|
|
$
|
17,270
|
|
|
$
|
18,565
|
|
|
$
|
21,870
|
|
|
$
|
73
|
|
|
$
|
(488
|
)
|
|
$
|
57,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
|
Fabrication Division
|
|
Shipyard Division
|
|
Services Division
|
|
EPC Division
|
|
Eliminations
|
|
Total
|
Contract Type
|
|
|
|
|
|
|
|
|
|
|
|
Lump sum and fixed-price construction
(1)
|
$
|
10,209
|
|
|
$
|
16,707
|
|
|
$
|
5,721
|
|
|
$
|
—
|
|
|
$
|
(1,350
|
)
|
|
$
|
31,287
|
|
Service contract revenue
(2)
|
—
|
|
|
1,715
|
|
|
4,991
|
|
|
—
|
|
|
—
|
|
|
6,706
|
|
Other
(3)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
10,209
|
|
|
$
|
18,422
|
|
|
$
|
10,712
|
|
|
$
|
—
|
|
|
$
|
(1,350
|
)
|
|
$
|
37,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
_____________
(1) Revenue is recognized as the contract is progressed over time.
(2) Amounts are T&M. Revenue is recognized as the work is performed and costs are incurred at the contracted rates.
(3) Other revenue is primarily from our EPC Division and represents early work authorized by SeaOne. Revenue is recognized as the contract is progressed over time.
Future Performance Required Under Fixed-Price Contracts
Topic 606 requires companies to disclose the remaining revenue to be earned under performance obligations for the portion of our contracts yet to be completed as of
March 31, 2018
(in thousands).
|
|
|
|
|
By Segment
|
Performance Obligations as of March 31, 2018
|
Fabrication Division
|
$
|
6,706
|
|
Shipyard Division
(1)
|
149,590
|
|
Services Division
|
11,858
|
|
EPC Division
|
—
|
|
Intersegment eliminations
|
(990
|
)
|
Total
|
$
|
167,164
|
|
|
|
_____________
(1) Amounts exclude approximately
$94 million
in remaining performance obligations that are disputed under a termination notice or are under a bid protest by a competing shipyard.
We expect to recognize our remaining performance obligations in revenue in the following periods as follows:
|
|
|
|
|
|
Year
|
|
$'s
|
Remainder of 2018
|
|
$
|
88,573
|
|
2019
|
|
59,231
|
|
2020
|
|
19,360
|
|
Total
|
|
$
|
167,164
|
|
|
|
|
Contracts in Progress and Advance Billings on Contracts
Revenue recognition and customer invoicing may occur at different times. Revenue recognition is based upon our calculation of percent complete; however, customer invoicing will generally depend upon a predetermined billing schedule as stated in the contract which could allow for customer advance payments or invoicing based upon achievement of certain milestones. Revenue earned but not yet invoiced is reflected as contracts in progress and included in current assets on our consolidated balance sheet. Billings made to our customers in advance of revenue being earned are reflected as advance billings on contracts and included in current liabilities on our balance sheet. Contracts in progress at
March 31, 2018
, totaled
$37.5 million
with
$27 million
relating to
two
major customers. Advance billings on contracts at
March 31, 2018
, was
$4.3 million
and included advances of
$2.8 million
from
three
major customers. Accrued contract losses were
$6.3 million
and
$7.6 million
as of
March 31, 2018
, and
December 31, 2017
, respectively.
NOTE 4 – CONTRACTS RECEIVABLE AND RETAINAGE
Our customers include major and large independent oil and gas companies, petrochemical and industrial facilities, marine companies and their contractors and agencies of the U.S. Government. Of our contracts receivable balance at
March 31, 2018
,
$18.5 million
, or
67.7%
, was with
three
customers. The significant projects for these
three
customers consist of:
|
|
•
|
The fabrication of
four
modules for a customer within our Fabrication Division associated with a U.S. ethane cracker project (completed in April 2018);
|
|
|
•
|
Offshore services related to repair, installation and hook-up work for a customer within our Services Division; and
|
|
|
•
|
Inshore service repair and installation work for a customer within our Services Division.
|
As of
March 31, 2018
, we included an allowance for bad debt of
$2 million
in our contract receivable balance which primarily relates to a customer within our Fabrication Division for the storage of an offshore drilling platform that was fully reserved in 2016.
NOTE 5 – FAIR VALUE MEASUREMENTS
The Company makes fair value determinations by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:
|
|
•
|
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; and
|
|
|
•
|
Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.
|
Recurring fair value measurements and financial instruments
-
The carrying amounts that we have reported for financial instruments, including cash and cash equivalents, accounts receivables and accounts payables, approximate their fair values.
Assets held for sale
- We measure and record assets held for sale at the lower of their carrying amount or fair value less costs to sell. The determination of fair value generally requires the use of significant judgment. We have classified our assets at our South Texas Properties and our Shipyard Division assets that were at our former Prospect Shipyard as assets held for sale at
March 31, 2018
. See Note 2 for further disclosure relating to our assets held for sale. During the
three months ended March 31, 2017
, we recorded an impairment of
$389,000
related to the Shipyard Division assets held for sale.
Our South Texas facilities were impacted by Hurricane Harvey, which made landfall as a Category 4 hurricane. During the first quarter of 2018, we determined that we do not expect to repair the buildings and equipment at the Texas North Yard in conjunction with its planned sale. Accordingly, we impaired our Texas North Yard by
$5.1 million
for damage and loss and recorded a corresponding insurance recovery offsetting the impairment.
We recorded an impairment of
$750,000
during the
three months ended March 31, 2018
, related to a piece of equipment at our Texas North Yard that we intend to sell at auction. This piece of equipment was not damaged from Hurricane Harvey. The impairment was calculated as management's estimated net proceeds from the sale less its net book value.
NOTE 6 – EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY
Earnings per Share:
The following table sets forth the computation of basic and diluted earnings per share (in thousands, except per share data):
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31,
|
|
2018
|
|
2017
|
Basic and diluted:
|
|
|
|
Numerator:
|
|
|
|
Net loss
|
$
|
(5,296
|
)
|
|
$
|
(6,454
|
)
|
Less: Distributed and undistributed loss (unvested restricted stock)
|
—
|
|
|
(34
|
)
|
Net loss attributable to common shareholders
|
$
|
(5,296
|
)
|
|
$
|
(6,420
|
)
|
Denominator:
|
|
|
|
Weighted-average shares
(1)
|
14,964
|
|
|
14,758
|
|
Basic and diluted loss per share - common shareholders
|
$
|
(0.35
|
)
|
|
$
|
(0.44
|
)
|
______________
(1) We have
no
dilutive securities.
NOTE 7 – LINE OF CREDIT
We have a
$40 million
Credit Agreement maturing
June 9, 2019
. The Credit Agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and general corporate purposes. We believe that our Credit Agreement, will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations. Interest on drawings under the Credit Agreement may be designated, at our option, as either Base Rate (as defined in the Credit Agreement) or LIBOR plus
2%
per annum. Our outstanding balance of
$10 million
at
March 31, 2018
, is designated as a LIBOR rate loan. Unused commitment fees on the undrawn portion of the Credit Agreement are
0.4%
per annum, and interest on undrawn stated amounts under letters of credit issued by the lender is
2%
per annum. At
March 31, 2018
, the interest rate on our outstanding borrowings was
3.75%
per annum. The Credit Agreement is secured by substantially all of our assets (other than the South Texas Properties).
At
March 31, 2018
,
$10 million
was outstanding under the Credit Agreement and, we had letters of credit of
$2.5 million
outstanding leaving availability of
$27.5 million
. Subsequent to
March 31, 2018
, we re-issued a letter of credit for
$3 million
related to outstanding contractual obligations which we expect to remain outstanding until July of 2018.
We must comply with the following financial covenants each quarter during the term of the Credit Agreement:
|
|
i.
|
Ratio of current assets to current liabilities of not less than
1.25
:1.00;
|
|
|
ii.
|
Minimum tangible net worth requirement of at least the sum of:
|
|
|
b)
|
An amount equal to
50%
of consolidated net income for each fiscal quarter ending after June 30, 2017, including
50%
of any gain attributable to the sale of our South Texas Properties (with no deduction for a net loss in any such fiscal quarter), plus
|
|
|
c)
|
100%
of the proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and
|
|
|
iii.
|
Ratio of funded debt to tangible net worth of not more than
0.50
:1.00.
|
As of
March 31, 2018
, we were in compliance with all of our financial covenants.
NOTE 8 - SEGMENT DISCLOSURES
We have structured our operations with
four
operating divisions, including our newly formed EPC Division, and
one
corporate non-operating division. We believe that our operating divisions and our corporate non-operating division each represent a reportable segment under GAAP. Our newly formed EPC Division was created in December 2017 to manage expected work we will perform for the SeaOne Project and other projects that may require EPC project management services. Our operating divisions and Corporate Division are discussed below.
Fabrication Division
-
Our Fabrication Division primarily fabricates structures such as offshore drilling and production platforms and other steel structures for customers in the oil and gas industry including jackets and deck sections of fixed production platforms, hull, tendon, and/or deck sections of floating production platforms (such as TLPs, SPARs, FPSOs and MinDOCs), piles, wellhead protectors, subsea templates, and various production, compressor, and utility modules along with pressure vessels. Our Fabrication Division also fabricates structures for alternative energy customers (such as the
five
jackets and piles we constructed for the first offshore wind power project in the United States during 2015) as well as modules for petrochemical facilities. We perform these activities out of our fabrication yards in Houma, Louisiana. As of the date of this Report, our Texas South Yard has been sold and our Texas North Yard is marketed for sale. See Note 2 for further disclosure relating to our South Texas Properties.
Shipyard Division -
Our Shipyard Division primarily manufactures newbuild vessels and repairs various steel marine vessels in the United States including offshore supply vessels, anchor handling vessels and liftboats to support the construction and ongoing operation of offshore oil and gas production platforms, tug boats, towboats, barges, drydocks and other marine vessels. Our marine repair activities include steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft, and rudder reconditioning. In addition, we perform conversion projects that consist of lengthening vessels, modifying vessels to permit their use for a different type of activity, and other modifications to enhance the capacity or functionality of a vessel. We perform these activities at our shipyards in Houma, Jennings and Lake Charles, Louisiana.
Services Division
-
Our Services Division primarily provides interconnect piping services on offshore platforms and inshore structures. Interconnect piping services involve sending employee crews to offshore platforms in the GOM to perform welding and other activities required to connect production equipment, service modules and other equipment on a platform. We also contract with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the southeastern United States for various on-site construction and maintenance activities. In addition, our Services Division fabricates packaged skid units and performs various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other public works projects for state and local governments. We perform these services at customer facilities or at our Houma Services Yard.
EPC Division -
Late in the fourth quarter of 2017, SeaOne selected us as the prime contractor for the engineering, procurement, construction, installation, commissioning and start-up for their SeaOne Project. This project will include execution of engineering, construction and installation of modules for an export facility in Gulfport, Mississippi, and import facilities in the Caribbean and South America. SeaOne’s selection of the Company is non-binding and commencement of the project remains subject to a number
of conditions, including agreement on the terms of the engagement with SeaOne. We have created our EPC Division to manage this project and future similar projects. We understand that SeaOne is in the process of securing financing to move forward with its project. We are hopeful that the SeaOne Project will initiate planning and start-up efforts mid-2018 with construction to start in early 2019. We are strengthening our internal project management capabilities through the hiring of additional personnel to service this potential project.
Corporate Division
-
Our Corporate Division primarily includes expenses that do not directly relate to the operations or shared services provided to our
four
operating divisions. Expenses for shared services such as human resources, insurance, business development and accounting salaries are allocated to the operating divisions. Expenses that are not allocated include, but are not limited to, costs related to executive management and directors' fees, clerical and administrative salaries, costs of maintaining the corporate office and costs associated with overall governance and being a publicly traded company.
We generally evaluate the performance of, and allocate resources to, our divisions based upon gross profit (loss) and operating income (loss). Division assets are comprised of all assets attributable to each division. Corporate administrative costs and overhead are allocated to our
four
operating divisions for expenses that directly relate to the operations or relate to shared services as discussed above. Intersegment revenue is priced at the estimated fair value of work performed. Summarized financial information concerning our divisions as of and for the
three months ended
March 31, 2018
, and
2017
, is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2018
|
|
Fabrication
|
Shipyard
|
Services
|
EPC
|
Corporate
|
Eliminations
|
Consolidated
|
Revenue
|
$
|
17,270
|
|
$
|
18,565
|
|
$
|
21,870
|
|
$
|
73
|
|
$
|
—
|
|
$
|
(488
|
)
|
$
|
57,290
|
|
Gross profit (loss)
|
(219
|
)
|
(1,023
|
)
|
2,614
|
|
(308
|
)
|
(385
|
)
|
—
|
|
679
|
|
Operating income (loss)
|
(1,593
|
)
|
(1,819
|
)
|
1,880
|
|
(725
|
)
|
(2,523
|
)
|
—
|
|
(4,780
|
)
|
Total assets
|
184,263
|
|
76,150
|
|
105,632
|
|
12
|
|
318,137
|
|
(415,072
|
)
|
269,122
|
|
Depreciation and amortization expense
|
1,149
|
|
1,069
|
|
393
|
|
—
|
|
138
|
|
—
|
|
2,749
|
|
Capital expenditures
|
—
|
|
6
|
|
65
|
|
—
|
|
—
|
|
—
|
|
71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2017
|
|
Fabrication
|
Shipyard
|
Services
|
EPC
|
Corporate
|
Eliminations
|
Consolidated
|
Revenue
|
$
|
10,209
|
|
$
|
18,422
|
|
$
|
10,712
|
|
—
|
|
$
|
—
|
|
$
|
(1,350
|
)
|
$
|
37,993
|
|
Gross profit (loss)
|
(2,966
|
)
|
(1,704
|
)
|
33
|
|
—
|
|
(260
|
)
|
—
|
|
(4,897
|
)
|
Operating income (loss)
|
(3,787
|
)
|
(3,057
|
)
|
(633
|
)
|
—
|
|
(1,739
|
)
|
—
|
|
(9,216
|
)
|
Total assets
|
197,834
|
|
88,489
|
|
95,562
|
|
—
|
|
349,917
|
|
(427,142
|
)
|
304,660
|
|
Depreciation and amortization expense
|
3,135
|
|
1,009
|
|
432
|
|
—
|
|
124
|
|
—
|
|
4,700
|
|
Capital expenditures
|
102
|
|
272
|
|
—
|
|
—
|
|
17
|
|
—
|
|
391
|
|
|
|
|
|
|
|
|
|
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company is subject to various routine legal proceedings in the normal conduct of its business, primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the United States and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, management believes that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on the financial position, results of operations or cash flows of the Company.
MPSV Termination Letter
We received a notice of purported termination from a customer within our Shipyard Division related to the construction of
two
MPSVs. We dispute the purported termination and disagree with the customer’s reasons for same. Pending resolution of the dispute, all work has been stopped and the vessels and associated equipment and material are in our care and custody at our shipyard in Houma, Louisiana. The customer has notified our Surety of its intent to require completion of the vessel under the Surety's
bond. We have notified and met with our Surety regarding our disagreement with our customer's claims. The Company will continue to enforce its rights under the agreements and defend any claims asserted against the Company by its customer. Management is unable to estimate the probability of a favorable or unfavorable outcome a well as an estimate of potential loss, if any, at this time. We cannot guarantee that we will not incur additional costs as we negotiate with this customer. At March 31, 2018, our net balance sheet exposure was
$12 million
.
NOTE 10 – SUBSEQUENT EVENTS
See Note 2 regarding the sale of our Texas South Yard on
April 20, 2018
.