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Bollinger - Gulf Island Shipyard

On 19 April 2021 Gulf Island Fabrication, Inc. ("Gulf Island" or the "Company") (NASDAQ: GIFI) announced it had sold the assets and certain long-term vessel construction contracts of the Shipyard Division to Bollinger Shipyards, L.L.C. (“Bollinger Shipyards”) for approximately $28.6 million. Net cash proceeds resulting from the transaction are anticipated to be approximately $15 million after payment of retained working capital liabilities associated with the divested construction contracts and transaction costs and adjustments to account for changes in working capital from December 31, 2020 through the closing date. The net cash proceeds are expected to be used to fund net working capital liabilities associated with retained construction contracts and other Shipyard Division liabilities and the wind down of the Shipyard Division operations.

Bollinger Shipyards has a 75-year legacy as a leading designer and builder of high performance military patrol boats and salvage vessels, research vessels, ocean-going double hull barges, offshore oil field support vessels, tugboats, rigs, lift boats, inland waterways push boats, barges, and other steel and aluminum products from its new construction shipyards as part of the U. S. industrial base. Bollinger has 11 shipyards, all strategically located throughout Louisiana with direct access to the Gulf of Mexico, Mississippi River and the Intracoastal Waterway. Bollinger is the largest vessel repair company in the Gulf of Mexico region.

The transaction transforms Gulf Island into a more focused, specialty fabrication business and positions the Company for profitable growth in existing and new higher-margin markets. It improves risk profile. Removes future risks associated with existing, long-term contracts that represent ~90% of the Company’s current backlog that extends through 2024. It also strengthens liquidity and reduces the Company’s bonding, letters of credit and working capital requirements and is expected to lessen quarterly working capital fluctuations.

“This is a transformational transaction for Gulf Island, as it will enable us to accelerate our strategic priorities by significantly de-risking our business and positioning us to pursue new, higher-margin opportunities within our Fabrication & Services Division. We are well-positioned given the strategic initiatives implemented over the past year and we are excited by the opportunities for profitable growth that lay ahead,” said Richard Heo, Gulf Island’s President and Chief Executive Officer.

“I would like to thank our Shipyard team for their relentless commitment to quality and safety, while delivering on our obligations to our customers. We believe this divestiture is in the best interest of all our stakeholders, including our shareholders, employees and customers,” continued Heo. “This transaction further supports our key strategic priorities of improving our financial strength and pursuing growth opportunities. As we focus on diversifying into new end markets with our Fabrication & Services Division, we will continue to deliver high-quality fabrication solutions to an expanded base of customers,” concluded Heo.

The transaction includes the Shipyard Division property and assets in Houma, Louisiana, including all four of the Division’s drydocks. In addition, the transaction includes the long-term contracts and all related obligations for the construction of three research vessels for Oregon State University and five towing, salvage and rescue ships for the U.S. Navy. Excluded from the transaction are certain working capital liabilities associated with such divested construction contracts. Also excluded from the transaction are the contracts and related obligations for the construction of two forty-vehicle ferries for the North Carolina Department of Transportation, a seventy-vehicle ferry for the Texas Department of Transportation, and two multi-purpose service vessels for Hornbeck Offshore Services that are subject to dispute.

Gulf Island

Gulf Island Fabrication is a leading fabricator of complex steel structures and modules and provider of project management, hookup, commissioning, repair, maintenance and civil construction services to the industrial and energy sectors. The Company’s customers include U.S. and, to a lesser extent, international energy producers; refining, petrochemical, LNG, industrial and power operators; and EPC companies. The Company is headquartered in Houston, Texas and its operating facilities are located in Houma, Louisiana.

Gulf Island Fabrication, Inc. serves as a holding company and conducts all of its operations through its subsidiaries, which include Gulf Island, L.L.C. (“Gulf Island”) and Gulf Marine (both performing fabrication of offshore drilling and production platforms and other specialized structures used in the development and production of oil and gas reserves), Gulf Island Marine Fabricators, L.L.C. (“Gulf Island Marine”, performing marine fabrication and construction services), Dolphin Services, L.L.C. (“Dolphin Services”, performing offshore and onshore fabrication and construction services), Dolphin Steel Sales, L.L.C. (“Dolphin Steel Sales”, selling steel plate and other steel products) and Gulf Island Resources, L.L.C. (“Gulf Island Resources”, hiring of laborers with similar rates and terms as those provided by contract labor service companies).

Although Gulf Island was founded in 1985, the company's history dates back to 1947 when Alden J. “Doc” Laborde worked on the first offshore oil and gas well in the Gulf of Mexico. In 1953, Mr. Laborde revolutionized the oil and gas industry by designing the world’s first offshore mobile drilling rig. During the downturn in the oil and gas industry in 1985, Mr. Laborde purchased a fabrication facility in Louisiana and co-founded Gulf Island to build offshore oil-drilling platforms. After years of sustained growth, Gulf Island went public in 1997 (NASDAQ: GIFI) and quickly established itself as a leader in the fabrication of offshore and onshore structures for the oil and gas and alternative energy industries.

Because most construction work takes place outdoors, the number of direct labor hours generally declines during the winter months, although some work continues year-round in covered areas of a given yard. In order to keep their labor force, Gulf Island Fabrication tries not to lay off their employees during these months, but rather reduces the number of hours worked per day to coincide with the reduction in daylight hours during that period. Gulf Island reports that none of their employees belong to a union.

The staff at Gulf Island Fabrication come from unusually diverse demographic backgrounds. The company is 22.8% female and 45.8% ethnic minorities. Despite its diversity in other areas, Gulf Island Fabrication employees are noticeably lacking in political diversity. It has an unusually high proportion of employees who are members of the Republican Party, at 90.0%. Employees seem to enjoy working in an otherwise diverse workplace that is dominated by members of the Republican Party.

For the last several years, the price of oil had been at depressed levels and/or experienced significant volatility, resulting in a significant and sustained reduction in capital spending and drilling activities from our traditional offshore oil and gas customer base. Consequently, operating results and cash flows were negatively impacted as the Company experienced reductions in revenue, lower margins due to competitive pricing, significant under-utilization of operating facilities and resources and losses on certain projects.

Additionally, COVID-19 has added another layer of pressure and uncertainty on oil prices and our end markets, which has further impacted operations. COVID-19 (including its new and emerging strains and variants) is a widespread public health crisis that continues to adversely affect global economies and financial markets. During 2020, operations (as well as the operations of customers, subcontractors and other counterparties) were negatively impacted by the physical distancing, quarantine and isolation measures recommended by national, state and local authorities on large portions of the population, and mandatory business closures that were enacted in an attempt to control COVID-19. Even with widespread distribution of vaccines, hesitancy or resistance to the vaccines among certain groups, as well as uncertainty about their long-term efficacy or effectiveness against new COVID-19 strains and variants, remained.

The facilities in Houma, Louisiana offer a strategic location that provides direct water access to the Gulf of Mexico. These advanced facilities are equipped to handle a diverse range of challenging products and are staffed by a dedicated, skilled workforce that never compromises on quality, safety, or customer service. And, with over 100,000 square feet of administrative and operations facilities, 340,000 square feet of covered fabrication facilities, 100,000 square feet of warehouse facilities, and a blasting and coating facility, ensure schedules and budgets are kept on track even when confronted with harsh weather conditions.

The facilities in Houma, Louisiana located on 226 acres on the east bank of the Houma Navigation Canal, and on a slip adjacent to the Houma Navigation Canal, approximately 30 miles from the Gulf of Mexico, providing the shortest and least restrictive means of access from the facilities to open waters. The facilities have 5,970 linear feet of water frontage, including 2,535 feet of steel bulkheads.