| REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS |
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. 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 the three and nine months ended September 30, 2019 and 2018 (in thousands):
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Three Months Ended September 30, 2019 |
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Fabrication |
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Shipyard |
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Services |
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Eliminations |
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Total |
Contract Type |
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Fixed-price and unit-rate (1)
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$ |
19,474 |
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$ |
38,128 |
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$ |
6,770 |
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$ |
(65 |
) |
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$ |
64,307 |
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T&M (2)
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— |
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1,308 |
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9,442 |
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— |
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10,750 |
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Other |
— |
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— |
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1,295 |
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(550 |
) |
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745 |
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Total |
$ |
19,474 |
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$ |
39,436 |
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$ |
17,507 |
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$ |
(615 |
) |
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$ |
75,802 |
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Three Months Ended September 30, 2018 |
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Fabrication |
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Shipyard |
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Services |
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Eliminations |
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Total |
Contract Type |
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Fixed-price and unit-rate (1)
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$ |
3,382 |
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$ |
23,635 |
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$ |
10,422 |
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$ |
(494 |
) |
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$ |
36,945 |
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T&M (2)
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— |
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857 |
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10,424 |
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— |
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11,281 |
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Other |
— |
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— |
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1,771 |
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(285 |
) |
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1,486 |
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Total |
$ |
3,382 |
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$ |
24,492 |
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$ |
22,617 |
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$ |
(779 |
) |
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$ |
49,712 |
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Nine Months Ended September 30, 2019 |
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Fabrication |
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Shipyard |
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Services |
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Eliminations |
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Total |
Contract Type |
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Fixed-price and unit-rate (1)
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$ |
54,520 |
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$ |
108,361 |
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$ |
23,517 |
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$ |
(4,311 |
) |
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$ |
182,087 |
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T&M (2)
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— |
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5,229 |
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30,403 |
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— |
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35,632 |
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Other |
— |
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— |
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7,254 |
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(1,110 |
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6,144 |
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Total |
$ |
54,520 |
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$ |
113,590 |
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$ |
61,174 |
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$ |
(5,421 |
) |
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$ |
223,863 |
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Nine Months Ended September 30, 2018 |
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Fabrication |
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Shipyard |
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Services |
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Eliminations |
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Total |
Contract Type |
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Fixed-price and unit-rate (1)
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$ |
30,197 |
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$ |
62,116 |
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$ |
31,288 |
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$ |
(1,989 |
) |
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$ |
121,612 |
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T&M (2)
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— |
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4,561 |
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31,495 |
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— |
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36,056 |
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Other |
— |
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— |
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3,909 |
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(561 |
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3,348 |
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Total |
$ |
30,197 |
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$ |
66,677 |
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$ |
66,692 |
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$ |
(2,550 |
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$ |
161,016 |
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(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.
Future Performance Obligations Required Under Contracts
A summary of our remaining performance obligations by operating segment at September 30, 2019, is as follows (in thousands).
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Segment |
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Performance Obligations |
Fabrication |
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$ |
39,894 |
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Shipyard (1)
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384,852 |
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Services |
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15,189 |
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Total |
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$ |
439,935 |
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_____________
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(1) |
Amount excludes approximately $21.9 million of remaining performance obligations related to contracts for the construction of two MPSVs that are subject to dispute pursuant to termination notices from our customer. See Note 5 for further discussion of these contracts.
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We expect to recognize revenue for our remaining performance obligations at September 30, 2019, in the following periods (in thousands):
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Year |
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Performance Obligations |
Remainder of 2019 |
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$ |
79,028 |
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2020 |
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230,699 |
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2021 |
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122,068 |
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Thereafter |
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8,140 |
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Total |
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$ |
439,935 |
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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 contract 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. Contract assets and contract liabilities included in our Balance Sheet at September 30, 2019 and December 31, 2018, are as follows (in thousands):
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September 30, |
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December 31, |
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2019 |
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2018 |
Contract assets |
$ |
50,855 |
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$ |
29,982 |
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Contract liabilities (1), (2), (3)
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(15,682 |
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(16,845 |
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Contracts in progress, net |
$ |
35,173 |
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$ |
13,137 |
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______________
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(1) |
The decrease in contract liabilities compared to December 31, 2018, was primarily due to the unwind of advance payments on a project in our Fabrication Division, offset partially by an increase in billings on a project in our Fabrication Division and advance payments on a project in our Shipyard Division.
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(2) |
Revenue recognized during the three months ended September 30, 2019 and 2018, which related to amounts included in our contract liabilities balance at June 30, 2019 and 2018, was $8.5 million and $2.6 million respectively. Revenue recognized during the nine months ended September 30, 2019 and 2018, which related to amounts included in our contract liabilities balance at December 31, 2018 and 2017, was $14.3 million and $5.1 million, respectively.
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(3) |
Contract liabilities at September 30, 2019 and December 31, 2018, includes accrued contract losses of $3.0 million and $2.4 million, respectively. See "Project Changes in Estimates" below for further discussion of our accrued contract losses.
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Allowance for Doubtful Accounts
For the three months ended September 30, 2019, we had no provision for bad debts, and for the three months ended September 30, 2018, our provision for bad debts was $2.8 million. For the nine months ended September 30, 2019 and 2018, our provision for bad debts was $0.1 million and $2.8 million, respectively. Our provision for bad debts is included in other (income) expense, net on our Statement of Operations. Our allowance for doubtful accounts at September 30, 2019 and December 31, 2018 was $0.1 million and $0.4 million, respectively.
Variable Consideration
For the three and nine months ended September 30, 2019 and 2018, we had no material amounts in revenue related to unapproved change orders, claims, or incentives. However, at September 30, 2019 and December 31, 2018, certain projects in our Shipyard and Services divisions reflected a reduction to our estimated contract price for liquidated damages of $11.8 million and $11.2 million, respectively, of which $11.2 million was recorded during 2017.
Changes in Project Estimates
For the three and nine months ended September 30, 2019, significant changes in estimated margins on projects resulted in an increase in our operating loss of $3.9 million and $5.8 million, respectively. The changes in estimates were associated with our harbor tug projects and ice-breaker tug project in our Shipyard Division and a project in our Services Division.
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• |
The changes in estimates for the harbor tug projects totaled $1.9 million and $3.1 million for the three and nine months ended September 30, 2019, respectively. The changes in estimates for the third quarter 2019 were the result of increased forecast costs and liquidated damages, primarily associated with the need to supplement and re-perform work for an under-performing paint subcontractor, higher cost estimates from our electrical and instrumentation subcontractor, and our inability to achieve previously anticipated labor productivity improvements on our uncompleted vessels, resulting in increased craft labor and subcontracted services and extensions of schedule for the projects. The changes in estimates for the first half of 2019 were the result of increased forecast costs, primarily associated with limitations in craft labor availability and the required use of contract labor in lieu of direct hire labor, resulting in lower than anticipated craft labor productivity and extensions of schedule for the projects. The revised forecasts incorporate actual results obtained from completion of the fifth vessel in the third quarter 2019 and progress achieved on the remaining five vessels. At September 30, 2019, the uncompleted vessels were at various stages of completion ranging from approximately 13% to 88% and are forecast to be completed at various dates ranging from the fourth quarter 2019 through the third quarter 2020. The projects were in a loss position at September 30, 2019 and our reserve for estimated losses was $1.9 million. If future craft labor productivity differs 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.
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• |
The changes in estimates for the ice-breaker tug project totaled $0.5 million and $1.3 million for the three and nine months ended September 30, 2019, respectively. The changes in estimates for the third quarter 2019 were the result of increased forecast costs, primarily associated with difficulties encountered to launch the vessel and anticipated delays and costs to deliver the vessel, resulting in additional craft labor, subcontracted services and support, and an extension of schedule for the project. The changes in estimates for the first half of 2019 were the result of increased forecast costs, primarily associated with incomplete and deficient subcontracted production engineering, resulting in construction rework and disruption, lower than anticipated craft labor productivity and an extension of schedule for the project. At September 30, 2019, the vessel was approximately 85% complete and is forecast to be completed in the fourth quarter 2019 and delivered in the first quarter 2020. The project was in a loss position at September 30, 2019 and our reserve for estimated losses was $0.1 million. If future craft labor productivity differs from our current estimates, we are unable to achieve our progress estimates, our schedule is further extended, or we experience further delays or additional costs to deliver the vessel, the project would experience further losses.
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The changes in estimates for our Services project totaled $1.5 million and $1.4 million for the three and nine months ended September 30, 2019, respectively. The changes in estimates were the result of increased forecast costs and liquidated damages, primarily associated with stringent welding procedure requirements and customer specifications for subsea components, resulting in additional materials, craft labor and subcontracted services and support, and an extension of schedule for the project. At September 30, 2019, the project was approximately 56% complete and is forecast to be completed in the first quarter 2020. The project was in a loss position at September 30, 2019 and our reserve for estimated losses was $0.6 million. If we continue to experience difficulties with the procedure requirements and specifications for the project or the schedule is further extended, the project would experience further losses.
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For the three and nine months ended September 30, 2018, individual projects with significant changes in estimated margins did not have a material net impact on our loss from operations.
Other Project Matters
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.
Other - At September 30, 2019 and December 31, 2018, other noncurrent assets on our Balance Sheet included $3.0 million of retention for a previously completed project in our Fabrication Division for the fabrication of modules for a petrochemical facility. This retention is billable to the customer upon expiration of the contractual warranty period, which is expected to occur in the second quarter 2020; however, the customer has recently announced it is pursuing strategic alternatives and has executed amendments to its financing arrangements that could delay the timing of collection of the retention.
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