Gulf Island Fabrication, Inc. Quarterly report pursuant to Section 13 or 15(d)

Quarterly report pursuant to Section 13 or 15(d)

REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

3 Months Ended

Mar. 31, 2020

Revenue From Contract With Customer [Abstract]

REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

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. 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 months ended March 31, 2020 and 2019 (in thousands):

	Three Months Ended March 31, 2020
	Shipyard		F&S		Eliminations			Total
Contract Type
Fixed-price and unit-rate⁽¹⁾	$	44,302	$	24,557	$	(85	)	$	68,774
T&M⁽²⁾		1,257		6,925		—			8,182
Other		—		1,961		(362	)		1,599
Total	$	45,559	$	33,443	$	(447	)	$	78,555

	Three Months Ended March 31, 2019⁽³⁾
	Shipyard		F&S		Eliminations			Total
Contract Type
Fixed-price and unit-rate⁽¹⁾	$	34,450	$	17,497	$	(73	)	$	51,874
T&M⁽²⁾		2,961		10,622		—			13,583
Other		—		2,474		(326	)		2,148
Total	$	37,411	$	30,593	$	(399	)	$	67,605

(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.

(3)

See Note 7 for discussion of our realigned operating divisions.

Future Performance Obligations Required Under Contracts

The following table summarizes our remaining performance obligations by operating segment at March 31, 2020 (in thousands):

Segment	Performance Obligations
Shipyard⁽¹⁾	$	449,258
Fabrication & Services		29,191
Total	$	478,449

(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.

We expect to recognize revenue for our remaining performance obligations at March 31, 2020, in the following periods (in thousands):

Year	Performance Obligations
Remainder 2020	$	144,680
2021		183,269
2022		127,841
Thereafter		22,659
Total	$	478,449

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 contractual 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 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. Information with respect to uncompleted contracts at March 31, 2020 and December 31, 2019 is as follows (in thousands):

	March 31,			December 31,
	2020			2019
Contract assets	$	64,905		$	52,128
Contract liabilities^{(1), (2), (3)}		(11,571	)		(26,271	)
Contracts in progress, net	$	53,334		$	25,857

(1)

The decrease in contract liabilities compared to December 31, 2019, was primarily due to the unwind of advance payments on three projects in our Shipyard Division and two projects in our Fabrication & Services Division.

(2)

Revenue recognized during the three months ended March 31, 2020 and 2019 related to amounts included in our contract liabilities balance at December 31, 2019 and 2018, was $17.0 million and $13.5 million, respectively.

(3)

Contract liabilities at March 31, 2020 and December 31, 2019, includes accrued contract losses of $4.6 million and $6.4 million, respectively. See "Project Changes in Estimates" below for further discussion of our accrued contract losses.

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 the three months ended March 31, 2020 and 2019, and our allowance for doubtful accounts at March 31, 2020 and December 31, 2019, were not significant.

Variable Consideration

For the three months ended March 31, 2020 and 2019, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at March 31, 2020 and December 31, 2019, certain projects reflected a reduction to our estimated contract price for liquidated damages of $11.8 million and $12.9 million, respectively, of which $11.2 million was recorded during 2017.

Changes in Project Estimates

Changes in Estimates for 2020 - For the three months ended March 31, 2020, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $1.2 million and benefited operating results for our Fabrication & Services Division by $0.9 million. The changes in estimates were associated with the following:

Shipyard Division

•

Forty-Vehicle Ferry Projects - Increased forecast costs and forecast liquidated damages of $1.2 million for our two, forty-vehicle ferry projects, primarily associated with increased craft labor and material costs and extensions of schedule. The increases were primarily due to anticipated rework for the first vessel, including potential reconstruction of previously completed portions of the vessel, resulting from the determination that portions of the vessel structure are 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 7. At March 31, 2020, the projects were approximately 42% and 55% complete and are forecast to be completed in 2020 and 2021. The projects were in a loss position at March 31, 2020 and our reserve for estimated losses was $3.3 million. If future craft labor productivity and 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.

Fabrication & Services Division

•

Paddle Wheel Riverboat and Subsea Components Projects - Reduced forecast costs and increased contract price of $0.9 million for our paddle wheel riverboat and subsea components projects, primarily associated with reduced craft labor and subcontracted services costs and change orders. The benefits were primarily due to better than anticipated labor productivity and favorable resolution of change orders with subcontractors and the customers. At March 31, 2020, the projects were both complete.

Changes in Estimates for 2019 - For the three months ended March 31, 2019, individual projects with significant changes in estimated margins did not have a material net impact on our operating results.

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 March 31, 2020 and December 31, 2019, other noncurrent assets on our Balance Sheet included $3.0 million of retention for a previously completed project in our Fabrication & Services Division for the fabrication of petrochemical modules. This retention is billable to the customer upon expiration of the contractual warranty period, which is expected to occur in the second quarter 2020. In January 2020, the customer entered into a restructuring through a prepackaged Chapter 11 bankruptcy process and received court approval in March 2020. The restructuring is intended to enable the customer to fulfill its commitments to suppliers, including payment of our retention; however, it could delay the timing of collection of the retention.