| 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 from 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 six months ended June 30, 2020 and 2019 (in thousands):
|
|
|
Three Months Ended June 30, 2020
|
|
|
Contract Type
|
|
Shipyard
|
|
|
F&S
|
|
|
Eliminations
|
|
|
Total
|
|
|
Fixed-price and unit-rate(1)
|
|
$
|
33,513
|
|
|
$
|
20,853
|
|
|
$
|
(239
|
)
|
|
$
|
54,127
|
|
|
T&M(2)
|
|
|
375
|
|
|
|
4,455
|
|
|
|
—
|
|
|
|
4,830
|
|
|
Other
|
|
|
—
|
|
|
|
1,298
|
|
|
|
(281
|
)
|
|
|
1,017
|
|
|
Total
|
|
$
|
33,888
|
|
|
$
|
26,606
|
|
|
$
|
(520
|
)
|
|
$
|
59,974
|
|
|
|
|
Six Months Ended June 30, 2020
|
|
|
Contract Type
|
|
Shipyard
|
|
|
F&S
|
|
|
Eliminations
|
|
|
Total
|
|
|
Fixed-price and unit-rate(1)
|
|
$
|
77,815
|
|
|
$
|
45,410
|
|
|
$
|
(324
|
)
|
|
$
|
122,901
|
|
|
T&M(2)
|
|
|
1,632
|
|
|
|
11,380
|
|
|
|
—
|
|
|
|
13,012
|
|
|
Other
|
|
|
—
|
|
|
|
3,259
|
|
|
|
(643
|
)
|
|
|
2,616
|
|
|
Total
|
|
$
|
79,447
|
|
|
$
|
60,049
|
|
|
$
|
(967
|
)
|
|
$
|
138,529
|
|
|
|
|
Three Months Ended June 30, 2019(3)
|
|
|
Contract Type
|
|
Shipyard
|
|
|
F&S
|
|
|
Eliminations
|
|
|
Total
|
|
|
Fixed-price and unit-rate(1)
|
|
$
|
39,093
|
|
|
$
|
29,470
|
|
|
$
|
(105
|
)
|
|
$
|
68,458
|
|
|
T&M(2)
|
|
|
960
|
|
|
|
8,187
|
|
|
|
—
|
|
|
|
9,147
|
|
|
Other
|
|
|
—
|
|
|
|
2,996
|
|
|
|
(145
|
)
|
|
|
2,851
|
|
|
Total
|
|
$
|
40,053
|
|
|
$
|
40,653
|
|
|
$
|
(250
|
)
|
|
$
|
80,456
|
|
|
|
|
Six Months Ended June 30, 2019(3)
|
|
|
Contract Type
|
|
Shipyard
|
|
|
F&S
|
|
|
Eliminations
|
|
|
Total
|
|
|
Fixed-price and unit-rate(1)
|
|
$
|
73,543
|
|
|
$
|
46,967
|
|
|
$
|
(178
|
)
|
|
$
|
120,332
|
|
|
T&M(2)
|
|
|
3,921
|
|
|
|
18,809
|
|
|
|
—
|
|
|
|
22,730
|
|
|
Other
|
|
|
—
|
|
|
|
5,470
|
|
|
|
(471
|
)
|
|
|
4,999
|
|
|
Total
|
|
$
|
77,464
|
|
|
$
|
71,246
|
|
|
$
|
(649
|
)
|
|
$
|
148,061
|
|
|
|
(1)
|
Revenue is recognized as the contract is progressed over time.
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|
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(2)
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Revenue is recognized at contracted rates when the work is performed and costs are incurred.
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|
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(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 June 30, 2020 (in thousands):
|
Segment
|
|
Performance
Obligations
|
|
|
Shipyard(1)
|
|
$
|
417,557
|
|
|
Fabrication & Services
|
|
|
30,547
|
|
|
Total
|
|
$
|
448,104
|
|
|
|
(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 June 30, 2020, in the following periods (in thousands):
|
Year
|
|
Performance
Obligations
|
|
|
Remainder of 2020
|
|
$
|
105,155
|
|
|
2021
|
|
|
206,331
|
|
|
2022
|
|
|
115,870
|
|
|
Thereafter
|
|
|
20,748
|
|
|
Total
|
|
$
|
448,104
|
|
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 June 30, 2020 and December 31, 2019 is as follows (in thousands):
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Contract assets
|
|
$
|
77,860
|
|
|
$
|
52,128
|
|
|
Contract liabilities(1), (2), (3)
|
|
|
(26,973
|
)
|
|
|
(26,271
|
)
|
|
Contracts in progress, net
|
|
$
|
50,887
|
|
|
$
|
25,857
|
|
|
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(1)
|
The increase in contract liabilities compared to December 31, 2019, was primarily due to advance payments on two projects in our Shipyard Division, offset partially by the unwind of advance payments on a project in our Shipyard Division and two projects in our Fabrication & Services Division.
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|
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(2)
|
Revenue recognized during the three months ended June 30, 2020 and 2019, related to amounts included in our contract liabilities balance at March 31, 2020 and 2019, was $5.1 million and $7.6 million, respectively. Revenue recognized during the six months ended June 30, 2020 and 2019, related to amounts included in our contract liabilities balance at December 31, 2019 and 2018, was $19.0 million and $13.9 million, respectively.
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|
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(3)
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Contract liabilities at June 30, 2020 and December 31, 2019, includes accrued contract losses of $3.2 million and $6.4 million, respectively. See "Project Changes in Estimates" below for further discussion of our accrued contract losses.
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Allowance for Doubtful Accounts
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 and six months ended June 30, 2020 and 2019, and our allowance for doubtful accounts at June 30, 2020 and December 31, 2019, were not significant.
Variable Consideration
For the three and six months ended June 30, 2020 and 2019, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at June 30, 2020 and December 31, 2019, certain projects reflected a reduction to our estimated contract price for liquidated damages of $11.6 million and $12.9 million, respectively, of which $11.2 million was recorded during 2017. The decrease from December 31, 2019 was due to projects completed during the six months ended June 30, 2020.
Changes in Project Estimates
Changes in Estimates for 2020 - For the three and six months ended June 30, 2020, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $0.6 million and $1.8 million, respectively, and positively impacted operating results for our Fabrication & Services Division by $1.0 million and $1.9 million, respectively. The changes in estimates were associated with the following:
Shipyard Division
|
|
•
|
Harbor Tug Projects – Negative impact from increased forecast costs of $0.6 million for both the three and six months ended June 30, 2020 for our final two harbor tug projects in our Jennings Yard, primarily associated with increased craft labor and subcontracted services costs and extension of schedule. The increases 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 anticipated closure in the fourth quarter 2020 and the impacts of COVID-19 primarily associated with social distancing measures. The revised forecast incorporates actual results realized from completion of the eighth vessel in the second quarter 2020 and progress achieved on the last two vessels. At June 30, 2020, the ninth and tenth vessels were approximately 93% and 80% complete, respectively, and are forecast to be completed in the third and fourth quarters of 2020, respectively. The projects were in a loss position at June 30, 2020 and our reserve for estimated losses was $0.6 million. If future craft labor productivity and subcontractor costs differ from our current estimates, we are unable to achieve our progress estimates or our schedules are further extended, the projects would experience further losses.
|
|
|
•
|
Forty-Vehicle Ferry Projects – Negative impact from increased forecast costs and forecast liquidated damages of $1.2 million for the six months ended June 30, 2020 for our two, forty-vehicle ferry projects, primarily associated with increased craft labor and material costs and extensions of schedule. The increases occurred in the first quarter 2020 and were primarily due to anticipated construction rework for the first vessel, 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 7. At June 30, 2020, the first and second vessels were approximately 60% and 62% complete, respectively, and are forecast to be completed in the first quarter 2021 and fourth quarter 2020, respectively. The projects were in a loss position at June 30, 2020 and our reserve for estimated losses was $2.5 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.
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Fabrication & Services Division
|
|
•
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Jacket and Deck Project – Positive impact from increased contract price of $0.5 million for both the three and six months ended June 30, 2020 for our jacket and deck project, primarily associated with project incentives earned during the second quarter 2020. At June 30, 2020, the project was approximately 94% complete and is forecast to be completed in the third quarter 2020. The project was in a loss position at June 30, 2020 and our reserve for estimated losses was $0.1 million.
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|
|
•
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Paddlewheel Riverboat and Subsea Components Projects – Positive impact from reduced forecast costs and increased contract price of $0.5 million and $1.4 million for the three and six months ended June 30, 2020, respectively, for our paddlewheel riverboat and subsea components projects, primarily associated with reduced craft labor and subcontracted services costs and approved change orders. The benefits were primarily due to better than anticipated labor productivity and favorable resolution of change orders with the customers and subcontractors. At June 30, 2020, both projects were complete.
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Changes in Estimates for 2019 - For the three and six months ended June 30, 2019, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $2.3 million and $2.0 million, respectively. The changes in estimates were associated with the following.
|
|
•
|
Harbor Tug Projects – Negative impact from increased forecast costs of $1.4 million and $1.2 million for the three and six months ended June 30, 2019, respectively, for our harbor tug projects in our Jennings Yard, primarily associated with increased craft labor costs and extensions of schedule. The increases were primarily due to lower than anticipated craft labor productivity and progress on the projects, resulting from limitations in craft labor availability and the required use of contract labor in lieu of direct hire labor. The projects were in a loss position at June 30, 2019 and our reserve for estimated losses on the projects was $1.6 million.
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•
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Ice-breaker Tug Project – Negative impact from increased forecast costs of $0.9 million and $0.8 million for the three and six months ended June 30, 2019, respectively, for our ice-breaker tug project, primarily associated with increased craft labor and subcontracted services costs and extensions of schedule. The increases were primarily due to construction rework and disruption and lower than anticipated craft labor productivity and progress on the project, resulting from the impact of incomplete and deficient subcontracted production engineering. The project was in a loss position at June 30, 2019 and our reserve for estimated losses on the project was $0.1 million. At June 30, 2020, the project was complete.
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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 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. The retention was classified as noncurrent as it was not billable to the customer until the second quarter 2020 upon expiration of the contractual warranty period. Further, in the first quarter 2020, the customer entered into a restructuring through a prepackaged Chapter 11 bankruptcy process, which created uncertainty with respect to the timing of collection of the retention once billed. During the second quarter 2020, the customer emerged from bankruptcy, and the retention was billed and paid by the customer prior to June 30, 2020.
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