REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS
|9 Months Ended|
Sep. 30, 2022
|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 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 and duration, for the three and nine months ended September 30, 2022 and 2021 (in thousands):
Future Performance Obligations
The following table summarizes our remaining performance obligations, disaggregated by operating segment and contract type, at September 30, 2022 (in thousands):
Contracts Assets and Liabilities
The timing of customer invoicing and recognition of revenue using the POC method may occur at different times. 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 billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet, or to the extent we have an unconditional right to the consideration, is reflected as contract receivables 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 contracts that were incomplete at September 30, 2022 and December 31, 2021, is as follows (in thousands):
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 nine months ended September 30, 2022 and 2021, and our allowance for doubtful accounts at September 30, 2022 and December 31, 2021, were not significant.
For the three and nine months ended September 30, 2022 and 2021, we had no material amounts in revenue related to unapproved change orders, claims or incentives. However, at September 30, 2022 and December 31, 2021, certain projects within our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of $1.0 million and $1.2 million, respectively.
Changes in Project Estimates
We determine the impact of changes in estimated margins on projects for a given period by calculating the amount of revenue recognized in the period that would have been recognized in a prior period had such estimated margins been forecasted in the prior period. The total impact of changes in estimated margins for a project as disclosed on a quarterly basis may be different from the applicable year-to-date impact due to the application of the POC method and the changing progress of the project at each period end. Such impacts may also be different when a project is commenced and completed within the applicable year-to-date period but spans multiple quarters.
Changes in Estimates for 2022 – For the three and nine months ended September 30, 2022, individual projects with significant changes in estimated margins did not have a material net impact on our operating results. Other impacts for the three and nine months ended September 30, 2022, were associated with the following:
As discussed in our 2021 Annual Report, during 2020 we experienced rework and construction challenges on our two forty-vehicle ferry projects, resulting in increases in forecast costs and liquidated damages and the need to fabricate a new hull for the first vessel. We believe these impacts are the result of deficiencies in design of the vessels. Further, we believe the impacts of the design deficiencies are the responsibility of the customer, and accordingly, during 2021 we submitted claims to our customer, and subsequently filed a lawsuit, to extend our project schedules and recover the previous forecast cost increases associated with the impacts of the design deficiencies. However, we can provide no assurance that we will be successful recovering these costs. Our forecasts at September 30, 2022 do not reflect potential future benefits, if any, from the favorable resolution of the lawsuit.
At September 30, 2022, the second vessel was approximately 96% complete and is forecast to be completed in the fourth quarter 2022 (previously the third quarter 2022, but delayed due to the timing of completion of the aforementioned modifications to the vessel) and the first vessel was approximately 87% complete and is forecast to be completed in the first quarter 2023 (previously the fourth quarter 2022, but delayed due to the aforementioned modifications to the second vessel which will similarly be made to the first vessel). The projects were in a loss position at September 30, 2022 and our reserve for estimated losses was $1.2 million. Our forecast costs and schedule completion dates for the vessels are based on the current vessel design and reflect our best estimates; however, such estimates may be impacted by any future challenges with the propulsion system (despite the modifications) or other future challenges with the vessel design deficiencies. While we continue to believe such impacts are the responsibility of the customer, we can provide no assurances that we will be successful recovering any future costs incurred associated with the design deficiencies. If future craft labor productivity and subcontractor costs differ from our current estimates or we are unable to achieve our progress estimates, our schedules are further extended or we incur additional schedule liquidated damages, we experience challenges during sea trials or commissioning of the first vessel, or other challenges associated with the design deficiencies and are unable to recover associated costs from our customer, or we experience challenges during delivery of the vessels, the projects would experience further delays and losses.
Changes in Estimates for 2021 – For the three and nine months ended September 30, 2021, significant changes in estimated margins on projects positively impacted operating results for our Fabrication Division by $1.1 million and $3.7 million, respectively, and negatively impacted operating results for our Shipyard Division by $1.3 million and $3.0 million, respectively. The changes in estimates were associated with the following:
Other Operating and Project Matters
Hurricane Ida – On August 29, 2021, Hurricane Ida made landfall near Houma, Louisiana as a high-end Category 4 hurricane, with high winds, heavy rains and storm surge causing significant damage and power outages throughout the region, including our Houma Facilities and operations. Our Houma Facilities did not experience significant flood damage; however, the high winds and heavy rain damaged multiple buildings and equipment and resulted in significant debris throughout the facility. Our insurance coverages in effect at the time of the storm generally specify coverage amounts for each of our buildings (including contents) and major equipment. During the third quarter 2022, we received insurance payments of $1.4 million from our insurance carriers associated with damage to our equipment. In addition, during 2021 and the second quarter 2022, we received insurance payments of $1.0 million and $7.0 million, respectively, from our insurance carriers associated with damage to our buildings. Such payments are nonrefundable and represent the insurance carriers’ estimate of the damage to each building based on the estimated depreciated value of such buildings. To the extent we incur repair costs for a building in excess of the applicable depreciated value, we may receive additional insurance proceeds up to the limits of our insurance coverage for such building.
The classification of insurance proceeds within our Statement of Cash Flows is based on our use or intended use of the proceeds. Proceeds used or intended to be used for repairs that are not deemed to be capital in nature, are reflected within operating activities. Proceeds used or intended to be used for repairs that are deemed capital in nature, or proceeds received in excess of anticipated repair costs, are reflected within investing activities.
The timing of payments from our insurance carriers have, and may continue to, differ from when we incur the applicable repair and cleanup costs, and accordingly, we have accounted for such differences in timing as follows:
Based on the above, following the storm we recorded charges of $3.2 million during 2021, and during the three and nine months ended September 30, 2022, we recorded gains of $1.3 million and $4.4 million, respectively. The charges and gains are included in other (income) expense, net on our Statement of Operations. In addition, at September 30, 2022, we had total insurance receivables on our Balance Sheet of $1.5 million. We are continuing to assess the full extent of damage to our buildings, and applicable insurance coverage amounts, and restoration efforts are ongoing. We expect to incur future repair costs of approximately $1.0 million to $1.5 million associated with previously received insurance payments for certain buildings. Further, we expect to incur future repair costs in excess of previously received insurance payments for certain buildings and equipment; however, we believe that recovery of insurance proceeds for such costs is probable.
In addition to damage to our Houma Facilities, the storm resulted in damage to our second forty-vehicle ferry project, the MPSVs (and associated equipment) that are in our possession and subject to dispute, and certain bulkheads where the vessels were moored. We have retained advisors to evaluate the extent to which any damage was the result of third-party vessels that broke free from their mooring during the storm and struck the ferry, MPSVs and bulkheads. During the nine months ended September 30, 2022, we recorded charges of $0.2 million related to actual costs incurred associated with our insurance coverages, without giving consideration to potential recoveries from the third-parties associated with damage caused by their vessels, as we expect our deductibles will apply absent such recoveries. The charges are included in other (income) expense, net on our Statement of Operations. We are working with our insurance providers and advisors to assess the full extent of damage to the MPSVs and bulkheads and applicable insurance coverage amounts, which may be subject to further deductibles associated with our insurance coverages of approximately $0.5 million. See Note 7 for further discussion of our MPSV dispute.
The entire disclosure of revenue from contract with customer to transfer good or service and to transfer nonfinancial asset. Includes, but is not limited to, disaggregation of revenue, credit loss recognized from contract with customer, judgment and change in judgment related to contract with customer, and asset recognized from cost incurred to obtain or fulfill contract with customer. Excludes insurance and lease contracts.
Reference 1: http://www.xbrl.org/2003/role/disclosureRef