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

Future Performance Obligations

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 December 31, 2023 and 2022, is as follows (in thousands):

Significant Customers

Allowance for Doubtful Accounts and Credit Losses

Our provision for bad debts and credit losses is included in other (income) expense, net on our Statement of Operations. For 2023, we recognized income of $0.4 million associated with revisions to our allowance for doubtful accounts and credit losses, and for 2022, changes were not significant. Our allowance for doubtful accounts and credit losses at December 31, 2023 was $0.2 million, and it was not significant at December 31, 2022. We recorded a $0.6 million increase to beginning accumulated deficit as of January 1, 2023, in connection with our adoption of ASU 2016-13. We had no significant write-offs or recoveries of previously recorded bad debts during 2023 or 2022. See “New Accounting Standards” in Note 1 for further discussion of our adoption of ASU 2016-13.

Variable Consideration

For 2023 and 2022, we had no material amounts in revenue related to unapproved change orders, claims or incentives, other than amounts related to the resolution of our MPSV Litigation discussed further below. However, at December 31, 2023 and 2022, certain active projects within our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of $1.4 million and $1.4 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 2023 – During 2023, we recorded a charge of $32.5 million for our Shipyard Division, reflected as a reduction to revenue, resulting from the resolution of our MPSV Litigation. See Note 7 for further discussion of the charge and resolution of our MPSV Litigation. In addition, during 2023, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $2.7 million. The changes in estimates were associated with the following:

As discussed in our previous quarterly filings, in connection with the delivery and commissioning of the vessel in the second quarter 2023, corrosion on the propeller blades was identified and the customer determined that replacement of the propeller blades will be required. The customer has agreed to directly procure the new propeller blades and take responsibility for future installation of the blades once received. Further, the customer agreed to bear a portion of the cost of the new propeller blades, with the remainder borne by us through the aforementioned contract price reduction.

At December 31, 2023, the project was in a loss position and the warranty period for the vessel ends in the third quarter 2024. The project would experience further losses if we incur unanticipated warranty costs on the vessel.

As discussed in our 2022 Financial Statements and subsequent quarterly filings, as a result of design deficiencies, we experienced rework, construction and commissioning challenges on the two ferries, resulting in forecast cost increases and liquidated damages, and the previous need to fabricate a new hull for the second vessel. Accordingly, during 2021, we submitted claims to our customer, and subsequently filed a lawsuit, to extend our project schedules and recover the cost impacts of the design deficiencies. The customer denied all liability. Our forecasts at December 31, 2023 do not reflect potential future benefits, if any, from the favorable resolution of the lawsuit and we can provide no assurance that we will be successful recovering previously incurred costs.

At December 31, 2023, the projects were in a loss position and the warranty period for the first vessel ends in the second quarter 2024 and the warranty period for the second vessel is anticipated to end in the first quarter 2025. The projects would experience further losses if we incur unanticipated warranty costs on the vessels.

Changes in Estimates for 2022 – During 2022, significant changes in estimated margins on projects negatively impacted operating results for our Shipyard Division by $2.0 million. The changes in estimates were associated with the following:

Other Operating and Project Matters

During 2021, our operations were impacted by Hurricane Ida, which made landfall near Houma, Louisiana as a high-end Category 4 hurricane, causing debris and damage to our buildings and equipment at our Houma Facilities. Our insurance coverages in effect at the time of the storm generally specified coverage amounts for each of our buildings (including contents) and major equipment.

Fabrication Division Impacts – During 2023 and 2022, we received insurance payments of $2.2 million and $13.1 million, respectively, from our insurance carriers associated with interruptions to our operations and damage to buildings and equipment. Further, in the fourth quarter 2023, we finalized all claims associated with our insurance coverages, and at December 31, 2023, we had total insurance receivables on our Balance Sheet of $2.0 million, all of which was collected in January 2024. 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, and proceeds associated with interruptions to our operations, are reflected within operating activities. Proceeds used or intended to be used for repairs that are deemed capital in nature, or proceeds in excess of repair costs, are reflected within investing activities.

The timing of payments from our insurance carriers often differed from when we incurred the applicable repair and cleanup costs, and accordingly, we accounted for such differences in timing as follows:

Based on the above, during 2023 and 2022, we recorded gains of $2.0 million (including $0.6 million related to our business interruption coverage) and $7.5 million (including $3.7 million related to our business interruption coverage), respectively, related to the net impact of insurance recoveries and costs associated with damage previously caused by Hurricane Ida. The gains are included in other (income) expense, net on our Statement of Operations and are reflected within our Fabrication Division.

Shipyard Division Impacts – In addition to damage to our Houma Facilities, the storm resulted in damage to one of our forty-vehicle ferry projects, the multi-purpose supply vessels (“MPSV(s)”) and associated equipment that were previously in our possession and subject to our MPSV Litigation, and certain bulkheads where the vessels were moored. During 2023 and 2022, we recorded charges of $0.5 million and $0.2 million, respectively, related to actual costs incurred. The charges are included in other (income) expense, net on our Statement of Operations and are reflected within our Shipyard Division. See Note 7 for further discussion of the resolution of our MPSV Litigation.