UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, ~~2017~~2018



¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 001-34279

GULF ISLAND FABRICATION, INC.

(Exact name of registrant as specified in its charter)




LOUISIANA		72-1147390
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
		(I.R.S. Employer Identification No.)




	16225 PARK TEN PLACE, SUITE ~~280~~300 HOUSTON, TEXAS		77084
	16225 PARK TEN PLACE, SUITE ~~280~~300 HOUSTON, TEXAS		77084
(Address of principal executive offices)		(Zip Code)

(713) 714-6100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated ~~filer”~~filer,” “smaller reporting company” and “emerging growth company.” See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨	Smaller reporting company	¨

		Emerging Growth Company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

The number of shares of the registrant’s common stock, no par value per share, outstanding as of ~~October 31, 2017,~~November 8, 2018, was ~~14,897,661~~15,083,221.

GULF ISLAND FABRICATION, INC.

I N D E X



		Page

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, ~~2017~~2018 (unaudited) and December 31, ~~2016~~2017	36
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017 (unaudited)	47
	Consolidated Statement of Changes in ~~Shareholders’~~Shareholders' Equity for the Nine Months Ended September 30, ~~2017~~2018 (unaudited)	58
	Consolidated ~~Statements~~Statement of Cash Flows for the Nine Months Ended September 30, ~~2017~~2018 and ~~2016~~2017 (unaudited)	69
	Notes to Consolidated Financial Statements (unaudited)	710
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1621
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	2837
Item 4.	Controls and Procedures	2837
PART II	Other Information
Item 1.	Legal Proceedings	2938
Item 1A.	Risk Factors	2938
Item 6.	Exhibits	2938
Signatures		3039

GLOSSARY OF TERMS

As used in this Report for the quarter ended September 30, 2018, the following abbreviations and terms have the meanings as listed below. Additionally, the terms “Gulf Island,” “the Company,” “we,” “us” and “our” refer to Gulf Island Fabrication, Inc. and its consolidated subsidiaries, unless the context clearly indicates otherwise. Unless and as otherwise stated, any references in this Report to any agreement means such agreement and all schedules, exhibits and attachments in each case as amended, restated, supplemented or otherwise modified to the date of filing this Report.

~~Exhibit Index~~

2017 Annual Report:		Our annual report for the year ended December 31, 2017, filed with the SEC on Form 10-K on March 9, 2018.

ASC:		FASB Accounting Standards Codification.

ASU:		Accounting Standards Update.

Company:		Gulf Island Fabrication, Inc. and its consolidated subsidiaries.

Credit Agreement:		~~E-1~~The Company's $40.0 million revolving credit facility with Hancock Whitney Bank maturing June 9, 2020, as amended.

deck:		The component of a platform on which development drilling, production, separating, gathering, piping, compression, well support, crew quartering and other functions related to offshore oil and gas development are conducted.

direct labor hours:		Hours worked by employees directly involved in the production of the Company’s products. These hours do not include support personnel hours such as maintenance, warehousing and drafting.

EPC:		Engineering, procurement and construction phases of a complex project; EPC typically refers to a contract that requires the project management and coordination of these significant activities.

Exchange Act:		Securities Exchange Act of 1934, as amended.

FASB:		Financial Accounting Standards Board.

FPSO:		Floating Production Storage and Offloading vessel. A floating vessel used by the offshore oil and gas industry for the production and processing of hydrocarbons and for the storage of oil.

GAAP:		Generally accepted accounting principles in the U.S.

GOM:		Gulf of Mexico.

inland or inshore:		Inside coastlines, typically in bays, lakes and marshy areas.

jacket:		A component of a fixed platform consisting of a tubular steel, braced structure extending from the mudline of the seabed to a point above the water surface. The jacket is anchored with tubular steel pilings driven into the seabed. The jacket supports the deck structure located above the water.

LIBOR:		London Inter-Bank Offered Rate.

MinDOC:		Minimum Deepwater Operating Concept. A floating production platform designed for stability and dynamic positioning response to waves consisting of three vertical columns arranged in a triangular shape connected to upper and lower pontoon sections.



modules		Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a petrochemical or industrial system. These modules are pre-fabricated at our facilities and then transported to the customer's location for final integration.

MPSV		Multi-Purpose Service Vessel.

NOL(s)		Net operating loss(es) that are available to offset future taxable income, subject to certain limitations.

offshore		In unprotected waters outside coastlines.

onshore		Inside the coastline on land.

OSV		Offshore Support Vessel.

piles		Rigid tubular pipes that are driven into the seabed to support platforms.

platform		A structure from which offshore oil and gas development drilling and production are conducted.

pressure vessel		A metal container generally cylindrical or spheroid, capable of withstanding various internal pressure loads.

SeaOne		SeaOne Caribbean, LLC.

SeaOne Project		The engineering, procurement, construction, installation, commissioning and start-up work for SeaOne's Compressed Gas Liquids Caribbean Fuels Supply Project. This project will include execution of engineering, construction and installation of modules for an export facility in Gulfport, Mississippi, and import facilities in the Caribbean and South America.

SEC		U.S. Securities and Exchange Commission.

skid unit		Packaged equipment usually consisting of major production, utility or compression equipment with associated piping and control system.

South Texas Properties		Historically, our Texas North Yard and Texas South Yard properties, improvements and equipment located in Aransas Pass and Ingleside, Texas, respectively. The Texas South Yard property, together with improvements and related machinery and equipment was sold on April 20, 2018. The Texas North Yard, together with improvements and related machinery and equipment is held for sale.

SPAR		Single Point Anchor Reservoir. A floating vessel with a circular cross-section that sits vertically in the water and is used for infield flow lines and associated subsea infrastructure. The SPAR connects subsea production and injection wells for oil and gas production in deepwater environments.

subsea templates		Tubular frames which are placed on the seabed and anchored with piles. Usually a series of oil and gas wells are drilled through these underwater structures.

Surety		A financial institution that issues bonds to customers on behalf of the Company for the purpose of providing third-party financial assurance related to our performance of construction contracts.

T&M		Work performed and billed to the customer generally at contracted time and material rates, cost plus or other variable fee arrangements which can include a mark-up.



Texas North Yard		Our Texas North Yard consists of our fabrication yard located in Aransas Pass, Texas, along the U.S. Intracoastal Waterway approximately three miles north of the Corpus Christi Ship Channel. This property is situated on approximately 196 acres. Our Texas North Yard, together with its improvements and related machinery and equipment is held for sale.

Texas South Yard		Historically, our Texas South Yard consisted of our fabrication yard located in Ingleside, Texas on the northwest corner of the Corpus Christi Ship Channel at the intersection of the Corpus Christi Ship Channel and the U.S. Intracoastal Waterway. This property was sold on April 20, 2018.

this Report		This quarterly report filed on Form 10-Q for the quarter ended September 30, 2018.

TLP		Tension Leg Platform. A floating hull and deck anchored by vertical tensioned cables or pipes connected to pilings driven into the seabed. A tension leg platform is typically used in water depths exceeding 1,200 feet.

U.S.		The United States of America.

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)


	September 30, 2017		December 31, 2016		September 30, 2018		December 31, 2017
	(Unaudited)		(Note 1)		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	17,792	$	51,167	$	45,020	$	8,983
Short-term investments					9,494		—
Contracts receivable and retainage, net	25,513		20,169		28,933		28,466
Contracts in progress	42,810		26,829		40,187		28,373
Inventory					6,568		4,933
Prepaid expenses and other assets	4,158		3,222		3,456		3,833
Inventory	12,325		11,973
Assets held for sale	107,010		—		42,670		104,576
Total current assets	209,608		113,360		176,328		179,164
Property, plant and equipment, net	90,989		206,222		80,707		88,899
Other assets	2,783		2,826
Other noncurrent assets					5,922		2,777
Total assets	$	303,380	$	322,408	$	262,957	$	270,840
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	21,457	$	9,021	$	20,166	$	18,375
Advance billings on contracts	4,367		3,977		14,930		5,136
Deferred revenue, current	4,148		11,881
Deferred revenue					829		4,676
Accrued contract losses	1,982		387		6,033		7,618
Accrued expenses and other liabilities	13,685		10,032		10,339		12,860
Income tax payable	—		50
Total current liabilities	45,639		35,348		52,297		48,665
Net deferred tax liabilities	12,999		23,234
Deferred revenue, noncurrent	—		489		2,489		769
Other liabilities	895		305
Other noncurrent liabilities					3,035		1,913
Total liabilities	59,533		59,376		57,821		51,347
Shareholders’ equity:
Preferred stock, no par value, 5,000,000 shares authorized, no shares issued and outstanding	—		—
Common stock, no par value, 20,000,000 shares authorized, 14,851,949 issued and outstanding at September 30, 2017, and 14,695,020 at December 31, 2016, respectively	10,817		10,641
Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding					—		—
Common stock, no par value, 20,000 shares authorized, 15,044 shares issued and outstanding at September 30, 2018 and 14,910 at December 31, 2017					10,957		10,823
Additional paid-in capital	100,388		98,813		101,661		100,456
Retained earnings	132,642		153,578		92,518		108,214
Total shareholders’ equity	243,847		263,032		205,136		219,493
Total liabilities and shareholders’ equity	$	303,380	$	322,408	$	262,957	$	270,840

The accompanying notes are an integral part of these financial statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

(in thousands, except per share data)

Three Months Ended
September 30, Nine Months Ended
September 30,
2017 2016 2017 2016
Revenue $ 49,884
$ 65,384
$ 133,745
$ 230,864
Cost of revenue 50,378
60,125
150,755
205,839
Gross profit (loss) (494 ) 5,259
(17,010 ) 25,025
General and administrative expenses 4,370
5,086
12,940
14,633
Asset impairment —
—
389
—
Operating income (loss) (4,864 ) 173
(30,339 ) 10,392
Other income (expense):
Interest expense (45 ) (110 ) (262 ) (248 )
Interest income —
12
12
20
Other income (expense), net 38
599
(221 ) 1,039
Total other income (expense) (7 ) 501
(471 ) 811
Net income (loss) before income taxes (4,871 ) 674
(30,810 ) 11,203
Income tax expense (benefit) (1,761 ) 133
(10,322 ) 4,134
Net income (loss) $ (3,110 ) $ 541
$ (20,488 ) $ 7,069
Per share data:
Basic and diluted earnings (loss) per share - common shareholders $ (0.21 ) $ 0.04
$ (1.38 ) $ 0.48
Cash dividend declared per common share $ 0.01
$ 0.01
$ 0.03
$ 0.03



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Revenue	$	49,712		$	49,884		$	161,016		$	133,745
Cost of revenue	52,924			50,378			164,248			150,755
Gross loss	(3,212		)	(494		)	(3,232		)	(17,010		)
General and administrative expenses	7,672			4,370			17,473			12,940
Asset impairments	—			—			1,360			389
Operating loss	(10,884		)	(4,864		)	(22,065		)	(30,339		)
Interest income (expense), net	72			(45		)	(166		)	(262		)
Other income (expense), net	140			38			6,954			(209		)
Net loss before income taxes	(10,672		)	(4,871		)	(15,277		)	(30,810		)
Income tax expense (benefit)	277			(1,761		)	419			(10,322		)
Net loss	$	(10,949	)	$	(3,110	)	$	(15,696	)	$	(20,488	)
Per share data:
Basic and diluted loss per common share	$	(0.73	)	$	(0.21	)	$	(1.05	)	$	(1.38	)
Cash dividends per common share	$	—		$	0.01		$	—		$	0.03

The accompanying notes are an integral part of these financial statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in ~~thousands, except share data)~~thousands)

Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Total
Shareholders’
Equity

Shares Amount
Balance at January 1, 2017 14,695,020
$ 10,641
$ 98,813
$ 153,578
$ 263,032
Net income (loss) —
—
—
(20,488 ) (20,488 )
Vesting of restricted stock 156,929
(88 ) (797 ) —
(885 )
Compensation expense - restricted stock —
264
2,372
—
2,636
Dividends on common stock —
—
—
(448 ) (448 )
Balance at September 30, 2017 14,851,949
$ 10,817
$ 100,388
$ 132,642
$ 243,847



	Common Stock				Additional Paid-In Capital			Retained Earnings			Total Shareholders’ Equity
	Common Stock
	Shares	Amount
Balance at January 1, 2018	14,910	$	10,823		$	100,456		$	108,214		$	219,493
Net loss	—	—			—			(15,696		)	(15,696		)
Restricted stock vesting	134	(79		)	(716		)	—			(795		)
Stock based compensation expense	—	213			1,921			—			2,134
Balance at September 30, 2018	15,044	$	10,957		$	101,661		$	92,518		$	205,136

The accompanying notes are an integral part of these financial statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


	Nine Months Ended September 30,						Nine Months Ended September 30,

	2017			2016			2018			2017
Cash flows from operating activities:
Net income (loss)	$	(20,488	)	$	7,069
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities:
Net loss							$	(15,696	)	$	(20,488	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense	19			422			2,776			19
Depreciation and amortization	10,141			19,262			7,834			10,141
Amortization of deferred revenue	(2,397		)	(4,114		)	(504		)	(2,397		)
Asset impairment	389			—
Loss (gain) on sale of assets	224			(924		)
Asset impairments							1,360			389
(Gain) loss on sale of assets, net							(3,496		)	224
Gain on insurance recoveries, net							(3,342		)	—
Deferred income taxes	(10,235		)	3,651			—			(10,235		)
Compensation expense - restricted stock	2,636			2,452
Stock based compensation expense							2,134			2,636
Changes in operating assets and liabilities:
Contracts receivable and retainage, net	(5,363		)	22,287			(6,211		)	(5,363		)
Contracts in progress	(15,981		)	(5,834		)	(11,814		)	(15,981		)
Prepaid expenses, inventory, and other current assets	(26		)	1,050
Prepaid expenses, inventory, and other assets							(2,519		)	(26		)
Accounts payable	12,436			(13,654		)	1,791			12,436
Advance billings on contracts	390			(20		)	9,795			390
Deferred revenue	(5,825		)	(8,928		)	(1,621		)	(5,825		)
Deferred compensation	590			—
Accrued contract losses							(1,585		)	1,595
Accrued expenses and other liabilities	2,336			4,713			2,432			2,926
Accrued contract losses	1,595			(8,001		)
Net cash (used in) provided by operating activities	(29,559		)	19,431
Net cash used in operating activities							(18,666		)	(29,559		)
Cash flows from investing activities:
Capital expenditures	(4,515		)	(5,415		)	(2,362		)	(4,515		)
Net cash received in acquisition	—			1,588
Proceeds from the sale of equipment	2,120			5,813
Net cash (used in) provided by investing activities	(2,395		)	1,986
Purchase of short-term investments							(9,174		)	—
Proceeds from sale of property, plant and equipment							57,716			2,120
Recoveries from insurance claims							9,362			—
Net cash provided by (used in) investing activities							55,542			(2,395		)
Cash flows from financing activities:
Tax payments made on behalf of employees from withheld, vested shares of common stock	(885		)	(163		)
Tax payments made on behalf of employees from vested stock withholdings							(795		)	(885		)
Payment of financing cost	(88		)	—			(44		)	(88		)
Payments of dividends on common stock	(448		)	(440		)	—			(448		)
Proceeds received from borrowings under our line of credit	2,000			—
Repayment of borrowings under our line of credit	(2,000		)	—
Proceeds from borrowings under Credit Agreement							15,000			2,000
Repayment of borrowings under Credit Agreement							(15,000		)	(2,000		)
Net cash used in financing activities	(1,421		)	(603		)	(839		)	(1,421		)
Net change in cash and cash equivalents	(33,375		)	20,814			36,037			(33,375		)
Cash and cash equivalents at beginning of period	51,167			34,828
Cash and cash equivalents at end of period	$	17,792		$	55,642
Cash and cash equivalents, beginning of period							8,983			51,167
Cash and cash equivalents, end of period							$	45,020		$	17,792

The accompanying notes are an integral part of these financial statements.

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 30, ~~2017~~2018

(Unaudited)

NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

~~Gulf Island Fabrication, Inc. ("Gulf Island," and together with its subsidiaries "the Company," "we" or "our"), is~~We are a leading fabricator of complex steel structures, modules and marine vessels used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy ~~projects~~ and shipping and marine transportation operations. We also provide related project management for EPC projects along with installation, hookup, commissioning and repair and maintenance ~~services with specialized crews~~services. In addition, we perform civil, drainage and ~~integrated project management capabilities. We are currently fabricating complex modules~~other work for ~~the construction of a new petrochemical plant~~state and two multi-purpose service vessels. We recently fabricated offshore wind turbine foundations for the first offshore wind power project in the United States. We also constructed one of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM and the first SPAR fabricated in the United States. Our customers include U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power and marine operators.local governments. We operate and manage our business through ~~three~~four operating divisions: Fabrication, ~~Shipyards~~Shipyard, Services and ~~Services.~~EPC. Our corporate headquarters is located in Houston, Texas, with fabrication facilities located in Houma, Jennings and Lake Charles, Louisiana.

We recently completed the fabrication of complex modules for the construction of a new petrochemical facility and the newbuild construction and delivery of a technologically-advanced OSV. Current significant projects include the construction of ten harbor tug vessels, two offshore regional class marine research vessels, an ice-breaker tug, and the expansion of a paddle wheel riverboat. We were also recently awarded a contract for the construction of a towing, salvage and rescue ship for the U.S. Navy with options for seven additional vessels. Previous projects include the fabrication of wind turbine pedestals for the first offshore wind power project in the U.S., and construction of one of the largest liftboats servicing the GOM, one of the deepest production jackets in the GOM, and the first SPAR hull fabricated in the U.S. Our ~~fabrication facilities in Aransas Pass~~customers include U.S. and, ~~Ingleside, Texas are currently being marketed for sale.~~to a lesser extent, international energy producers, petrochemical, industrial, power, and marine operators, EPC companies and certain agencies of the U.S. government.

The ~~consolidated financial statements~~accompanying unaudited Consolidated Financial Statements include the accounts of Gulf Island Fabrication, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation.

~~For definitions of certain technical terms contained in this Form 10-Q, see the Glossary of Certain Technical Terms contained in our Annual Report on Form 10-K for the year ended December 31, 2016.~~

The ~~accompanying unaudited, consolidated financial statements~~Consolidated Financial Statements have been prepared in accordance with ~~U.S. generally accepted accounting principles (“GAAP”)~~GAAP for interim financial ~~information,~~statements, the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, the ~~consolidated financial statements~~Consolidated Financial Statements do not include all of the information and footnotes required by GAAP for complete financial statements. In ~~the~~our opinion, ~~of management,~~ all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, ~~2017,~~2018, are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2017.~~2018.

The ~~balance sheet~~Consolidated Balance Sheet at December 31, ~~2016,~~2017, has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by GAAP for complete financial statements. Certain balances at December 31, 2017 have been reclassified within our Consolidated Balance Sheet to conform to our September 30, 2018 presentation. For further information, refer to the ~~consolidated financial statements~~Consolidated Financial Statements and notes thereto included in ~~the Company’s~~our 2017 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report.

~~Reclassifications~~Business Outlook

We continue to strategically position the Company to participate in the fabrication of petrochemical and industrial facilities, pursue offshore wind opportunities, enter the EPC industry, and diversify our customer base within all of our operating divisions. In addition, we continue to focus on maintaining liquidity and securing meaningful new contract awards and backlog in the near-term, and generating operating income and cash flow from operations in the longer-term. We have made significant progress in our efforts to improve our liquidity, including reductions in costs (including reducing our workforce and reducing the ~~following reclassifications~~cash compensation paid to our ~~financial statements for three~~directors and ~~nine months ended September 30, 2016, to conform to current period presentation:~~the salaries of our executive officers) and the divestiture of underutilized assets.

~~We reclassified $163,000 from operating activities to financing activities in~~During the ~~Company’s consolidated statement~~second quarter 2018, we completed the sale our Texas South Yard for $55.0 million, less selling costs of ~~cash flows~~$1.5 million, for total net proceeds during the nine months ended September 30, ~~2016,~~2018 of $53.5 million and a gain of approximately $3.9 million. In addition, on September 26, 2018, we entered into an agreement to sell our Texas North Yard and certain associated equipment for $28.0 million. We received $0.5 million during the third quarter 2018 as a deposit on the property, which is refundable under certain circumstances. The sale is anticipated to close in the fourth quarter 2018 and is subject to customary closing conditions, including the purchaser’s right to conduct inspections of the property related to ~~tax payments made by the Company to satisfy employee income tax withholding obligations arising from vesting shares as a result~~confirmation of title, surveys, environmental conditions, easements and access rights, and third-party consents. See Note 2 for further discussion of the ~~adoption~~sale of ~~Accounting Standards Update 2016-09 as discussed in "New Accounting Standards" below. This reclassification had no impact to~~ our ~~financial position or results~~Texas South Yard and the anticipated sale of ~~operations.~~our Texas North Yard.

We ~~reclassified corporate administrative costs~~believe that our cash, cash equivalents and ~~overhead~~short-term investments at September 30, 2018, and availability under our Credit Agreement, will be sufficient to enable us to fund our operating expenses, ~~previously allocated~~meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the date of this Report.

Cash and cash equivalents

We consider all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents.

Short-term investments

Short-term investments include U.S. Treasuries and other investment-grade commercial paper with maturities of six months or less. We intend to hold these investments until maturity and have stated them at amortized cost. Due to their near-term maturities, amortized cost approximates fair value. All of our short-term investments are traded on active markets with quoted prices and represent level 1 fair value measurements. See Note 4 for further discussion of our fair value measurements.

Income Taxes

At December 31, 2017, we had gross federal NOL carryforwards to offset future taxable income of $62.8 million, of which $4.0 million will expire on December 31, 2035. Our remaining federal NOL carryforwards will expire December 31, 2037. We have provided a valuation allowance against our deferred tax assets if, based upon the available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. At September 30, 2018 and December 31, 2017, our net deferred tax assets were fully reserved with a valuation allowance.

During the fourth quarter 2018, we filed our 2017 federal tax return which did not result in any material adjustment to the ~~results~~provisional tax amounts we recorded under Staff Accounting Bulletin 118 at December 31, 2017, related to our evaluation of ~~operations~~the Tax Cuts and Jobs Act of 2017. Our overall evaluation of the Tax Cuts and Jobs Act of 2017 is not complete as we expect to file certain remaining state tax returns during the fourth quarter 2018; however, adjustments to our remaining state returns, if any, are not expected to be material.

Revenue Recognition

Revenue for our fixed-price and unit-rate contracts is recognized under the percentage-of-completion method, computed by the significant inputs method, which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. Revenue for our T&M contracts is recognized at contracted rates when the work is performed, the costs are incurred and collection is reasonably assured. See Note 3 for further discussion of our ~~three operating divisions to~~revenue recognition policy and related accounting for our Corporate division for the three and nine months ended September 30, 2016, to conform to current period presentation as discussed in Note 8. These reclassifications had no impact to our consolidated financial statements.

~~New Accounting Standards~~contracts.

On ~~May 28, 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU")~~January 1, 2018, we adopted ASU No. 2014-09, Topic 606 “Revenue from Contracts with Customers” ~~("Topic 606")~~, which supersedes the revenue recognition requirements in

FASB ~~Accounting Standard Codification (ASC)~~ASC Topic 605, “Revenue Recognition.” Topic 606 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ~~Revenue from~~Our adoption of Topic 606 included a detailed review of our ~~fixed-price and unit-rate contracts is recognized under the percentage-of-completion method, computed by the~~ significant ~~inputs method which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. Revenue from~~ contracts that ~~are based upon time worked and materials incurred (“T&M”) is recognized at the contracted rates~~were not substantially complete as the work is performed and the costs are incurred. Topic 606 will be effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years.

~~As part~~ of January 1, 2018. Based on our ~~implementation of this standard,~~review, we ~~have established an implementation team as well as employed the help of outside consultants to assist with the implementation. We have completed our scoping phase of this project and believe~~concluded that ~~we will continue to be able to recognize~~ revenue recognition for our fixed-price and unit-rate contracts using the percentage-of-completion method, computed by measuring the percentage of labor hours incurred to date as compared to estimated total labor hours for each ~~contract. However, there are additional criteria to consider~~contract, is still appropriate. Our review also determined that ~~can impact the timing and inclusion of revenue in our percentage-of-completion calculations. While these additional criteria could potentially~~Topic 606 did not impact the timing of revenue recognition ~~they would not change~~for our T&M contracts. Based on the ~~timing for~~aforementioned, we concluded that the ~~recognition~~impact of ~~costs. Additionally, implementation~~adoption of Topic 606 ~~requires that each performance obligation must be separately identified~~as of January 1, 2018, was immaterial to our Consolidated Financial Statements and ~~the contract price allocated to it.~~ ~~A determination to combine a group~~no adjustment was required. See Note 3 for further discussion of ~~contracts into one performance obligation or segment a single contract into multiple performance obligations could change the amount~~our adoption of ~~revenue and gross profit recorded in a given period.~~Topic 606.

New Accounting Standards

We expect to finalize a review of our contracts and complete our calculation of a cumulative implementation adjustment, if any, during the fourth quarter of 2017. At this time, we are unable to conclude whether there will be any cumulative implementation adjustments, if any, and whether or not they would be material. The guidance permits companies to either apply the new requirements retrospectively to all prior periods presented through use of the full retrospective method or apply the new requirements in the year of adoption through a cumulative adjustment using the modified retrospective method. We intend to use the modified retrospective model in adopting this standard, which will require a cumulative catch up adjustment, if any, on January 1, 2018.

In September 2015, the FASB issued ASU 2015-16, “Simplifying the Accounting for Measurement-Period Adjustments,” which eliminates the requirement that an acquirer in a business combination account for measurement-period adjustments retrospectively. Instead, an acquirer will recognize a measurement-period adjustment during the period in which it determines the amount of the adjustment. ASU 2015-16 is effective for annual periods beginning after December 15, 2016. We adopted this guidance effective January 1, 2017, which did not have an impact on our financial position, results of operations and related disclosures.

Leases - In February 2016, the FASB issued ASU 2016-02, “Leases,” which requires lessees to record most leases on their balance ~~sheets~~sheet but recognize ~~expenses~~expense in a manner similar to current guidance. ASU 2016-02 will be effective for ~~annual periods beginning after December 15, 2018.~~us in the first quarter 2019. The ~~guidance~~new standard is required to be applied using a modified retrospective approach. ~~We are currently evaluating~~Upon adoption, we will record a right of use asset and corresponding liability for our operating leases.We continue to evaluate the effect that ASU 2016-02 will have on our financial position, results of operations and related ~~disclosures; however, we expect~~disclosures. We are currently designing and implementing process changes and evaluating the information requirements necessary to ~~record our lease obligations on our balance sheet.~~properly account for ASU 2016-02.

In March 2016, the FASB issued ASU 2016-09, “Improvements to Employee Share-Based Payment Accounting,” which amends several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities and classification within the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016. We adopted the requirements of ASU 2016-09 effective January 1, 2017. The provisions of ASU No. 2016-09 that are applicable to the Company and affect the Company’s consolidated financial statements include the following:

This ASU requires the recognition of the excess tax benefit or tax deficiency resulting from the difference between the deduction for tax purposes and the compensation cost recognized for financial reporting purposes created when common stock vests as an income tax benefit or expense in the Company’s statement of operations. Under previous GAAP, this difference was required to be recognized in additional paid-in capital. The expense or benefit required to be recognized is calculated separately as a discrete item each reporting period and not as part of the Company’s projected annual effective tax rate. During the three and nine months ended September 30, 2017, we recorded tax expense of $1,000 and $215,000, respectively (approximate $0.01 loss per share) related to the adoption of this ASU. We have adopted these provisions on a prospective basis and our prior period presentation has not changed. Future effects to the Company’s income tax expense (benefit) as a result of the adoption of this ASU will depend on the timing, number of shares and the closing price per share of the Company’s common stock on the dates of vesting.

This ASU also clarifies that cash paid by the Company to taxing authorities in order to satisfy employee income tax withholding obligations from vesting shares should be classified as a financing activity in the Company’s statement of cash flows. We have reported payments of $885,000 within financing activities within our consolidated statement of cash flows for the nine months ended September 30, 2017, as a result of adoption of this ASU. We have adopted these provisions retrospectively and reclassified $163,000 from cash used in operating activities to cash used in financing activities for the nine months ended September 30, 2016, to conform to the current period presentation.

Financial instruments -In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses - Measurement of Credit Losses on Financial Instruments,” which changes the way companies evaluate credit losses for most financial assets and certain other instruments. For trade and other receivables, ~~held-to-maturity debt securities,~~short-term investments, loans and other instruments, entities will be required to use a new forward-looking “expected loss” model to evaluate impairment, potentially resulting in earlier recognition of allowances for losses. The new standard also requires enhanced disclosures, including the requirement to disclose the information used to track credit quality by year of origination for most financing receivables. ASU 2016-13 will be effective for ~~annual periods beginning after December 15, 2019.~~us in the first quarter 2020. Early adoption of the new standard is ~~permitted for all entities for annual periods beginning after December 15, 2018. We~~permitted; however, we have not elected to early adopt ~~this guidance.~~the standard. The ~~guidance must~~new standard is required to be applied using a cumulative-effect transition method. We are currently evaluating the effect that ASU 2016-13 will have on our financial position, results of operations and related disclosures.

NOTE 2 – ASSETS HELD FOR SALE

~~South Texas Assets:~~

~~On February 23, 2017, our Board~~A summary of ~~Directors approved management's recommendation to place our South Texas facilities located~~assets included in Aransas Pass and Ingleside, Texas, up for sale. Our Texas South Yard in Ingleside, Texas, is located on the northwest corner of the intersection of the U.S. Intracoastal Waterway and the Corpus Christi Ship Channel. The 45-foot deep Corpus Christi Ship Channel provides direct and unrestricted access to the Gulf of Mexico. Our Texas North Yard in Aransas Pass, Texas, is located along the U.S. Intracoastal Waterway and is approximately three miles north of the Corpus Christi Ship Channel. These properties are currently underutilized and represent excess capacity within our Fabrication division. Our net book value of property, plant and equipment for these assets was $104.5 million at September 30, 2017. We measure and record assets held for sale at ~~the lower of their carrying amount or fair value less cost to sell.~~September 30, 2018, is as follows (in thousands):




	Texas North Yard Assets
Assets	Assets Under Agreement For Sale			Remaining Assets			Shipyard Division Assets			Consolidated
Land	$	2,157		$	—		$	—		$	2,157
Buildings and improvements	31,798			189			—			31,987
Machinery and equipment	13,856			27,754			2,187			43,797
Less: accumulated depreciation	(24,176		)	(10,797		)	(298		)	(35,271		)
Total assets held for sale	$	23,635		$	17,146		$	1,889		$	42,670

~~On August 25, 2017, our~~ South Texas ~~facilities were impacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result,~~Properties

Texas South Yard - During the second quarter 2018, we ~~suffered damages to~~completed the sale of our Texas South ~~Texas buildings and equipment. Through~~Yard for $55.0 million, less selling costs of $1.5 million, for total net proceeds during the nine-months ended September 30, ~~2017, we have incurred~~2018 of approximately $265,000 in clean-up and repair related costs and we expect to incur additional future repair costs in excess of our deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0$53.5 million and ~~we have recorded~~ a ~~liability for future repairs~~gain of ~~$2.7~~approximately $3.9 million, which is included inwithin other income (expense), net on our Consolidated Statements of Operations.

Texas North Yard - On September 26, 2018, we entered into an agreement to sell our Texas North Yard and certain associated equipment for $28.0 million.We received $0.5 million during the third quarter 2018 as a deposit on the property, which is refundable under certain circumstances, and has been recorded as a liability within accrued expenses and other liabilities on our ~~balance sheet~~Consolidated Balance Sheet at September 30, ~~2017. Based upon our initial assessment~~2018. The sale is anticipated to close in the fourth quarter 2018 and is subject to customary closing conditions, including the purchaser’s right to conduct inspections of the ~~damages~~property related to confirmation of title, surveys, environmental conditions, easements and ~~insurance coverage, management believes~~access rights, and third-party consents. Based on the sales price and estimated closing and other costs, we expect to realize a gain on the transaction upon closing. We can provide no assurances that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs. Our final assessment of the damages incurred to our South Texas assets as well as the amount of insurance proceeds we will ~~receive could be more~~successfully close the transaction, that closing will occur under our expected timeline or ~~less than this amount when~~that we will achieve our estimated net proceeds or a gain on the ~~claim is ultimately settled~~sale. We continue to actively market the remaining Texas North Yard assets held for sale, which primarily consist of three 660-ton crawler cranes, a barge, a plate bending roll machine, and ~~such differences could be material.~~panel line equipment.

As a result of the ~~decision~~agreement to ~~place~~sell our Texas North Yard, and the separation of such assets from the other remaining Texas North Yard Assets, we reevaluated the fair values of the assets under agreement for sale and the other remaining assets held for sale, giving consideration to previously recorded impairment amounts for such assets. Based on our assessment, we recaptured previously recorded impairments of the assets under agreement for sale and increased their carrying value. We also reduced the carrying value of the other remaining assets held for sale based upon our estimates of fair value using level 3 inputs, including broker estimates of fair value. Our assessment resulted in the recapture of approximately $5.2 million of previously recorded impairments on the assets under agreement for sale, with a similar amount of impairment on the remaining assets, with no net material change to the carrying value of the Texas North Yard assets held for sale.

During the first half of 2018, we recorded impairments of certain equipment that were classified as held for sale, resulting in a $1.4 million charge during the nine-months ended September 30, 2018, which is included within asset impairments on our Consolidated Statements of Operations. Our impairments were based upon our best estimate of the fair value of the related equipment. During the third quarter 2018, we sold assets that were classified as held for sale for proceeds of $1.1 million, which approximated their carrying values.

Hurricane Harvey Insurance Recoveries - During the third quarter 2017, buildings and equipment located at our South Texas ~~facilities up~~Properties were damaged by Hurricane Harvey. During the second quarter 2018, we agreed to a global settlement with our insurance carriers for ~~sale,~~total insurance recoveries of $15.4 million, resulting in a net gain on insurance recoveries of $3.6 million during the nine months ended September 30, 2018, which is included within other income (expense), net on our Consolidated Statements of Operations. As of September 30, 2018, all insurance proceeds had been received, including $7.2 million received during the third quarter 2018. In applying the settlement proceeds and determining our net gain for the nine months ended September 30, 2018, we ~~have~~allocated the claim amounts, less agreed upon deductibles, to the respective groups of assets and ~~will continue to incur~~reimbursement of costs ~~associated with maintaining these facilities. These costs include insurance, general maintenance~~incurred as follows:

Insurance recoveries of $8.9 million, which offset impairments of damaged assets at our Texas North Yard, resulting in no net gain or loss. Our impairments were based upon our best estimate of the ~~properties~~decline in ~~their current state,~~the fair value of the property ~~taxes~~ and ~~retained employees~~related equipment.

Insurance recoveries of $5.2 million, which ~~will be expensed~~offset impairments of two buildings and five damaged cranes that were sold during the second quarter 2018, resulting in the aforementioned net gain on insurance recoveries of $3.6 million.

Insurance recoveries of $1.3 million, net of deductibles, which offset clean-up and repair related costs incurred directly related to the damage we incurred as ~~incurred.~~ a result of Hurricane Harvey.

Other - We do not expect the sale of ~~these assets~~our South Texas Properties to impact our ability to operate our Fabrication ~~division. Our~~Division. Further, the sale of our Texas South Yard and the Texas North Yard assets held for sale, do not qualify for discontinued operations ~~presentation.~~presentation as we continue to operate our Fabrication Division at our Houma, Louisiana fabrication facility.

~~Prospect~~ Shipyard ~~Assets:~~Division Assets

We lease a 35-acre complex 26 miles from the Gulf of Mexico in Houma, Louisiana. We have entered into an agreement to terminate the lease no later than December 31, 2017, with the owner of the property (currently a senior vice president within the Company and the former chief executive officer of LEEVAC Shipyards, LLC) to facilitate an orderly disposal of assets at the facility. Our remaining lease payments are not material. We have classified the machinery and equipment remaining at this shipyard as assets held for sale. Our net book value of property, plant and equipment for these assets was $2.5 million at September 30, 2017. We measure and recordShipyard Division assets held for sale primarily consist of a 2,500-ton drydock located at ~~the lower of their carrying amount or fair value less cost to sell. We recorded an impairment of $389,000 during~~our Houma Shipyard. During the nine months ended September 30, ~~2017. Additionally,~~2017, we recorded impairments of $0.4 million for these assets based upon their estimated sales price. During the nine months ended September 30, 2017, we sold two drydocks ~~from our~~

~~Prospect Shipyard~~ for proceeds of $2.0 million and recorded a loss ~~on sale~~ of $259,000 during the nine months ended September 30, 2017. We do not expect the sale of these assets to impact our ability to service our Shipyards customers. The future anticipated costs expected to be incurred prior to the termination of this lease are not significant to our consolidated financial statements.$0.3 million. Our ~~Prospect Shipyard~~ assets held for sale for the Shipyard Division do not qualify for discontinued operations presentation.

~~A summary of the significant assets included in assets held for sale as of September 30, 2017, at our South Texas facilities and our Prospect Shipyard is as follows (in thousands):~~

Assets South Texas Fabrication Yards Prospect Shipyard Consolidated
Land $ 5,492
$ —
$ 5,492

Buildings and improvements 117,582
—
117,582

Machinery and equipment 93,552
2,719
96,271

Furniture and fixtures 867
82
949

Vehicles 610
—
610

Other —
—
—

Less: accumulated depreciation (113,596 ) (298 ) (113,894 )
Total assets held for sale $ 104,507
$ 2,503
$ 107,010

NOTE 3 – REVENUE ~~AND CONTRACT COSTS~~RECOGNITION

~~The Company uses the percentage-of-completion accounting method to recognize revenue from~~Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method, computed ~~using~~by the significant inputs method, which measures the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract. Direct materials and subcontract materials and services that represent an insignificant portion of the work to complete ~~each contract.~~a contract or do not reflect an accurate measure of project completion are considered "pass-through costs." Revenue recognized in a period for a contract is the pro rata portion of the contract value (excluding pass-through costs), based upon the labor ~~hours incurred to the total labor hours estimated to complete the contract~~hour measure of progress, plus pass-through costs incurred during the period. ~~We define pass-through costs as material, freight, equipment rental, and sub-contractor services that are included in the direct costs of revenue associated with projects. Consequently,~~Accordingly, pass-through costs are included in revenue ~~but have~~and direct costs of revenue with no impact on ~~the~~ gross profit ~~realized~~recognized during the period.

Revenue for ~~that particular period.~~our T&M contracts is recognized at contracted rates when the work is performed, the costs are incurred and collection is reasonably assured. Our ~~pass-through costs as a percentage~~T&M contracts provide for labor and materials to be billed at rates specified within the contract. The consideration from the customer directly corresponds to the value of our performance completed at the time of invoicing. Accordingly, we have elected the “right to invoice” practical expedient under Topic 606 for the recognition of revenue for ~~each period presented were as follows:~~

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Pass-through costs as a percentage of revenues 48.4% 33.8% 45.3% 35.0%

~~Contracts~~our T&M contracts. The practical expedient allows us to recognize revenue in ~~progress at September 30, 2017, were $42.8 million with $31.7 million relating~~the amount we have the right to ~~two major customers. Advance billings on contracts at September 30, 2017, was $4.4 million~~invoice (at contracted rates when the work is performed and included advances of $3.2 million from two major customers. Accrued contract losses were $2.0 million and $387,000 as of September 30, 2017 and December 31, 2016 , respectively. Our accrued contract losses as of September 30, 2017,costs are a result of changes in estimates totaling $12.7 million identified during the nine months ended September 30, 2017, due to cost overruns and re-work related to two vessels we are constructing for a major customer in our Shipyards division.incurred).

Revenue and gross profit onfor contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims, incentives, penalties, and ~~claims~~liquidated damages that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. AtWe estimate variable consideration based on the most likely amount to which we expect to be entitled and include estimated amounts in the transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. For the three and nine months ended September 30, 2018 and 2017, we ~~included~~had no material amounts in revenue related to unapproved change orders, claims, or incentives. However certain projects in our Shipyard Division reflect a reduction to our estimated contract price of $11.7 million for variable consideration related to liquidated damages. The reductions in contract price were recorded during the fourth quarter 2017.

Revenue and gross profit for contracts accounted for using the percentage-of-completion method can also be significantly affected by changes in estimated cost to complete such contracts. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on ~~projects~~contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which ~~have been approved as~~could result in material changes to ~~scope but not price. During~~our Consolidated Financial Statements and related disclosures.

Adoption of Topic 606

As discussed in Note 1, on January 1, 2018, we adopted ASU No. 2014-09, Topic 606 “Revenue from Contracts with Customers,” which supersedes the revenue recognition requirements in FASB ASC Topic 605, “Revenue Recognition.” Accordingly, the reported results for the three and nine months ended September 30, ~~2016,~~2018, reflect the application of Topic 606 guidance while the comparable reported results for 2017 were prepared under the guidance of Topic 605.

Topic 606 requires entities to recognize revenue in a way that depicts the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Our adoption of Topic 606 included a detailed review of our significant contracts that were not substantially complete as of January 1, 2018, to assess if revenue should be recognized "over time" (as the work is performed) or "at a point in time" (upon completion of the work). We determined that ownership and control of the work related to our fixed-price and unit-rate contracts transfer to our customers as the work progresses. Additionally, our customers retain the right and ability to change, modify or discontinue further fabrication or construction at any stage of the project. In the event our customers discontinue work, they are required to compensate us for the work performed to date.

Based on our review, we ~~recorded~~concluded that revenue recognition for our fixed-price and unit-rate contracts using the percentage-of-completion method, computed by measuring the percentage of labor hours incurred to date as compared to estimated total labor hours for each contract, is still appropriate as it most accurately reflects our primary profit generating activity and best represents our efforts to construct the asset for our customer. However, adoption of Topic 606 did require us to include subcontract labor and certain costs from outside services within our measure of progress and determination of our percentage-of-completion. We previously treated certain of these costs as pass-through costs and excluded such costs from our measure of progress. Our review also determined that Topic 606 did not impact the timing of revenue recognition for our T&M contracts. Based on the aforementioned, we concluded that the impact of the adoption of Topic 606 as of January 1, 2018, was immaterial to our Consolidated Financial Statements and no adjustment was required.

Topic 606 requires additional and enhanced disclosures related to the disaggregation of revenue and the anticipated timing and completion of remaining performance obligations, which are included below.

Disaggregation of Revenue - The following tables summarize revenue for each of our operating segments, disaggregated by contract type and timing of revenue recognition, for the three and nine months ended September 30, 2018 and 2017 (in thousands):



		Three Months Ended September 30, 2018
		Fabrication		Shipyard		Services		EPC		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	2,311	$	23,635	$	12,193	$	—	$	(779	)	$	37,360
T&M ⁽²⁾		—		857		10,424		—		—			11,281
Other ⁽³⁾		—		—		—		1,071		—			1,071
	Total	$	2,311	$	24,492	$	22,617	$	1,071	$	(779	)	$	49,712



		Three Months Ended September 30, 2017
		Fabrication		Shipyard		Services		EPC		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	18,318	$	13,906	$	6,147	$	—	$	(1,159	)	$	37,212
T&M ⁽²⁾		—		1,168		11,504		—		—			12,672
Other		—		—		—		—		—			—
	Total	$	18,318	$	15,074	$	17,651	$	—	$	(1,159	)	$	49,884



		Nine Months Ended September 30, 2018
		Fabrication		Shipyard		Services		EPC		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	28,171	$	62,116	$	35,197	$	—	$	(2,550	)	$	122,934
T&M ⁽²⁾		—		4,561		31,495		—		—			36,056
Other ⁽³⁾		—		—		—		2,026		—			2,026
	Total	$	28,171	$	66,677	$	66,692	$	2,026	$	(2,550	)	$	161,016



		Nine Months Ended September 30, 2017
		Fabrication		Shipyard		Services		EPC		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	42,517	$	47,632	$	20,969	$	—	$	(4,328	)	$	106,790
T&M ⁽²⁾		—		4,166		22,789		—		—			26,955
Other		—		—		—		—		—			—
	Total	$	42,517	$	51,798	$	43,758	$	—	$	(4,328	)	$	133,745

____________

(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) Revenue primarily represents early work authorized by SeaOne and is recognized as the contract is progressed over time.

Future Performance Obligations Required Under Contracts - The following tables summarize the remaining revenue to be earned under performance obligations for the portion of contracts not yet completed as of September 30, 2018 (in thousands).



Segment	Performance Obligations at September 30, 2018
Fabrication	$	44,746
Shipyard ⁽¹⁾	282,912
Services	11,699
EPC	836
Intersegment eliminations	—
Total	$	340,193

_____________

(1) Amount excludes approximately $30.1 million in the aggregate of remaining performance obligations under dispute pursuant to a ~~loss of $488,000 for a single~~termination notice from our customer related to ~~revenue on change orders recognized in prior periods that were not recovered.~~contracts for the construction of two MPSVs. See Note 8 for further discussion of these contracts.

~~NOTE 4 – CONTRACTS RECEIVABLE AND RETAINAGE~~We expect to recognize revenue for our remaining performance obligations in the following periods (in thousands):



Year	Total
Remainder of 2018	$	56,243
2019	199,922
2020	74,976
2021	8,405
2022	647
Total	$	340,193

Contracts Receivable and Retainage

Our customers include ~~major~~U.S. and, ~~large independent oil~~to a lesser extent, international energy producers, petrochemical, industrial, power, and ~~gas companies, petrochemical and industrial facilities,~~ marine operators, EPC companies and ~~their contractors.~~certain agencies of the U.S. government. Of our contracts receivable balance at September 30, ~~2017, $16.3~~2018, $18.4 million ~~or 64.0%,~~ was with ~~three~~two customers. ~~The significant projects for these three customers consist of:~~

One large petroleum supply vessel for a customer in our Shipyards segment that was tendered for delivery on February 6, 2017 (see also Note 9 regarding this receivable as this customer has refused delivery of the vessel);

~~Offshore installation and hook-up work related to a customer within our Services division; and~~

~~The fabrication of four modules associated with a U.S. ethane cracker project.~~

~~As of~~At September 30, ~~2017,~~2018, we ~~included~~had an allowance for bad debt of ~~$2.1~~$3.7 million inwithin our contract receivable ~~balance~~balance. During the three months ended September 30, 2018, we increased our allowance for bad debts by $2.8 million, which is included in general and administrative expenses on our Consolidated Statements of Operations and primarily relates to a customer within our Fabrication ~~division~~Division.

Contracts in Progress, Advance Billings on Contracts and Accrued Contract Losses

Revenue recognition and customer invoicing for ~~the storage~~our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed above; however, customer invoicing will generally depend upon predetermined billing terms which could provide for customer advance payments or invoicing based upon achievement of ~~an offshore drilling platform that was fully reserved~~certain milestones or project progress. Revenue recognized in ~~2016~~excess of amounts billed is reflected as contracts in progress on our Consolidated Balance Sheets. Amounts billed in excess of revenue recognized is reflected as advance billings on contracts on our Consolidated Balance Sheets. Contracts in progress totaled $40.2 million at September 30, 2018, with $37.1 million relating to three customers. Advance billings on contracts totaled $14.9 million at September 30, 2018, with $11.2 million relating to one customer. Accrued contract losses totaled $6.0 million and ~~a customer in our Shipyards division for storage~~$7.6 million at September 30, 2018 and ~~holding costs for a vessel that we completed and tendered for delivery on February 6,~~December 31, 2017, ~~but was rejected by the customer alleging certain technical deficiencies. See Note 9.~~respectively.

NOTE 54 – FAIR VALUE MEASUREMENTS

~~The Company bases its~~We make fair value determinations by applying the following hierarchy, which prioritizes the inputs used to measure fair value into three levels and bases the categorization within the hierarchy upon the lowest level of input that is available and significant to the fair value measurement:

Level 1 - inputs are based upon quoted prices for identical instruments traded in active ~~markets.~~markets;

Level 2 - inputs are based upon quoted prices for similar instruments in active markets and model-based valuation techniques for which all significant assumptions are observable in the ~~market.~~market; and

Level 3 - inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.

Recurring fair value measurements and financial instruments - The carrying amounts ~~that we have~~ reported for financial instruments, including cash and cash equivalents, ~~accounts receivables~~short-term investments, contracts receivable and accounts ~~payables,~~payable, approximate their fair values.

Assets held for sale - We measure and record assets held for sale at the lower of their carrying amount or fair value less ~~cost~~costs to sell. The determination of fair value ~~can require~~generally requires the use of significant ~~judgment and can vary on the facts and circumstances. We have classified~~judgments. See Note 2 for further discussion of our ~~assets at our South Texas facilities and our Prospect Shipyard as~~ assets held for sale ~~at September 30, 2017. We had no assets held for sale at December 31, 2016.~~and their associated fair value measurements.

On August 25, 2017, our South Texas facilities were impacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and equipment. See Note 2. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs.

~~During the nine months ended September 30, 2017, we recorded an impairment of $389,000 related to the assets held for sale at our Prospect shipyard. See Note 2.~~NOTE 5 – LOSS PER COMMON SHARE

~~NOTE 6 – EARNINGS PER SHARE AND SHAREHOLDERS' EQUITY~~

~~Earnings per Share:~~

The following table ~~sets forth~~presents the computation of basic and diluted ~~earnings~~loss per share (in thousands, except for per share ~~data)~~amounts):

Three Months Ended September 30, Nine Months Ended September 30,
2017 2016 2017 2016
Basic and diluted:
Numerator:
Net income (loss) $ (3,110 ) $ 541
$ (20,488 ) $ 7,069
Less: Distributed and undistributed income (loss) (unvested restricted stock) (14 ) 2
(100 ) 70
Net income attributable to common shareholders $ (3,096 ) $ 539
$ (20,388 ) $ 6,999
Denominator:
Weighted-average shares⁽¹⁾
14,852
14,633
14,821
14,621
Basic and diluted earnings (loss) per share - common shareholders $ (0.21 ) $ 0.04
$ (1.38 ) $ 0.48



	Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017
Basic and diluted
Net loss	$	(10,949	)	$	(3,110	)	$	(15,696	)	$	(20,488	)
Less: Distributed and undistributed loss (unvested restricted stock)	—			(14		)	—			(100		)
Net loss attributable to common shareholders	$	(10,949	)	$	(3,096	)	$	(15,696	)	$	(20,388	)
Weighted-average shares⁽¹⁾	15,044			14,852			15,017			14,821
Basic and diluted loss per common share	$	(0.73	)	$	(0.21	)	$	(1.05	)	$	(1.38	)

______________

(1) We have no dilutive securities.

NOTE 76 – LINE OF CREDIT

We have a $40.0 million Credit Agreement with Hancock Whitney Bank that can be used for borrowings or letters of credit. On ~~June 9, 2017,~~August 27, 2018, we entered into a ~~$40.0 million credit agreement with Whitney Bank, as lender. The credit facility matures~~third amendment to our Credit Agreement, which extended its maturity date from June 9, 2019 to June 9, 2020, and ~~may be used~~reduced the base tangible net worth requirement from $185.0 million to $180.0 million. The third amendment also removed the inclusion of 50% of Consolidated Net Income (as defined in the Credit Agreement) for ~~issuing letters~~each fiscal quarter and the inclusion of ~~credit and/~~50% of the gain on the sale of our South Texas Properties from our minimum tangible net worth covenant. Accordingly, our amended quarterly financial covenants during the term of the Credit Agreement are as follows:

Ratio of current assets to current liabilities of not less than 1.25:1.00;

Minimum tangible net worth of at least the sum of $180.0 million, plus 100% of the proceeds from any issuance of stock or ~~general corporate~~other equity after deducting any fees, commissions, expenses and ~~working capital purposes.~~ other costs incurred in such offering; and

Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Interest on ~~drawings~~borrowings under the ~~credit facility~~Credit Agreement may be designated, at our option, as either ~~Base~~the Wall Street Journal published Prime Rate ~~(as defined in the credit facility)~~ or LIBOR plus 2.0% per annum. ~~Unused commitment~~Commitment fees on the ~~undrawn~~unused portion of the ~~facility~~Credit Agreement are 0.4% per annum, and interest on ~~undrawn stated amounts under~~outstanding letters of credit ~~issued by the lenders~~ is 2.0% per annum. The ~~credit facility~~Credit Agreement is secured by substantially all of our assets (other than the assets ~~of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently~~ held for ~~sale).~~

~~We must comply with the following financial covenants each quarter during the term of the facility:~~


i.	~~Ratio of current assets to current liabilities of not less than 1.25:1.00;~~


~~ii.~~	~~Minimum tangible net worth requirement of~~sale at ~~least the sum of:~~


a)	~~$230.0 million, plus~~


b)	An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus


c)	~~100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and~~


~~iii.~~	~~Ratio of funded debt to tangible net worth of not more than 0.50:1.00.~~

~~Concurrent with~~ our execution of the credit facility, we terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the time of the termination, there was approximately $4.6 million of letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries.Texas North Yard).

At September 30, ~~2017,~~2018, we had no ~~amounts were~~ outstanding borrowings under ~~the~~our Credit Agreement and $2.5 million of outstanding letters of credit, ~~facility. As~~providing $37.5 million of available capacity. At September 30, ~~2017,~~2018, we were in compliance with all of our financial covenants.

NOTE 87 - SEGMENT DISCLOSURES

We have structured our operations with ~~three~~four operating divisions, and ~~a corporate non-operating division. Beginning in 2017, management reduced its allocation of corporate administrative costs and overhead expenses from its~~one corporate non-operating division, ~~to its operating divisions in order to individually evaluate corporate administrative costs and overhead within~~which represent our ~~Corporate division as well as to not overly burden our operating divisions with costs that do not directly relate to their operations. Accordingly, a significant portion~~reportable segments. As part of our ~~corporate administrative costs and overhead expenses are retained within~~efforts to strategically reposition the ~~results of our corporate division. In addition,~~Company as discussed in Note 1, we ~~have also allocated certain personnel previously included~~may change how we manage the business which could result in ~~the operating divisions~~changes to our ~~Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and its Corporate division each meeting the criteria of~~ reportable segments ~~under GAAP.~~in future periods. Our ~~operating divisions and Corporate division~~reportable segments at September 30, 2018 are discussed below.

Fabrication Division -Our Fabrication ~~division primarily~~Division fabricates ~~structures such as~~ offshore drilling and production platforms and other steel structures for customers in the oil and gas ~~industries~~industry including jackets and deck sections of fixed production platforms, hull, tendon, and/or deck sections of floating production platforms (such as TLPs, SPARs, FPSOs and MinDOCs), piles, wellhead protectors, subsea templates, and various production, compressor, and utility modules along with pressure vessels. Our Fabrication ~~division~~Division also fabricates structures for alternative energy customers (such as the five jackets and piles we constructed for ~~a shallow water~~the first offshore wind ~~turbine~~power project ~~off~~in the ~~coast of Rhode Island during 2015)~~U.S.) as well as modules for ~~an LNG facility.~~petrochemical and industrial facilities. We ~~have historically performed~~perform these activities ~~out~~at our fabrication yard in Houma, Louisiana. As of September 30, 2018, our Texas North Yard is held for sale and our Texas South Yard had been sold. See Note 2 for further discussion of our ~~fabrication yards in Houma, Louisiana and formerly out of our fabrication yards in Aransas Pass and Ingleside, Texas.~~South Texas Properties.

~~Shipyards~~Shipyard Division - Our ~~Shipyards division primarily~~Shipyard Division fabricates newbuild vessels and repairs various steel marine vessels including offshore supply vessels, anchor handling vessels ~~lift~~and liftboats to support the construction and ongoing operation of offshore oil and gas production platforms, tug boats, ~~tugboats~~towboats, barges, drydocks and ~~towboats. Our Shipyards division also constructs and owns drydocks to lift~~other marine ~~vessels out of the water in order to make repairs or modifications.~~vessels. Our marine repair activities include steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft, and rudder reconditioning. ~~Our Shipyards division also performs~~In addition, we perform conversion projects that consist of lengthening orvessels, modifying ~~the use of existing~~ vessels to permit their use for a different type of activity, and other modifications to enhance ~~their~~the capacity or ~~functionality.~~functionality of a vessel. We perform these activities ~~out of~~at our ~~facilities~~shipyards in Houma, Jennings and Lake Charles, Louisiana.

Services Division- Our Services ~~division primarily~~Division provides interconnect piping and related services onfor offshore platforms and ~~inshore structures. Interconnect piping services involve~~inland structures, which includes sending ~~employee~~ crews to offshore platforms in the ~~Gulf of Mexico~~GOM to perform welding and other activities required to connect production equipment, service modules and other equipment on a platform. We also contract with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the ~~Southeast~~

southeastern U.S. for various on-site construction and maintenance activities. In addition, our Services ~~division can fabricate~~Division fabricates packaged skid units and ~~construct~~performs various ~~municipal~~civil and drainage projects, such as pump stations, levee reinforcement, bulkheads and other ~~projects~~work for state and local governments. We perform these services at customer facilities or at our services yard in Houma, Louisiana.

EPC Division - Our EPC Division was created during the fourth quarter 2017 to manage expected work we will perform for the SeaOne Project and other projects that may require EPC project management services. During the fourth quarter 2017, SeaOne selected us as the prime contractor for the engineering, procurement, construction, installation, commissioning and start-up operations for its SeaOne Project. This project will include execution of engineering, construction and installation of modules for an export facility in Gulfport, Mississippi, and import facilities in the Caribbean and South America. Our current activities include pricing, planning and scheduling for the project. SeaOne’s selection of the Company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on terms of the engagement with SeaOne. We understand that SeaOne is in the process of securing financing for the project. We continue to enhance our internal project management capabilities through the hiring of additional personnel to service this potential project.

Corporate Division - Our Corporate ~~division primarily includes~~Division represents expenses that do not directly relate to ~~the operations or shared services provided~~our four operating divisions and are not allocated to our ~~three~~ operating divisions. ~~Expenses for shared services, which include human resources, insurance, business development, accounting salaries, etc., are allocated to the operating divisions. Expenses that are not allocated~~Such expenses include, but are not limited to, costs related to executive management and directors' fees, clerical and administrative salaries, costs of maintaining ~~the~~our corporate office and costs associated with overall governance and being a publicly traded ~~company and its overall governance.~~company.

We generally evaluate the performance of, and allocate resources to, our ~~segments~~operating divisions based upon revenue, gross profit (loss) and operating income (loss). ~~Segment~~Division assets are comprised of all assets attributable to each ~~segment.~~division. Corporate administrative ~~costs~~ and overhead expenses directly related to our operating divisions, or costs related to shared services incurred by our Corporate Division on behalf of our operating divisions, are allocated to ~~our three operating divisions for expenses that directly relate to~~ the ~~operations or relate to shared services as discussed above. During 2016, we allocated substantially all of our corporate administrative costs and overhead to our three~~four operating divisions. ~~We have recast our 2016 segment data below in order to conform to the current period presentation.~~Shared services include human resources, insurance, business development, information technology and accounting. Intersegment ~~revenues are~~revenue is priced at the estimated fair value of work performed.

Summarized financial information ~~concerning~~for each of our ~~segments as of and~~divisions for the three and nine months ended September 30, ~~2017~~2018 and ~~2016,~~2017, is as follows (in thousands):


	Three Months Ended September 30, 2017																Three Months Ended September 30, 2018
	Fabrication		Shipyards ⁽¹⁾			Services		Corporate			Eliminations			Consolidated			Fabrication			Shipyard			Services		EPC			Corporate			Eliminations			Consolidated
Revenue	$	18,318	$	15,074		$	17,651	$	—		$	(1,159	)	$	49,884		$	2,311		$	24,492		$	22,617	$	1,071		$	—		$	(779	)	$	49,712
Gross profit (loss)	1,250		(3,504		)	1,912		(152		)	—			(494		)	(4,032		)	(1,764		)	3,191		(205		)	(402		)	—			(3,212		)
Operating income (loss)	472		(4,392		)	1,217		(2,161		)	—			(4,864		)	(7,708		)	(2,460		)	2,486		(708		)	(2,494		)	—			(10,884		)
Total assets(1)	205,463		96,614			100,820		364,016			(463,533		)	303,380			100,115			92,839			37,201		2,217			30,585			—			262,957
Depreciation and amortization expense	1,133		1,030			413		95			—			2,671			1,023			1,050			365		—			36			—			2,474
Capital expenditures	1,479		1,054			94		25			—			2,652			—			783			545		142			1			—			1,471



	Three Months Ended September 30, 2017
	Fabrication		Shipyard			Services		EPC	Corporate			Eliminations			Consolidated
Revenue	$	18,318	$	15,074		$	17,651	—	$	—		$	(1,159	)	$	49,884
Gross profit (loss)	1,250		(3,504		)	1,912		—	(152		)	—			(494		)
Operating income (loss)	472		(4,392		)	1,217		—	(2,161		)	—			(4,864		)
Total assets ⁽¹⁾	164,677		96,614			33,024		—	9,065			—			303,380
Depreciation and amortization expense	1,133		1,030			413		—	95			—			2,671
Capital expenditures	1,479		1,054			94		—	25			—			2,652



	Nine Months Ended September 30, 2018
	Fabrication			Shipyard			Services		EPC			Corporate			Eliminations			Consolidated
Revenue	$	28,171		$	66,677		$	66,692	$	2,026		$	—		$	(2,550	)	$	161,016
Gross profit (loss)	(5,918		)	(5,563		)	9,390		30			(1,171		)	—			(3,232		)
Operating income (loss)	(12,529		)	(7,652		)	7,189		(1,375		)	(7,698		)	—			(22,065		)
Total assets ⁽¹⁾	100,115			92,839			37,201		2,217			30,585			—			262,957
Depreciation and amortization expense	3,219			3,170			1,141		—			304			—			7,834
Capital expenditures	—			1,442			708		142			70			—			2,362


	Three Months Ended September 30, 2016															Nine Months Ended September 30, 2017
	Fabrication			Shipyards ⁽¹⁾		Services		Corporate			Eliminations			Consolidated		Fabrication			Shipyard			Services		EPC		Corporate			Eliminations			Consolidated
Revenue	$	22,311		$	23,060	$	20,928	$	—		$	(915	)	$	65,384	$	42,517		$	51,798		$	43,758	$	—	$	—		$	(4,328	)	$	133,745
Gross profit (loss)	601			1,945		2,918		(205		)	—			5,259		216			(19,061		)	2,335		—		(500		)	—			(17,010		)
Operating income (loss)	(284		)	477		1,975		(1,995		)	—			173		(2,216		)	(22,285		)	327		—		(6,165		)	—			(30,339		)
Total assets(1)	285,320			75,779		100,781		332,617			(457,285		)	337,212		164,677			96,614			33,024		—		9,065			—			303,380
Depreciation and amortization expense	4,637			1,183		443		123			—			6,386		5,420			3,034			1,266		—		421			—			10,141
Capital expenditures	1,228			318		565		14			—			2,125		2,327			1,872			199		—		117			—			4,515

_______________

Nine Months Ended September 30, 2017
Fabrication
Shipyards ⁽¹⁾
Services Corporate Eliminations Consolidated
Revenue $ 42,517
$ 51,798
$ 43,758
$ —
$ (4,328 ) $ 133,745
Gross profit (loss) 216
(19,061 ) 2,335
(500 ) —
(17,010 )
Operating income (loss) (2,216 ) (22,285 ) 327
(6,165 ) —
(30,339 )
Total assets 205,463
96,614
100,820
364,016
(463,533 ) 303,380
Depreciation and amortization expense 5,420
3,034
1,266
421
—
10,141
Capital expenditures 2,327
1,872
199
117
—
4,515

(1) Intercompany balances have been excluded.

Nine Months Ended September 30, 2016
Fabrication
Shipyards ⁽¹⁾
Services Corporate Eliminations Consolidated
Revenue $ 70,436
$ 86,553
$ 76,179
$ —
$ (2,304 ) $ 230,864
Gross profit (loss) 4,564
9,742
11,158
(439 ) —
25,025
Operating income (loss) 1,743
5,524
8,696
(5,571 ) —
10,392
Total assets 285,320
75,779
100,781
332,617
(457,285 ) 337,212
Depreciation and amortization expense 14,081
3,507
1,342
332
—
19,262
Capital expenditures 2,539
534
1,612
730
—
5,415

~~____________~~


~~(1)~~	Revenue includes non-cash amortization of deferred revenue related to the values assigned to contracts acquired in the LEEVAC transaction of $510,000 and $1.5 million for the three months ended September 30, 2017 and 2016 and $2.4 million and $4.1 million for the nine months ended September 30, 2017 and 2016, respectively.

NOTE 98 – COMMITMENTS AND CONTINGENCIES

~~Litigation~~We are subject to various routine legal proceedings in the normal conduct of business, primarily involving commercial claims, workers’ compensation claims, and ~~Arbitration:~~claims for personal injury under general maritime laws of the U.S. and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, we believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on our financial position, results of operations or cash flows.

MPSV Termination Letter

We received notices of termination of the contracts for the construction of two MPSVs from one of our Shipyard Division customers. We dispute the purported terminations and disagree with the customer’s reasons for such terminations. Pending the resolution of the dispute, we have ceased all work and the partially completed MPSVs and associated equipment and materials remain at our shipyard in Houma, Louisiana. The customer also notified our Surety of its purported terminations of the construction contracts and made claims under the bonds issued by the Surety in connection with the construction of the two MPSVs. We have notified and met with our Surety regarding our disagreement with, and objection to, the customer's purported termination and its claims. Discussions with the Surety are ongoing. On October 2, 2018, we filed a lawsuit against the customer to enforce our rights and remedies under the applicable construction contracts. Our lawsuit disputes the propriety of the customer’s purported termination

of the construction contracts and seeks to recover damages associated with the customer’s actions. We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contracts. At September 30, 2018, our net balance sheet position for the contracts was $12.5 million.

Project Award Protest

During the ~~third and fourth quarters of 2015,~~first quarter 2018, we ~~recorded~~executed a contract losses totaling $24.5 million related to a large deepwater project we delivered in November 2015. No amounts with respect to these disputed change orders are included on our consolidated balance sheet or recognized in revenue in our consolidated statement of operations as of and for the ~~three~~construction and nine months ended September 30, 2017 and 2016. In the second quarter of 2016, we initiated legal action to recover our costs from these disputed change orders. We can give no assurance that our actions will be successful or that we will recover all or any portion of these contract losses from our customer.

On October 21, 2016, a customer of our Shipyards division announced it was in noncompliance with certain financial covenants included in the customer’s debt agreements and stated that, while it had received limited waivers from its lenders, its debt agreements would require further negotiation and amendment. This same customer rejected delivery of one towing, salvage and rescue ship vessel with the ~~first vessel that we completed and tendered~~U.S. Navy for ~~delivery on February 6, 2017, alleging certain technical deficiencies exist~~$63.6 million, with ~~respect to the vessel. On March 10, 2017, we gave notice~~an option for ~~arbitration with our customer in an effort to resolve this matter and~~seven additional vessels, which was subsequently ~~suspended fabrication~~protested by one of the ~~second vessel under contract with this customer, which is included in our arbitration proceedings. We disagree with our customer concerning these alleged technical deficiencies and have put~~unsuccessful bidders. On July 16, 2018, we were notified that the ~~customer in default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid~~award was upheld by the ~~customer under both contracts.~~U.S. Government Accountability Office and we were given a notification to proceed. On ~~May 17, 2017,~~August 6, 2018, we were notified that the ~~customer~~unsuccessful bidder had filed ~~for protection under Chapter 11~~a subsequent protest with the Department of Justice. On August 9, 2018, we were granted a partial stay, which allows us to proceed with pre-construction design development, planning, scheduling and material ordering. Construction of the ~~United States Bankruptcy Code for reorganization under~~vessel cannot begin until a ~~negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and~~final ruling is issued by the ~~Bankruptcy~~U.S. Court ~~has approved the customer's retention and acceptance~~ of both contracts. As of September 30, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million.Federal Claims. We are working with ~~legal counsel~~the U.S. Navy to ~~protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named~~re-establish a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

~~Customer Contract:~~

~~Included in our results of operations~~timeline for ~~the nine months ended September 30, 2017, are $12.7 million of contract losses incurred by our Shipyards division related to cost overruns and re-work identified on two newbuild vessel~~ construction contracts from a customer. We and our customer are in discussions to pause construction of the vessels as we resolve electrical and engineering and design issues causing a significant portion of the re-work and cost overruns. Our estimates to complete these vessels contemplateunder this pause to resolve issues as well as the related delivery schedule. Actual costs to complete and agreed to delivery dates could be different than our estimates. Each vessel contract contains penalties from $0 to a maximum of $5.6 million per vessel for late delivery. We believe, but can provide no assurance, that we will be successful in mutually resolving these issues with our customer in accordance with our estimates. Management has not accrued for any penalties as of September 30, 2017, as we believe penalties are not deemed probable, nor are they estimable at this time.

~~Hurricane Harvey:~~

~~See Note 2 for a discussion of damages incurred from Hurricane Harvey at our South Texas facilities.~~contract.

NOTE 109 – SUBSEQUENT EVENTS

On October ~~26, 2017,~~2, 2018, we filed a lawsuit against a customer to enforce our ~~Board~~rights and remedies under the applicable construction contracts for the construction of ~~Directors declared a dividend~~two MPSVs. See Note 8 for further discussion of ~~$0.01 per share on~~ our ~~shares of common stock outstanding, payable November 24, 2017, to shareholders of record on November 10, 2017.~~dispute and lawsuit.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

~~Forward-Looking Statements~~

~~Statements under “Backlog,” “Results~~The following “Management’s Discussion and Analysis of Financial Condition and Results of Operations” is provided to assist readers in understanding our financial performance during the periods presented and ~~“Liquidity~~significant trends that may impact our future performance. This discussion should be read in conjunction with our Consolidated Financial Statements and ~~Capital Resources” and other~~the related notes thereto.

Cautionary Statement on Forward-Looking Information

This Report contains forward-looking statements in ~~this report~~which we discuss our potential future performance, primarily in the section entitled “Management’s Discussion and ~~the exhibits hereto that~~Analysis of Financial Condition and Results of Operations.” Forward-looking statements are ~~not~~all statements other than statements of historical ~~fact~~facts, such as projections or expectations relating to oil and gas prices, operating cash flows, capital expenditures, liquidity and tax rates. The words “anticipates,” “may,” “can,” “plans,” “believes,” “estimates,” “expects,” “projects,” “targets,” “intends,” “likely,” “will,” “should,” “to be,” “potential” and any similar expressions are intended to identify those assertions as forward-looking statements. ~~These~~

We caution readers that forward-looking statements are ~~subject to certain risks~~not guarantees of future performance and ~~uncertainties that could cause~~ actual results ~~and outcomes to~~may differ materially from ~~the results and outcomes predicted~~those anticipated, projected or assumed in ~~such forward-looking statements. Investors are cautioned not to place undue reliance upon such~~the forward-looking statements. Important factors that ~~may~~can cause our actual results to differ materially from ~~expectations~~those anticipated in the forward-looking statements include the cyclical nature of the oil and gas industry, changes in backlog estimates, suspension or ~~projections include those~~termination of projects, timing and award of new contracts, financial ability and credit worthiness of our customers, consolidation of our customers, competitive pricing and cost overruns, entry into new lines of business, ability to raise additional capital, ability to sell certain assets, advancement on the SeaOne Project, ability to resolve the dispute with a customer relating to the purported termination of contracts to build two MPSVs, ability to remain in compliance with our covenants contained in our Credit Agreement, ability to employ skilled workers, operating dangers and limits on insurance coverage, weather conditions, competition, customer disputes, adjustments to previously reported profits or loss under the percentage-of-completion method, loss of key personnel, compliance with regulatory and environmental laws, ability to utilize navigation canals, performance of sub-contractors, systems and information technology interruption or failure and data security breaches and other factors described in Item 1A. ~~Risk Factors~~“Risk Factors” included in our 2017 Annual Report ~~on Form 10-K for~~as may be updated by subsequent filings with the ~~year ended December 31, 2016.~~SEC.

Investors are cautioned that many of the assumptions upon which our forward-looking statements are based are likely to change after the forward-looking statements are made, which we cannot control. Further, we may make changes to our business plans that could affect our results. We caution investors that we do not intend to update forward-looking statements more frequently than quarterly notwithstanding any changes in our assumptions, changes in business plans, actual experience or other changes, and we undertake no obligation to update any forward-looking statements.

~~Executive Summary~~Overview

We are a leading fabricator of complex steel structures, modules and marine vessels used in energy extraction and production, petrochemical and industrial facilities, power generation, alternative energy ~~projects~~ and shipping and marine transportation operations. We also provide related project management for EPC projects along with installation, hookup, commissioning and repair and maintenance ~~services with specialized crews~~services. In addition, we perform civil, drainage and ~~integrated project management capabilities. We are currently fabricating complex modules~~other work for ~~the construction of a new petrochemical plant~~state and two multi-purpose service vessels. We recently fabricated offshore wind turbine foundations for the first offshore wind power project in the United States. We also constructed one of the largest liftboats servicing the Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM and the first SPAR fabricated in the United States.local governments. Our customers include U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power, and marine ~~operators.~~operators, EPC companies and agencies of the U.S. Government. We operate and manage our business through four operating divisions, and one non-operating division, which represent our reportable segments. Our operating divisions include: Fabrication, Shipyard, Services and EPC. Our corporate headquarters is located in Houston, Texas, with fabrication facilities located in Houma, Jennings and Lake Charles, Louisiana. At September 30, 2018, our Texas North Yard is held for sale and our Texas South Yard had been sold.

~~Our industry environment continues~~We continue to ~~be challenged as low oil and gas prices remain. Our customers~~strategically position the Company to participate in the ~~global oil~~fabrication of petrochemical and ~~gas~~industrial facilities, pursue offshore wind opportunities, enter the EPC industry and diversify our customer base within all of our operating divisions. In addition, we continue to ~~limit capital spending relative~~focus on maintaining liquidity and securing meaningful new contract awards and backlog in the near-term, and generating operating income and cash flow from operations in the longer-term. We have made significant progress in our efforts to improve our liquidity, including reductions in costs (including reducing our workforce and reducing the already reduced spending levels from 2015 and 2016. This has also negatively impacted the marine and offshore service industries that support offshore exploration and production which has had an adverse effect on our overall backlog levels and created challenges with respectcash compensation paid to our ~~ability to operate~~directors and the salaries of our ~~facilities at desired utilization levels. As a result, we have experienced significant decreases in revenue. Oil~~executive officers) and ~~gas producers are not expected to increase drilling activity in~~ the near term. As a result, we do not anticipate any real movement in the near term as it relates to offshore investment and related project activity as producers focus on land-based oil and gas production through newly discovered shale finds.divestiture of underutilized assets.

~~Accordingly,~~Sales of Assets

Texas South Yard - During the second quarter 2018, we ~~have increased~~completed the sale of our ~~focus on projects outside~~Texas South Yard for $55.0 million, less selling costs of $1.5 million, for total net proceeds during the ~~upstream oil~~nine-months ended September 30, 2018 of approximately $53.5 million and ~~gas sector,~~a gain of approximately $3.9 million.

Texas North Yard - On September 26, 2018, we entered into an agreement to sell our Texas North Yard and ~~we have seen improved bidding opportunities through~~certain associated equipment for $28.0 million. We received $0.5 million during the third quarter 2018 as a deposit on the property, which is refundable under certain circumstances. The sale is anticipated to close during the fourth quarter 2018 and is subject to customary closing conditions, including the purchaser’s right to conduct inspections of ~~2017~~the property related to confirmation of title, surveys, environmental conditions, easements and access rights and third-party consents. Based on the sales price and estimated closing and other costs, we expect to realize a gain on the transaction upon closing. We can provide no assurances that we will successfully close the transaction, that closing will occur under our expected timeline or that we will achieve our estimated net proceeds or a gain on the sale. We continue to actively market the remaining Texas North Yard assets held for sale, which primarily ~~for our Fabrication~~consist of three 660-ton crawler cranes, a barge, a plate bending roll machine and ~~Shipyards divisions.~~panel line equipment.

~~Within~~Hurricane Harvey Insurance Recoveries - During the third quarter 2017, buildings and equipment located at our ~~Fabrication division,~~South Texas Properties were damaged by Hurricane Harvey. During the second quarter 2018, we agreed to a global settlement with our insurance carriers for total insurance recoveries of $15.4 million, resulting in a net gain on insurance recoveries of $3.6 million during the nine months ended September 30, 2018. As of September 30, 2018, all insurance proceeds had been received, including $7.2 million received during the third quarter 2018.

Ongoing Efforts to Increase Our Backlog, Diversify of Our Customer Base and Resolve Customer Dispute

Pursuit of petrochemical and industrial fabrication work - During the second quarter 2018, we completed the fabrication and timely delivery of four modules for a new petrochemical facility. We currently have ~~increased our focus on future large petrochemical plant module~~several bids outstanding for the fabrication of modules and continue to pursue additional fabrication work ~~alternative energy fabrication projects and other projects that are less susceptible to fluctuations in oil and gas prices and may actually benefit~~ in the ~~longer term~~petrochemical and industrial industries.

Pursuit of offshore wind - We believe that future requirements from ~~reliable, lower cost commodity prices.~~generators and utilities to provide electricity from renewable and green sources will result in continued growth of offshore wind projects. We fabricated wind turbine pedestals for the first offshore wind power project in the U.S. in 2015, and we believe that we possess the expertise to obtain future work in this sector. During the first quarter 2018, we signed a contract for the fabrication of one meteorological tower and platform for an offshore wind project located off the U.S. coast of Maryland. The fabrication work was completed in the second quarter 2018 and represents our continued ability to provide structures for this emerging industry. We may also partner with other companies to take advantage of growth in this area and have executed a teaming agreement with the EEW Group to pursue future U.S. offshore wind projects. We can provide no assurances that we will be successful obtaining future wind project awards from this arrangement.

Diversification of our customer base - We are ~~currently fabricating complex modules~~continuing to diversify our customer base within our operating divisions. Specifically:

During the first quarter 2018, we executed a contract for the construction and delivery of one towing, salvage and rescue ship vessel with the U.S. Navy for $63.6 million, with an option for seven additional vessels, which was subsequently protested by one of the unsuccessful bidders. On July 16, 2018, we were notified that the award was upheld by the U.S. Government Accountability Office, and we were given a notification to proceed. On August 6, 2018, we were notified that the unsuccessful bidder had filed a subsequent protest with the Department of Justice. On August 9, 2018, we were granted a partial stay, which allows us to proceed with pre-construction design development, planning, scheduling and material ordering. Construction of the vessel cannot begin until a final ruling is issued by the U.S. Court of Federal Claims. We are working with the U.S. Navy to re-establish a timeline for construction under this contract.

During the second quarter 2018, we signed change orders with two different customers for the construction of one additional harbor tug boat for each customer. Each change order was approximately $13.0 million. We are now constructing a ~~new petrochemical plant.~~total of five harbor tug boats for each customer.

During the third quarter 2018, we signed a contract for the expansion and delivery of a 245-guest paddle wheel riverboat. The paddle wheel boat will be built using the existing hull of a former gaming vessel built in 1995.

Continued growth of our services related work - Demand for services associated with offshore tie-backs, upgrades and maintenance remains strong, and we anticipate it will continue for the remainder of 2018 and into 2019. We ~~were recently named by~~will continue to pursue opportunities for offshore and onshore plant expansion and maintenance and have targeted service opportunities within the shale basins in West Texas.

Pursuit of EPC work - During the fourth quarter 2017, SeaOne ~~Holdings, LLC, that we have been~~ selected us as the prime contractor for the engineering, procurement, construction, installation, commissioning and start-up ~~also known as EPCIC/S,~~operations for ~~its Caribbean Fuels Supply~~their SeaOne Project. This project ~~consists~~will include execution of ~~the~~engineering, construction and installation of modules for an export facility in Gulfport, Mississippi, and import facilities in the Caribbean and South America. ~~While~~Our current activities include pricing, planning and scheduling for the project. SeaOne’s selection of ~~our company~~the Company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on terms of the engagement ~~we are working~~with SeaOne. We understand that SeaOne is in the process of securing financing for the project. We continue to ~~strengthen~~enhance our internal project management capabilities through the hiring of additional personnel to service this potential project. ~~No amounts related to the SeaOne Project have been included in our backlog amounts as of September 30, 2017.~~

~~Opportunities for shipyard-related projects remain largely outside~~MPSV contract dispute - As discussed in Note 8 to our Consolidated Financial Statements, we received notices of termination of the ~~oil and gas sector including passenger cruise vessels and government contracts. Our Shipyards division has recently been awarded~~ contracts for the construction of ~~eight harbor tugs,~~two MPSVs from one ~~research vessel for Oregon State University~~of our Shipyard Division customers. We dispute the purported terminations and disagree with the ~~option~~customer’s reasons for such terminations. Pending the resolution of the dispute, we have ceased all work and the partially completed MPSVs and associated equipment and materials remain at our shipyard in Houma, Louisiana. The customer also notified our Surety of its purported terminations of the construction contracts and made claims under the bonds issued by the Surety in connection with the construction of the two ~~more research vessels~~MPSVs. We have notified and ~~an ice class, z-drive tug.~~met with our Surety regarding our disagreement with, and objection to, the customer's purported termination and its claims. Discussions with the Surety are ongoing. On October 2, 2018, we filed a lawsuit against the customer to enforce our rights and remedies under the applicable construction contracts. Our lawsuit disputes the propriety of the customer’s purported termination of the construction contracts and seeks to recover damages associated with the customer’s actions. We are unable to estimate the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the contracts.

Outlook

~~Opportunities~~Looking forward, our results of operations will be affected primarily by the overall demand and market for our ~~Services division are expected~~services. In recent years, a significant portion of our historical customer base has been negatively affected by a decline in offshore oil and gas exploration and development activity as companies focus on onshore development opportunities. As a result, and as discussed above, we have implemented a number of initiatives to ~~remain challenging over~~strategically reposition the ~~next several months as~~Company to participate in the fabrication of petrochemical and industrial facilities, pursue offshore wind opportunities, enter the EPC industry, and diversify our customers ~~continue~~within all of our operating divisions. The success of these initiatives and our future operations will be determined by, among other things:

The level of new construction and fabrication projects in the new markets we are pursuing, including petrochemical and industrial facilities and offshore wind;

The ability of SeaOne to ~~limit their spending; however, we have secured some offshore platform facility expansion work which entails~~obtain financing and our successful execution of an agreement with SeaOne for the ~~onshore fabrication~~SeaOne Project;

Continued growth within our Shipyard and Services Divisions;

Our ability to secure contracts through competitive bidding or alliance/partnering arrangements;

Our ability to execute projects within our cost estimates and successfully manage them through completion; and

Our ability to resolve our dispute with a customer related to the construction of ~~structural and production components as well as offshore installation and hook-up scopes of work. In addition to onshore plant expansions and maintenance programs.~~two MPSVs.

We continue to respond to the competitive environment within our industry and actively compete for additional ~~bidding opportunities~~opportunities. We have increased our backlog within our Shipyard, Fabrication and Services Divisions and believe we will be successful securing new project awards and growing our backlog. However, our operations will be negatively impacted in ~~obtaining~~the near term due to an anticipated lag in the commencement of fabrication activities for our recent and anticipated new additional backlog awards in 2017 and 2018; however, management believes that even if we are successful in obtaining these awards there is an expected lag of several months before these awards will materialize into work atawards. Further, our ~~facilities. While we have~~

~~been successful in obtaining new backlog in recent months, primarily in our Shipyards and Services divisions, these backlog~~previous project awards were ~~received~~sold during a period of competitive pricing with ~~low~~lower than desired margins. ~~Revenue from these awards will not be realized until later in 2018.~~

On June 9, 2017, we successfully negotiated a new $40.0 million credit agreement with Whitney Bank. The credit facility matures June 9, 2019 and may be used for issuing letters of credit and/or general corporate and working capital purposes. We believe the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations. In connection with our entry into this facility, we terminated our prior $40.0 million credit facility with JPMorgan Chase Bank, N.A.Safety

We ~~continue~~operate in an environment that exposes our employees to ~~respond~~risk of injury. We are committed to ~~decreases in project activity by reducing our own discretionary spending. Since~~ the ~~beginning of 2016, we have implemented wage adjustments along with employee benefit and overall cost reductions within all~~safety of our ~~divisions. We have reduced the level of our workforce based on booked work in all of our facilities~~employees and will continue to do so, as necessary. We have reduced our capital expenditures and continue to evaluate opportunities to rationalize assets that are either underutilized, under-performing or not expected to provide sufficient long-term value which include our South Texas assets as further discussed below.

~~South Texas Assets -~~ On February 23, 2017, our Board of Directors approved management's recommendation to market our South Texas facilities located in Aransas Pass and Ingleside, Texas, for sale. Our Texas South Yard in Ingleside, Texas,believe it is located on the northwest corner of the intersection of the U.S. Intracoastal Waterway and the Corpus Christi Ship Channel. The 45-foot deep Corpus Christi Ship Channel provides direct and unrestricted access to the Gulf of Mexico. Our Texas North Yard in Aransas Pass, Texas, is located along the U.S. Intracoastal Waterway and is approximately three miles north of the Corpus Christi Ship Channel. These facilities are currently underutilized and represent excess capacity within our Fabrication division. Our net book value of these assets was $104.5 million at September 30, 2017. We continue to wind down all fabrication activities at these locations and have re-allocated remaining backlog and workforcekey to our ~~Houma Fabrication Yard as necessary. As a result of the decision to market~~success. Poor safety performance increases our ~~South Texas facilities for sale~~costs, results in construction delays and the underutilization currently being experienced, we expect to incur costs associated with maintaining the facility that will not be recoverable until such time as we are able to consummate one or more sales of these assets. These costs include insurance, general maintenance of the property in its current state, property taxes and retained employees which will be expensed as incurred. We have executed a letter of interest with a proposed buyer for the sale of our South Yard in Ingleside, Texas. While this letter of interest is non-binding, the proposed buyers will be conducting several surveys on the property during the next few months as part of their due diligence. We do not expect the sale of these assets to impactlimits our ability to ~~service~~compete for project awards within our ~~deepwater customers or operate~~market. Safety performance metrics are incorporated into our ~~Fabrication division.~~

~~In the event of one or more sales of~~annual incentive compensation measures for our South Texas assets, we expect to use all or a portion of the sales proceeds to invest in our operating liquidity in order to facilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities.

~~On August 25, 2017, our South Texas facilities were impacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings~~executives and equipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs, and we expect to incur additional future repair costs in excess of our deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs. Our final assessment of the damages incurred to our South Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled and such differences could be material.

~~Prospect Shipyard Assets -~~ We lease a 35-acre complex 26 miles from the Gulf of Mexico in Houma, Louisiana. We have entered into an agreement to terminate the lease no later than December 31, 2017, with the owner of the property to facilitate an orderly disposal of assets at the facility. Our remaining lease payments are not material. We have classified the machinery and equipment remaining at this shipyard as assets held for sale at February 6, 2017. Our net book value of property, plant and equipment for these assets was $2.5 million at September 30, 2017. We measure and record assets held for sale at the lower of their carrying amount or fair value less cost to sell. We recorded an impairment of $389,000 during the nine months ended September 30, 2017. Additionally, we sold two drydocks from our Prospect Shipyard for proceeds of $2.0 million and recorded a loss on sale of $259,000 during the nine months ended September 30, 2017. We do not expect the sale of these assets to impact our ability to service our

~~Shipyards customers. The future anticipated costs expected to be incurred prior to the termination of this lease are not significant to our consolidated financial statements.~~

Our balance sheet position at September 30, 2017, remains stable with $17.8 million in cash, no debt and working capital of $164.0 million which includes $107.0 million in assets held for sale, primarily related to our South Texas assets. We continue to monitor and maintain a conservative capital structure as we navigate through the current oil and gas industry downturn and as we further transition our focus on securing future work outside of the offshore upstream oil and gas sector.senior management.

Critical Accounting Policies and Estimates

For a discussion of critical accounting policies and estimates ~~we use~~used in the preparation of our Consolidated Financial Statements, refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2017 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report. There have been no changes ~~in our evaluation of~~to our critical accounting policies since December 31, ~~2016.~~2017.

New Awards and Backlog

~~Our backlog is based~~New project awards represent the expected revenue value of new contract commitments received during a given period, as well as scope growth on ~~management’s estimate of the direct labor hours required to complete, and the remaining revenue to be recognized with respect to those projects~~existing commitments. New contract commitments represent contracts for which a customer has authorized us to begin work or purchase materials pursuant to written ~~contracts,~~agreement, letters of intent or other forms of authorization. ~~As engineering~~Backlog represents the unearned value of our new project awards and ~~design plans are finalized or changes to existing plans are made, management’s estimate~~may differ from the value of ~~the direct labor hours~~future performance obligations for our contracts required to ~~complete~~be disclosed under Topic 606, and presented in Note 3 to our Consolidated Financial Statements. We believe that backlog, a non-GAAP financial measure, provides useful information to investors. Backlog includes our performance obligations at September 30, 2018, plus signed contracts that are temporarily suspended or under protest that may not meet the criteria to be reported as future performance obligations under Topic 606, but represent future work that we believe will be performed. New project awards and backlog may vary significantly each reporting period based on the ~~price~~timing of ~~a project at completion is likely to change.~~our major new contract commitments.

~~All~~Our projects ~~currently included~~ in ~~our~~ backlog are generally subject to suspension, termination, or a reduction in scope at the option of the customer, although the customer is required to pay us for work performed and materials purchased through the date of termination, suspension, or reduction in scope. In addition, customers have the ability to delay the execution of projects.

~~Our~~ We generally exclude suspended projects from backlog ~~at September 30, 2017,~~when they are expected to be suspended more than twelve months, because resumption of work and ~~December 31, 2016, consisted~~timing of revenue recognition for these projects are difficult to predict. Depending on the size of the ~~following~~project, the termination, postponement or reduction in scope of any one contract could significantly reduce our backlog and could have a material adverse effect on future revenue, operating results and cash flows. A reconciliation of our future performance obligations under Topic 606 (the most comparable GAAP measure as presented in Note 3 to our Consolidated Financial Statements) to our reported backlog is provided below (in ~~thousands, except for percentages):~~thousands).

September 30, 2017 December 31, 2016
Division $'s Labor hours $'s Labor hours
Fabrication $ 29,554
254 $ 65,444
707
Shipyards 200,909
1,045 59,771
457
Services 21,918
265 7,757
101
Intersegment eliminations (649 ) — —
—
Total backlog ⁽¹⁾
$ 251,732
1,564 $ 132,972
1,265

Number Percentage Number Percentage
Major customers ⁽²⁾
five 82.7% two 80.5%

Backlog is expected to be recognized in revenue during: $'s Percentage
2017 ⁽³⁾
$ 40,352
16.0%
2018 ⁽³⁾
139,529
55.4%
2019 ⁽³⁾
63,451
25.2%
2020 ⁽³⁾
8,400
3.4%
$ 251,732
100.0%



	September 30, 2018
	Fabrication		Shipyard		Services		EPC		Eliminations		Consolidated
Future performance obligations under Topic 606	$	44,746	$	282,912	$	11,699	$	836	$	—	$	340,193
Signed contracts under purported termination ⁽¹⁾	—		30,148		—		—		—		30,148
Backlog	$	44,746	$	313,060	$	11,699	$	836	$	—	$	370,341

___________

(1)

Includes backlog within our Shipyard Division pursuant to a purported notice of termination from our customer related to contracts for the construction of two MPSVs. We ~~exclude suspended projects from contract backlog when they are expected~~dispute the purported termination and disagree with the customer’s reasons for the same. We can provide no assurances that we will reach a favorable resolution with the customer for completion of the MPSVs. See Note 8 to ~~be suspended more than 12 months because resumption~~our Consolidated Financial Statements for further discussion of ~~work and timing of revenue recognition for these projects are difficult to predict.~~the dispute.

Our backlog at September 30, 2018 and December 31, 2017, consisted of the following (in thousands):



	September 30, 2018			December 31, 2017
Division	Amount		Labor hours	Amount			Labor hours
Fabrication	$	44,746	220	$	15,771		150
Shipyard	313,060		1,741	184,035			1,104
Services	11,699		158	23,181			290
EPC	836		—	—			—
Intersegment eliminations	—		—	(370		)	—
Total ⁽¹⁾	$	370,341	2,119	$	222,617		1,544

Backlog at September 30, 2018 is expected to be recognized as revenue in the following periods (in thousands):



Year ⁽²⁾	Total		Percentage
Remainder of 2018	56,243		15.2%
2019	199,922		54.0%
2020	105,124		28.4%
2021	8,405		2.2%
2022	647		0.2%
Thereafter	—		—%
Total	$	370,341	100.0%

___________


~~(2)~~(1)	At September 30, 2018, six customers represented approximately 89% of our backlog, and at December 31, 2017, ~~projects for~~four customers represented approximately 73% of our ~~five largest~~backlog. At September 30, 2018, backlog from the six customers ~~in terms of revenue backlog~~ consisted of:


(i)	~~Two large multi-purpose service vessels for one customer within our Shipyards division, which commenced in the first quarter~~Newbuild construction of ~~2014 and will~~five harbor tugs (to be completed ~~during 2018;~~in 2018 through 2020);


(ii)	Newbuild construction of ~~four~~five harbor tugs ~~for one customer within our Shipyards division;~~(separate from above) (to be completed in 2019 through 2020);


(iii)	Newbuild construction of ~~four harbor tugs for one additional customer within our Shipyards division;~~two regional class research vessels (both to be completed in 2021);

(iv)

~~The fabrication~~Newbuild construction of ~~four modules associated~~one towing, salvage and rescue ship vessel (to be completed in 2021). During the first quarter 2018, we executed a contract with the U.S. Navy for $63.6 million, with an option for seven additional vessels, which was subsequently protested by one of the unsuccessful bidders. Construction of the vessel cannot begin until a final ruling is issued by the U.S. ~~ethane cracker project within~~Court of Federal Claims. See Note 8 to our ~~Fabrication division; and~~Consolidated Financial Statements for further discussion. We are working with the U.S. Navy to re-establish a timeline for construction under this contract;


(v)	~~Newbuild construction~~Expansion of ~~an offshore research vessel within our Shipyards division.~~a 245-guest paddle wheel riverboat (to be competed in 2020); and

~~(3)~~(vi)

Newbuild construction of two MPSV's. We are currently in dispute with our customer pursuant to a purported notice of termination related to these contracts. We dispute the purported termination and disagree with the customer’s reasons for the same. We can provide no assurances that we will reach a favorable resolution with the customer for completion of the MPSVs. See Note 8 to our Consolidated Financial Statements for further discussion of the dispute.


(2)	The timing of recognition of the revenue represented in our backlog is based on ~~management’s~~our current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of ~~the~~ recognition of revenue from our backlog.

~~Depending on~~Certain of our contracts contain options which grant the ~~size~~right to our customer, if exercised, for the construction of ~~the project, the termination, postponement, or reduction~~additional vessels at contracted prices. We do not include options in ~~scope of any one project could significantly reduce~~our backlog. If all options under our current contracts were exercised by our customers, our backlog would increase by approximately $534.0 million. We believe disclosing these options provides investors with useful information to evaluate additional potential work that we would be contractually obligated to perform under our current contracts as well as the potential significance of these options, if exercised. We have not received any commitments from our customers related to the exercise of these options, and ~~could have a material adverse effect on revenue, net income and cash flow. Additionally, as~~ we ~~continue to add~~can provide no assurances that any of these options will be exercised.

As our backlog increases, we will ~~begin adding~~add personnel with critical project management and fabrication skills to ensure we have the resources necessary to properly execute our projects ~~well~~ and to support our project risk mitigation discipline for all ~~new project work.~~projects. This may negatively impact ~~near term~~near-term results.

~~As of~~Workforce

At September 30, ~~2017,~~2018, we had ~~989~~816 employees compared to ~~1,178~~977 employees ~~as of~~at December 31, ~~2016.~~2017. Labor hours worked were ~~1.5~~1.4 million during the nine months ended September 30, ~~2017,~~2018, compared to ~~2.3~~1.5 million for the nine months ended September 30, ~~2016.~~2017. The ~~overall~~ decrease in labor hours worked ~~for the nine months ended September 30, 2017, was~~is primarily within our Fabrication Division due to ~~an overall~~completion of complex modules for a new petrochemical facility with no immediate replacement backlog for our Fabrication Division during the 2018 period, as well as the suspension of construction of two MPSVs within our Shipyard Division pending resolution of the dispute with our customer. See Note 8 to our Consolidated Financial Statements for further discussion of the dispute.This decrease ~~in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer~~was partially offset by improved demand within ~~all of~~ our ~~operating divisions.~~Services Division.

Results of Operations

Three Months Ended September 30, ~~2017,~~2018, Compared to Three Months Ended September 30, ~~2016~~ 2017(in thousands, except for percentages):

Consolidated

Three Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ 49,884
$ 65,384
$ (15,500 ) (23.7)%
Cost of revenue 50,378
60,125
(9,747 ) (16.2)%
Gross profit (loss) (494 ) 5,259
(5,753 ) (109.4)%
Gross profit (loss) percentage (1.0 )% 8.0 %
General and administrative expenses 4,370
5,086
(716 ) (14.1)%
Operating income (loss) (4,864 ) 173
(5,037 ) (2,911.6)%
Other income (expense):
Interest expense (45 ) (110 ) 65

Interest income —
12
(12 )
Other income (expense), net 38
599
(561 )
Total other income (expense) (7 ) 501
(508 ) 101.4%
Net income (loss) before income taxes (4,871 ) 674
(5,545 ) (822.7)%
Income tax expense (benefit) (1,761 ) 133
(1,894 ) (1,424.1)%
Net income (loss) $ (3,110 ) $ 541
$ (3,651 ) (674.9)%



	Three Months Ended September 30,						Increase (Decrease)
	2018			2017			Amount			Percent
Revenue	$	49,712		$	49,884		$	(172	)	(0.3)%
Cost of revenue	52,924			50,378			2,546			5.1%
Gross loss	(3,212		)	(494		)	(2,718		)	(550.2)%
Gross loss percentage	(6.5		)%	(1.0		)%
General and administrative expenses	7,672			4,370			3,302			75.6%
Operating loss	(10,884		)	(4,864		)	(6,020		)	(123.8)%
Interest income (expense), net	72			(45		)	117			260.0%
Other income, net	140			38			102			268.4%
Net loss before income taxes	(10,672		)	(4,871		)	(5,801		)	(119.1)%
Income tax expense (benefit)	277			(1,761		)	2,038			115.7%
Net loss	$	(10,949	)	$	(3,110	)	$	(7,839	)	(252.1)%

Revenue - ~~Our revenue~~Revenue for the three months ended September 30, 2018 and 2017, ~~and 2016,~~ was ~~$49.9~~$49.7 million and ~~$65.4~~$49.9 million, respectively, representing a decrease of ~~23.7%~~0.3%. ~~The decrease is~~Revenue for the 2018 period approximated revenue for the 2017 period primarily due to lower revenue for our Fabrication Division of $16.0 million attributable to ~~an overall decrease~~the completion and delivery of four modules for a petrochemical facility in ~~work experienced~~the second quarter 2018, which was substantially offset by:

A $5.0 million increase in revenue within our ~~facilities primarily as a result of depressed~~Services Division due to additional demand for onshore and offshore oil and gas ~~prices~~service related projects; and

A $9.4 million net increase in revenue within our Shipyard Division due to additional progress on the ~~corresponding reduction in customer demand within all~~construction of ten harbor tug vessels and an ice-breaker tug that was not under construction during the third quarter 2017, offset partially by lower revenue from our ~~operating divisions. Pass-through costs as a percentage of revenue~~two MPSV contracts that were ~~48.4% and 33.8% for~~suspended during the ~~three months ended September 30, 2017 and 2016, respectively. Pass-through costs, as described in~~first quarter 2018. See Note ~~3 of the Notes~~8 to our Consolidated Financial Statements ~~are included in revenue but have no impact on~~for further discussion of the ~~gross profit recognized on a project for a particular period.~~MPSV contracts.

Gross ~~profit (loss)~~loss - ~~Our gross~~Gross loss for the three months ended September 30, 2018 and 2017, was ~~$494,000 compared to a~~$3.2 million (6.5% of revenue) and $0.5 million (1.0% of revenue), respectively. The gross ~~profit of $5.3 million for~~loss during the ~~three months ended September 30, 2016. The decrease~~2018 period was primarily due to ~~$2.1 million~~under recovery of ~~contract losses incurred by~~ our ~~Shipyards division~~overhead costs (including holding costs for our Texas North Yard of $0.7 million) and the impact of lower margin backlog within our Shipyard Division related to ~~cost overruns and re-work identified on two newbuild vessel construction~~

~~contracts, decreased revenue as discussed above, holding costs related to our South Texas assets~~previous project awards sold during a period of ~~$1.1 million and lower margins on current work due to~~ competitive pressures. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, no depreciation being recorded for our South Texas assets and Prospect shipyard for the three months ended September 30, 2017 (as these assets are classified as assets held for sale) and continued cost minimization efforts implemented by management for the period.

~~General and administrative expenses~~ - Our general and administrative expenses were $4.4 million for the three months ended September 30, 2017, compared to $5.1 million for the three months ended September 30, 2016. The decrease in general and administrative expenses for the three months ended September 30, 2017, was primarily attributable to lower bonuses accrued during 2017, employee reductions and continued cost minimization efforts implemented by management for the period.

~~Other income (expense), net -~~ Other income was $38,000 for the three months ended September 30, 2017, as compared to other income of $599,000 for three months ended September 30, 2016. Other income for the three months ended September 30, 2017 relates to insurance proceeds received from damage to a corporate automobile that was fully depreciated. Other income for for three months ended September 30, 2016 primarily relates to gains on sales of assets from our Fabrication division.

~~Income tax expense (benefit) -~~ Our effective income tax rate for the three months ended September 30, 2017, was 36.2%, compared to an effective tax rate of 19.7% for the comparable period during 2016. The increase in the effective tax rate is the result of changes to estimates of our year-end tax provision during for the three months ended September 30, 2016.

~~Operating Segments~~

As discussed in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three and nine months ended September 30, 2017, such that a significant portion of its corporate expenses are retained in its non-operating Corporate division. In addition, it has also allocated certain personnel previously included in the operating divisions to within the Corporate division. In doing so, management believes that it has created a fourth reportable segment with each of its three operating divisions and its Corporate division each meeting the criteria of reportable segments under GAAP. During the three and nine months ended September 30, 2016, we allocated substantially all of our corporate administrative costs and overhead expenses to our three operating divisions. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the three months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Three Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ 18,318
$ 22,311
$ (3,993 ) (17.9)%
Gross profit (loss) 1,250
601
649
108.0%
Gross profit (loss) percentage 6.8 % 2.7 % 4.1%
General and administrative expenses 778
885
(107 ) (12.1)%
Operating income (loss) 472
(284 )

~~Revenue -~~ Revenue from our Fabrication division decreased $4.0 million for the three months ended September 30, 2017, compared to the three months ended September 30, 2016. The decrease is attributable to an overall decrease in work experienced in our fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore fabrication projects.

~~Gross profit (loss) -~~ ~~Gross profit from our Fabrication division for the three months ended September 30, 2017, was $1.3 million compared to a gross profit of $601,000 for the three months ended September 30, 2016.~~pricing. The increase in gross ~~profit~~loss relative to the prior period was primarily due to a higher gross loss for our Fabrication Division of $5.3 million related to decreased fabrication revenue, offset partially by:

~~Gains~~A decrease in gross loss within our Shipyard Division of $1.7 million due to increased revenue, a reduction in overhead costs, and the prior period including $2.1 million in contract losses related to cost increases on ~~scrap sales~~the construction of ~~approximately $701,000 at~~two MPSVs; and

Increased gross profit within our ~~South Texas facility,~~

~~Decreases in costs resulting from reductions in workforce as we wrapped up~~Services Division of $1.3 million due to increased revenue and ~~completed projects at~~higher recovery of our ~~South Texas fabrication yards,~~

~~No depreciation being recorded for our South Texas assets for the three months ended September 30, 2017, as these assets are classified as assets held for sale; and~~

~~Continued cost minimization efforts implemented by management for the period.~~

~~This was partially offset by approximately $1.1 million of holding costs for our South Texas assets.~~overhead costs.

General and administrative expenses - General and administrative expenses for the three months ended September 30, 2018 and 2017, were $7.7 million (15.4% of revenue) and $4.4 million (8.8% of revenue), respectively, representing an increase of 75.6%. The increase was primarily due to:

Bad debt expense of $2.8 million related to a contracts receivable reserve recorded during the third quarter 2018 within our Fabrication ~~division decreased $107,000~~Division as we received indications that collectability of the receivable was no longer probable;

Increased legal and advisory fees related to customer disputes;

Costs associated with the evaluation of strategic alternatives and initiatives to diversify our business; and

An increase in administrative personnel for our newly created EPC Division.

These increases were offset partially by headcount reductions.

Interest income (expense), net - Interest income (expense), net for the three months ended September 30, 2018 and 2017, ~~compared~~was income of $72,000 and expense of $45,000, respectively. The net interest income for the 2018 period was primarily due to interest earned from cash equivalents and short-term investments.

Other income, net - Other income, net for the three months ended September 30, ~~2016. The decrease is~~2018 and 2017, was income of $0.1 million and $38,000, respectively. Other income, net for the period was primarily due to ~~decreases in costs resulting from lower bonuses accrued~~net gains on the sales of assets.

Income tax expense (benefit) - Income tax expense (benefit) for the three months ended September 30, 2018 and 2017, was expense of$0.3 million and benefit of $1.8 million, respectively. Current expense represents state income taxes. No federal tax benefit was recorded during ~~2017~~the 2018 period as a ~~result~~full valuation allowance was recorded against our net NOL deferred tax assets generated during the period. See Note 1 to our Consolidated Financial Statements for further discussion of our ~~consolidated~~NOLs and deferred tax assets.

Operating Segments

The results of our four operating ~~loss, reductions in workforce at our South Texas fabrication yards~~divisions and ~~continued cost minimization efforts implemented by management~~non-operating corporate division for the ~~period.~~three months ended September 30, 2018 and 2017, are presented below (in thousands, except for percentages).


Shipyards	Three Months Ended September 30,						Increase or (Decrease)
Fabrication											Three Months Ended September 30,						Increase (Decrease)
	2017			2016			Amount			Percent	2018			2017			Amount			Percent
Revenue ⁽¹⁾	$	15,074		$	23,060		$	(7,986	)	(34.6)%	$	2,311		$	18,318		$	(16,007	)	(87.4)%
Gross profit (loss) ⁽¹⁾	(3,504		)	1,945			(5,449		)	(280.2)%	(4,032		)	1,250			(5,282		)	(422.6)%
Gross profit (loss) percentage	(23.2		)%	8.4		%				(31.6)%	(174.5		)%	6.8		%
General and administrative expenses	888			1,468			(580		)	(39.5)%	3,676			778			2,898			372.5%
Operating income (loss) ⁽¹⁾	(4,392		)	477							(7,708		)	472			(8,180		)

Revenue - Revenue for the three months ended September 30, 2018 and 2017, was $2.3 million and $18.3 million, respectively, representing a decrease of 87.4%. The decrease was primarily due to the completion and delivery of four modules for a petrochemical facility during the second quarter 2018, with no significant projects under construction during the third quarter 2018. We were awarded a new project for the expansion of a paddle wheel riverboat during the third quarter 2018 that will be constructed by our Fabrication Division; however, construction did not commence until the fourth quarter 2018.

Gross profit (loss) - Gross profit (loss) for the three months ended September 30, 2018 and 2017, was a gross loss of $4.0 million (174.5% of revenue) and a gross profit of $1.3 million (6.8% of revenue), respectively. The gross loss during the 2018 period was primarily due to under recovery of our overhead costs (including holding costs for our Texas North Yard of $0.7 million). The gross loss for 2018 relative to the prior period gross profit was primarily due to decreased revenue, offset partially by a reduction in overhead costs.

General and administrative expenses - General and administrative expenses for the three months ended September 30, 2018 and 2017, were $3.7 million (159.1% of revenue) and $0.8 million (4.2% of revenue), respectively, representing an increase of 372.5%. The increase was primarily due to bad debt expense of $2.8 million related to a contracts receivable reserve recorded during the third quarter 2018 as we received indications that collectability of the receivable was no longer probable and higher legal and advisory fees related to the pursuit of claims against a customer for disputed change orders for a project completed prior to 2017, offset partially by headcount reductions.



Shipyard	Three Months Ended September 30,						Increase (Decrease)
	2018			2017			Amount			Percent
Revenue ⁽¹⁾	$	24,492		$	15,074		$	9,418		62.5%
Gross loss	(1,764		)	(3,504		)	1,740			49.7%
Gross loss percentage	(7.2		)%	(23.2		)%
General and administrative expenses	696			888			(192		)	(21.6)%
Operating loss ⁽¹⁾	(2,460		)	(4,392		)	1,932

___________


(1)	Revenue for the three months ended September 30, 2018 and 2017, includes $15,000 and ~~2016, includes $510,000 and $1.5~~$0.5 million, respectively, of non-cash amortization of deferred revenue related to ~~the~~ values assigned to ~~the~~ contracts acquired in ~~the LEEVAC transaction, respectively.~~a previous acquisition.

Revenue - Revenue ~~from our Shipyards division decreased $8.0 million~~ for the three months ended September 30, 2018 and 2017, ~~compared to the three months ended September 30, 2016,~~was $24.5 million and $15.1 million, respectively, representing an increase of 62.5%. The increase was primarily due to the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of workadditional progress on the ~~second vessel~~construction of ten harbor tug vessels and an ice-breaker tug that was not under ~~contract with this customer.~~construction during the third quarter 2017, offset partially by lower revenue from our two MPSV contracts that were suspended during the first quarter 2018. See ~~also~~ Note 98 to our Consolidated Financial Statements for further discussion of the ~~Notes to the Consolidated Financial Statements.~~MPSV contracts.

Gross ~~profit (loss)~~loss - Gross loss ~~from our Shipyards division was $3.5 million~~ for the three months ended September 30, 2018 and 2017, ~~compared~~was $1.8 million (7.2% of revenue) and $3.5 million (23.2% of revenue), respectively, representing a decrease of 49.7%. The gross loss during the 2018 period was primarily due to under recovery of our overhead costs and the impact of lower margin backlog related to previous project awards sold during a ~~gross profit~~period of ~~$1.9 million for the three months ended September 30, 2016. The decrease was due to:~~competitive pricing.

~~$2.1~~The decrease in gross loss relative to the 2017 period was primarily due to higher revenue, a reduction in overhead costs, and the prior period including $2.1 million in contract losses related to cost ~~overruns and re-work that has been identified~~increases on the construction of two ~~newbuild vessel construction contracts within our Shipyards division; and~~

~~Holding and closing costs related to our Prospect shipyard as we wind down operations at this facility.~~MPSVs.

General and administrative expenses - General and administrative expenses for ~~our Shipyards division decreased $580,000~~the three months ended September 30, 2018 and 2017, were $0.7 million (2.8% of revenue) and $0.9 million (5.9% of revenue), respectively, representing a decrease of 21.6%. The decrease was primarily due to headcount reductions.



Services	Three Months Ended September 30,						Increase (Decrease)
	2018			2017			Amount		Percent
Revenue	$	22,617		$	17,651		$	4,966	28.1%
Gross profit	3,191			1,912			1,279		66.9%
Gross profit percentage	14.1		%	10.8		%
General and administrative expenses	705			695			10		1.4%
Operating income	2,486			1,217			1,269

Revenue - Revenue for the three months ended September 30, 2018 and 2017, ~~compared to the three months ended September 30, 2016, primarily due to reductions~~was $22.6 million and $17.7 million, respectively, representing an increase of administrative personnel related to consolidation of personnel duties from the LEEVAC transaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss and cost minimization efforts implemented by management for the period during the first part of 2016.

Services Three Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ 17,651
$ 20,928
$ (3,277 ) (15.7)%
Gross profit (loss) 1,912
2,918
(1,006 ) (34.5)%
Gross profit (loss) percentage 10.8 % 13.9 % (3.1)%
General and administrative expenses 695
943
(248 ) (26.3)%
Operating income (loss) 1,217
1,975

~~Revenue -~~ ~~Revenue from our Services division decreased $3.3 million for the three months ended September 30, 2017, compared to the three months ended September 30, 2016,~~28.1%. The increase was due to an overall ~~decrease~~increase in ~~work experienced as a result of depressed oil and gas prices and the corresponding reduction in customer~~activity resulting from higher demand for ~~oil~~our onshore and ~~gas related service projects.~~offshore services.

Gross profit - Gross profit ~~from our Services division decreased $1.0 million~~ for the three months ended September 30, 2018 and 2017, ~~compared to the three months ended September 30, 2016,~~was $3.2 million (14.1% of revenue) and $1.9 million (10.8% of revenue), respectively, representing an increase of 66.9%. The increase was due to ~~decreased~~higher revenue ~~discussed above~~ and ~~lower margins on new work performed during 2017.~~improved recovery of overhead costs.

General and administrative expenses - General and administrative expenses for ~~our Services division decreased $248,000~~the three months ended September 30, 2018 and 2017, were $0.7 million (3.1% of revenue) and $0.7 million (3.9% of revenue), respectively, representing an increase of 1.4%.



EPC	Three Months Ended September 30,					Increase (Decrease)
	2018			2017		Amount			Percent
Revenue	$	1,071		$	—	$	1,071		100.0%
Gross loss	(205		)	—		(205		)	(100.0)%
Gross loss percentage	(19.1		)%	n/a
General and administrative expenses	503			—		503			100.0%
Operating loss	(708		)	—		(708		)

Revenue - Our EPC Division did not exist at September 30, 2017. Revenue for the three months ended September 30, ~~2017, compared~~2018 consists of pricing, planning and scheduling work for the SeaOne Project. See Note 7 to our Consolidated Financial Statements for further discussion of our EPC Division and the SeaOne Project.

Gross loss - Gross loss for the three months ended September 30, ~~2016,~~2018, was primarily due to ~~lower bonuses accrued during 2017~~costs incurred that are not yet fully recoverable under our current scope of work authorized by SeaOne.

General and administrative expenses - General and administrative expenses include the addition of administrative personnel and other costs as ~~a result of a combination of a smaller workforce and our consolidated operating loss.~~we invest in this new business.


Corporate	Three Months Ended September 30,						Increase or (Decrease)			Three Months Ended September 30,						Increase (Decrease)
	2017			2016			Amount		Percent	2018			2017			Amount			Percent
Revenue	$	—		$	—		$	—	—%	$	—		$	—		$	—
Gross profit (loss)	(152		)	(205		)	53		25.9%
Gross profit (loss) percentage	n/a			n/a
Gross loss										(402		)	(152		)	(250		)	(164.5)%
Gross loss percentage										n/a			n/a
General and administrative expenses	2,009			1,790			219		12.2%	2,092			2,009			83			4.1%
Operating income (loss)	(2,161		)	(1,995		)
Operating loss										(2,494		)	(2,161		)	(333		)

Gross loss - Gross loss for the three months ended September 30, 2018 and 2017, was $0.4 million and $0.2 million, respectively, representing an increase of 164.5%. The increase was primarily due to higher costs to support our strategic initiatives and EPC Division.

General and administrative expenses - General and administrative expenses for ~~our Corporate division increased primarily due to a restructuring~~the three months ended September 30, 2018 and 2017, were $2.1 million (4.2% of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipationconsolidated revenue) and $2.0 million (4.0% of ~~the proceeds to be received from the sale~~consolidated revenue), respectively, representing an increase of our South Texas assets. Additionally, we have incurred increased legal fees as we pursue collection of claims against two customers. See also Note 9 of the Notes to the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during the quarter due to our consolidated operating loss.4.1%.

Nine Months Ended September 30, ~~2017,~~2018, Compared to Nine Months Ended September 30, ~~2016~~ 2017(in thousands, except for percentages):

Consolidated

Nine Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ 133,745
$ 230,864
$ (97,119 ) (42.1)%
Cost of revenue 150,755
205,839
(55,084 ) (26.8)%
Gross profit (loss) (17,010 ) 25,025
(42,035 ) (168.0)%
Gross profit (loss) percentage (12.7 )% 10.8 %
General and administrative expenses 12,940
14,633
(1,693 ) (11.6)%
Asset impairment 389
—
389
100.0%
Operating income (loss) (30,339 ) 10,392
(40,731 ) (391.9)%
Other income (expense):
Interest expense (262 ) (248 ) (14 )
Interest income 12
20
(8 )
Other income (expense), net (221 ) 1,039
(1,260 )
Total other income (expense) (471 ) 811
(1,282 ) (158.1)%
Net income (loss) before income taxes (30,810 ) 11,203
(42,013 ) (375.0)%
Income tax expense (benefit) (10,322 ) 4,134
(14,456 ) (349.7)%
Net income (loss) $ (20,488 ) $ 7,069
$ (27,557 ) (389.8)%



	Nine Months Ended September 30,						Increase (Decrease)
	2018			2017			Amount		Percent
Revenue	$	161,016		$	133,745		$	27,271	20.4%
Cost of revenue	164,248			150,755			13,493		9.0%
Gross loss	(3,232		)	(17,010		)	13,778		81.0%
Gross loss percentage	(2.0		)%	(12.7		)%
General and administrative expenses	17,473			12,940			4,533		35.0%
Asset impairments	1,360			389			971		249.6%
Operating loss	(22,065		)	(30,339		)	8,274		27.3%
Interest expense, net	(166		)	(262		)	96		36.6%
Other income (expense), net	6,954			(209		)	7,163		3,427.3%
Net loss before income taxes	(15,277		)	(30,810		)	15,533		50.4%
Income tax expense (benefit)	419			(10,322		)	10,741		104.1%
Net loss	$	(15,696	)	$	(20,488	)	$	4,792	23.4%

Revenue - ~~Our revenue~~Revenue for the nine months ended September 30, 2018 and 2017, ~~and 2016,~~ was ~~$133.7~~$161.0 million and ~~$230.9~~$133.7 million, respectively, representing an increase of 20.4%. The increase was primarily due to a $22.9 million increase within our Services Division from additional demand for both onshore and offshore services and a $14.9 million increase within our Shipyard Division primarily due to additional progress on the construction of ten harbor tug vessels, two regional class research vessels and an ice-breaker tug that was not under construction during the prior period. These increases were partially offset by a decrease in revenue of ~~42.1%. The decrease is~~$14.3 million within our Fabrication Division primarily ~~attributable~~due to an overall decrease in work experienced in our facilities as a result of depressed oil and gas prices and the corresponding reduction in customer demand within all of our operating divisions as well as the completion and delivery of four modules for a ~~vessel within our Shipyards division that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of work on~~petrochemical facility during the second ~~vessel under contract with this customer. See also Note 9 of~~quarter 2018 and lower revenue from our two MPSV contracts that were suspended during the ~~Notes to the Consolidated Financial Statements. Pass-~~first quarter 2018.

through costs as a percentage of revenue were 45.3% and 35.0% for the nine months ended September 30, 2017 and 2016, respectively. Pass-through costs, as described in Note 3 of the Notes to Consolidated Financial Statements, are included in revenue but have no impact on the gross profit recognized on a project for a particular period.

Gross ~~profit (loss)~~loss - ~~Our gross~~Gross loss for the nine months ended September 30, 2018 and 2017, was $3.2 million (2.0% of revenue) and $17.0 million ~~compared to~~(12.7% of revenue), respectively, representing a decrease of 81.0%. The gross profit of $25.0 million for the nine months ended September 30, 2016. The decrease was primarily due to $12.7 million of losses incurred by our Shipyards division related to cost overruns and re-work identified on two newbuild vessel construction contracts, decreased revenue as discussed above, holding costs related to our South Texas assets of $3.6 million and lower margins on current work. This was partially offset by decreases in costs resulting from reductions in workforce as we wrapped up and completed projects at our South Texas fabrication yards and Prospect shipyard, suspended depreciation for our South Texas assets and Prospect shipyardloss during the ~~nine months ended September 30, 2017, as these assets are classified as assets held for sale and additional cost minimization efforts implemented by management for the period.~~

~~General and administrative expenses~~ - Our general and administrative expenses were $12.9 million for the nine months ended September 30, 2017, compared to $14.6 million for the nine months ended September 30, 2016. The decrease in general and administrative expenses for the nine months ended September 30, 2017, is primarily due to decreases in costs resulting from reductions in workforce at our South Texas fabrication yards, lower bonuses accrued during 2017 as a result of our consolidated operating loss and continued cost minimization efforts implemented by management for the period.

~~Asset Impairment~~ - During the nine months ended September 30, 2017, we recorded an impairment of $389,000 related to our assets held for sale at our Prospect Shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.

~~Other income (expense), net -~~ ~~Other expense was $221,000 for the nine months ended September 30, 2017, compared to other income of $1.0 million for the nine months ended September 30, 2016. Other expense for the~~2018 period was primarily due to ~~losses on sales~~under recovery of ~~two drydocks from~~ our ~~Shipyards division. Other income~~overhead costs (including holding costs for our South Texas Properties of $1.6 million) and the impact of lower margin backlog within our Shipyard Division related to previous project awards sold during a period of competitive pricing.

The decrease in gross loss relative to the prior period was primarily due to ~~gains~~a decrease in gross loss within our Shipyard Division of $13.5 million due to increased revenue, a reduction in overhead costs, and the prior period including $12.7 million in contract losses related to cost increases on ~~sales~~the construction of ~~assets from~~two MPSVs, and increased gross profit within our Services Division of $7.1 million due to increased revenue and higher recovery of our overhead costs, offset partially by a gross loss for our Fabrication ~~division recorded during 2016.~~

~~Income tax expense (benefit) -~~ ~~Our effective income tax rate for the nine months ended September 30, 2017, was 33.5%, compared~~Division of $5.9 million related to ~~an effective tax rate of 36.9% for the comparable period during 2016. The decrease in the effective tax rate is the result of limitations on the deductibility of executive compensation.~~

~~Operating Segments~~

As discussed above and in Note 8 of the Notes to Consolidated Financial Statements, management reduced its allocation of corporate administrative costs and overhead expenses to its operating divisions during the three and nine months ended September 30, 2017. We have recast our 2016 segment data below in order to conform to the current period presentation. Our results of our three operating divisions and Corporate division for the nine months ended September 30, 2017 and 2016, are presented below (in thousands, except for percentages).

Fabrication Nine Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ 42,517
$ 70,436
$ (27,919 ) (39.6)%
Gross profit (loss) 216
4,564
(4,348 ) (95.3)%
Gross profit (loss) percentage 0.5 % 6.5 % (6.0)%
General and administrative expenses 2,432
2,821
(389 ) (13.8)%
Operating income (loss) (2,216 ) 1,743

~~Revenue -~~ Revenue from our Fabrication division decreased $27.9 million for the nine months ended September 30, 2017, compared to the nine months ended September 30, 2016. The decrease is attributable to an overall decrease in work experienced in our fabrication yards as a result of depressed oil and gas prices and the corresponding reduction in customer demand for offshore fabrication projects. As discussed above, management has classified our South Texas assets as assets held for sale in response to the underutilization of our Fabrication assets. As of September 30, 2017, all of our projects at our South Texas fabrication yards have been completed or transferred to our Houma fabrication yard.

~~Gross profit (loss) -~~ Gross profit from our Fabrication division for the nine months ended September 30, 2017, was $216,000 compared to a gross profit of $4.6 million for the nine months ended September 30, 2016. The decrease was due to lower revenue

~~from~~ decreased fabrication work as discussed above and approximately $3.6 million of holding costs for our South Texas assets as we market them for sale. This was partially offset by decreases in costs resulting from reductions in workforce, gains on scrap sales as we wrapped up and completed projects at our South Texas fabrication yards, reduced depreciation being recorded for our South Texas assets for the nine months ended September 30, 2017, as these assets are classified as assets held for sale on February 23, 2017, and additional cost minimization efforts implemented by management for the period.revenue.

General and administrative expenses - General and administrative expenses for the nine months ended September 30, 2018 and 2017, were $17.5 million (10.9% of revenue) and $12.9 million (9.7% of revenue), respectively, representing and increase of 35.0%. The increase was primarily due to:

Bad debt expense of $2.8 million related to a contracts receivable reserve recorded during the third quarter 2018 within our Fabrication ~~division decreased $389,000~~Division as we received indications that collectability of the receivable was no longer probable;

Higher legal and advisory fees related to customer disputes;

Costs associated with the evaluation of strategic alternatives and initiatives to diversify our business;

An increase in administrative personnel for our newly created EPC Division; and

Higher short term incentive plan costs for certain divisions and higher long-term incentive plan costs.

These increases were offset partially by headcount reductions.

Asset impairments - Asset impairments for the nine months ended September 30, 2018 and 2017, ~~compared~~were $1.4 million and $0.4 million, respectively. The impairments were recorded during the first half of 2018 and 2017, respectively, and were related to certain assets that were held for sale within our Fabrication and Shipyard Divisions. See Note 2 to our Consolidated Financial Statements for further discussion of our assets held for sale.

Interest expense, net - Interest expense, net for the nine months ended September 30, ~~2016.~~2018 and 2017, was expense of $0.2 million and $0.3 million, respectively. Interest expense, net deceased for the period primarily due to interest earned from cash equivalents and short-term investments, partially offset by interest expense on borrowings outstanding earlier in 2018.

Other income (expense), net - Other income (expense), net for the nine months ended September 30, 2018 and 2017, was income of $7.0 million and expense of $0.2 million, respectively. Other income, net for the 2018 period was primarily due to a gain on the sale of our Texas South Yard of $3.9 million and a gain from insurance recovery proceeds related to Hurricane Harvey of $3.6 million recorded during the first half of 2018.

Income tax expense (benefit) - Income tax expense (benefit) for the nine months ended September 30, 2018 and 2017, was expense of $0.4 million and a benefit of $10.3 million, respectively. Current expense represents state income taxes. No federal tax benefit was recorded during the 2018 period as a full valuation allowance was recorded against our NOL deferred tax assets generated during the period. See Note 1 to our Consolidated Financial Statements for further discussion of our NOLs and deferred tax assets.

Operating Segments

The results of our four operating divisions and non-operating corporate division for the nine months ended September 30, 2018 and 2017, are presented below (amounts in thousands, except for percentages).



Fabrication	Nine Months Ended September 30,						Increase (Decrease)
	2018			2017			Amount			Percent
Revenue	$	28,171		$	42,517		$	(14,346	)	(33.7)%
Gross profit (loss)	(5,918		)	216			(6,134		)	(2,839.8)%
Gross profit (loss) percentage	(21.0		)%	0.5		%
General and administrative expenses	5,251			2,432			2,819			115.9%
Asset impairments	1,360			—			1,360			100.0%
Operating loss	(12,529		)	(2,216		)	(10,313		)

Revenue - Revenue for the nine months ended September 30, 2018 and 2017, was $28.2 million and $42.5 million, respectively, representing a decrease of 33.7%. The decrease was primarily due to the completion and delivery of four modules for a petrochemical facility during the second quarter 2018 with no other significant projects under construction during the remaining period of 2018. We were awarded a new project for the expansion of a paddle wheel riverboat during the third quarter 2018 that will be constructed by our Fabrication Division; however, construction did not commence until the fourth quarter 2018. In addition, revenue from our South Texas Properties decreased $3.5 million as these properties were either sold and/or marketed for sale during all of 2018. See Note 2 to our Consolidated Financial Statements for further discussion of our South Texas Properties.

Gross profit (loss) - Gross profit (loss) for the nine months ended September 30, 2018 and 2017, was a gross loss of $5.9 million (21.0% of revenue) and a gross profit of $0.2 million (0.5% of revenue), respectively. The gross loss during the 2018 period was primarily due to under recovery of our overhead costs (including holding costs for our South Texas Properties of $1.6 million). The gross loss for 2018 relative to the prior period gross profit was primarily due to decreased revenue, offset partially by a reduction in overhead costs and lower depreciation expense for our South Texas Properties as these assets were classified as held for sale during all of 2018.

General and administrative expenses - General and administrative expenses for the nine months ended September 30, 2018 and 2017, were $5.3 million (18.6% of revenue) and $2.4 million (5.7% of revenue), respectively, representing an increase of 115.9%. The increase is primarily due to:

Bad debt expense of $2.8 million related to ~~decreases in costs resulting from reductions in workforce~~a contracts receivable reserve recorded during the third quarter 2018 as we ~~wrapped up~~received indications that collectability of the receivable was no longer probable;

Legal and advisory fees related to pursuit of claims against a customer for disputed change orders for a project completed ~~projects at our South Texas fabrication yards~~prior to 2017; and ~~lower bonuses accrued during 2017 as a result of a combination of a smaller workforce and our consolidated operating loss. This was partially offset by~~

Legal expenses incurred to market and sell our South Texas ~~assets~~Properties.

These increases were offset partially by headcount reductions.

Asset impairments - Asset impairments for ~~sale and payment of termination benefits~~the nine months ended September 30, 2018 were $1.4 million. The impairments were recorded during the first ~~quarter~~half of ~~2017 as we reduced its workforce~~2018 and ~~completed those operations.~~were related to certain assets that were held for sale. See Note 2 to our Consolidated Financial Statements for further discussion of our assets held for sale.

Shipyards Nine Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue ⁽¹⁾
$ 51,798
$ 86,553
$ (34,755 ) (40.2)%
Gross profit (loss) ⁽¹⁾
(19,061 ) 9,742
(28,803 ) (295.7)%
Gross profit (loss) percentage (36.8 )% 11.3 % (48.1)%
General and administrative expenses 2,835
4,218
(1,383 ) (32.8)%
Asset impairment 389
—
389
100.0%
Operating income (loss) ⁽¹⁾
(22,285 ) 5,524



Shipyard	Nine Months Ended September 30,						Increase (Decrease)
	2018			2017			Amount			Percent
Revenue ⁽¹⁾	$	66,677		$	51,798		$	14,879		28.7%
Gross loss ⁽¹⁾	(5,563		)	(19,061		)	13,498			70.8%
Gross loss percentage	(8.3		)%	(36.8		)%
General and administrative expenses	2,089			2,835			(746		)	(26.3)%
Asset impairments	—			389			(389		)	(100.0)%
Operating loss ⁽¹⁾	(7,652		)	(22,285		)	14,633

___________


(1)	Revenue for the nine months ended September 30, 2018, and 2017, includes $0.5 million and ~~2016, includes~~ $2.4 million, ~~and $4.1 million~~respectively, of non-cash amortization of deferred revenue related to ~~the~~ values assigned to ~~the~~ contracts ~~acquired~~ in ~~the LEEVAC transaction, respectively.~~a previous acquisition.

Revenue - Revenue ~~from our Shipyards division decreased $34.8 million~~ for the nine months ended September 30, 2018 and 2017, ~~compared to the nine months ended September 30, 2016,~~was $66.7 million and $51.8 million, respectively, representing an increase of 28.7%. The increase was primarily due to the corresponding reduction in customer demand for shipbuilding and repair services supporting the oil and gas industry due to depressed oil and gas prices as well as the completion of a vessel that we tendered for delivery on February 6, 2017, and was rejected by the customer alleging certain technical deficiencies. We subsequently suspended of workadditional progress on the ~~second vessel~~construction of ten harbor tug vessels, two regional class research vessels and an ice-breaker tug that was not under ~~contract with this customer. See also Note 9 of~~construction during the ~~Notes to~~prior period, partially offset by lower revenue from our two MPSV contracts that were suspended during the ~~Consolidated Financial Statements.~~first quarter 2018.

Gross ~~profit (loss)~~loss - Gross loss ~~from our Shipyards division was $19.1 million~~ for the nine months ended September 30, 2018 and 2017, ~~compared~~was $5.6 million (8.3% of revenue) and $19.1 million (36.8% of revenue), respectively, representing a decrease of 70.8%. The gross loss during the 2018 period was primarily due to under recovery of our overhead costs and the impact of lower margin backlog related to previous project awards sold during a ~~gross profit~~period of ~~$9.7 million for the nine months ended September 30, 2016.~~competitive pricing. The decrease in gross loss relative to the prior period was primarily due to:

~~$12.7~~Higher revenue and a reduction in overhead costs;

Contract losses of $12.7 million ~~in contract losses~~during the prior period related to cost ~~overruns~~increases on the construction of two MPSVs; and ~~re-work that has been identified on two newbuild vessel construction contracts within our Shipyards division;~~

Holding and closing costs during the prior period of approximately $0.8 million related to our Prospect shipyard, ~~as we wind down operations at this facility;~~

~~Holding costs related to a completed vessel that was delivered on February 6, 2017; however, was refused by~~for which our ~~customer alleging certain technical deficiencies (see also Note 9~~lease of the ~~Notes to Consolidated Financial Statements); and~~facility was terminated during the fourth quarter 2017.

~~Overall decreases in work under other various contracts.~~

General and administrative expenses - General and administrative expenses for ~~our Shipyards division decreased $1.4~~the nine months ended September 30, 2018 and 2017, were $2.1 million (3.1% of revenue) and $2.8 million (5.5% of revenue), respectively, representing a decrease of 26.3%. The decrease was primarily due to headcount reductions.

Asset impairments - Asset impairments for the nine months ended September 30, 2017 ~~compared to~~were $0.4 million. The impairments were recorded during the ~~nine months ended September 30, 2016, primarily due to reductions~~first half of ~~administrative personnel~~2017 and were related to ~~consolidation~~certain assets that were held for sale. See Note 2 to our Consolidated Financial Statements for additional discussion of personnel duties from the LEEVAC transaction. Additionally, our Shipyards division incurred lower bonuses accrued during 2017 as a result of our consolidated operating loss and cost minimization efforts implemented by management for the period.

~~Asset Impairment~~ ~~- During nine months ended September 30, 2017, we recorded an impairment of $389,000 related to~~ our assets held for ~~sale at our Prospect shipyard. See also Note 2 of the Notes to Consolidated Financial Statements.~~sale.


Services	Nine Months Ended September 30,						Increase or (Decrease)				Nine Months Ended September 30,						Increase (Decrease)
	2017			2016			Amount			Percent	2018			2017			Amount		Percent
Revenue	$	43,758		$	76,179		$	(32,421	)	(42.6)%	$	66,692		$	43,758		$	22,934	52.4%
Gross profit (loss)	2,335			11,158			(8,823		)	(79.1)%
Gross profit (loss) percentage	5.3		%	14.6		%				(9.3)%
Gross profit											9,390			2,335			7,055		302.1%
Gross profit percentage											14.1		%	5.3		%
General and administrative expenses	2,008			2,462			(454		)	(18.4)%	2,201			2,008			193		9.6%
Operating income (loss)	327			8,696
Operating income											7,189			327			6,862

Revenue - Revenue ~~from our Services division decreased $32.4 million~~ for the nine months ended September 30, 2018 and 2017, ~~compared to the nine months ended September 30, 2016,~~was $66.7 million and $43.8 million, respectively, representing and increase of 52.4%. The increase was due to an overall ~~decrease~~increase in ~~work experienced as a result of depressed oil and gas prices and the corresponding reduction in customer~~activity resulting from higher demand for ~~oil~~our onshore and ~~gas related service projects.~~offshore services.

Gross profit - Gross profit ~~from our Services division decreased $8.8 million~~ for the nine months ended September 30, 2018 and 2017, ~~compared to the nine months ended September 30, 2016,~~was $9.4 million (14.1% of revenue) and $2.3 million (5.3% of revenue), respectively, representing an increase of 302.1%. The increase was due to ~~decreased~~higher revenue ~~discussed above~~ and ~~lower margins on new work performed during 2017.~~improved recovery of overhead costs.

General and administrative expenses - General and administrative expenses for ~~our Services division decreased $0.5~~the nine months ended September 30, 2018 and 2017, were $2.2 million (3.3% of revenue) and $2.0 million (4.6% of revenue), respectively, representing an increase of 9.6%. The increase was due to additional costs to support higher activity and higher employee incentive compensation costs.



EPC	Nine Months Ended September 30,					Increase (Decrease)
	2018			2017		Amount			Percent
Revenue	$	2,026		$	—	$	2,026		100.0%
Gross profit	30			—		30			100.0%
Gross profit percentage	1.5		%	n/a
General and administrative expenses	1,405			—		1,405			100.0%
Operating loss	(1,375		)	—		(1,375		)

Revenue - Our EPC Division did not exist at September 30, 2017. Revenue for the nine months ended September 30, ~~2017, compared~~2018, consists of pricing, planning and scheduling work for the SeaOne Project. See Note 7 to our Consolidated Financial Statements for further discussion of our EPC Division and the SeaOne Project.

General and administrative expenses - General and administrative expenses include the addition of administrative personnel and other costs as we invest in this new business.



Corporate	Nine Months Ended September 30,						Increase (Decrease)
	2018			2017			Amount			Percent
Revenue	$	—		$	—		$	—
Gross loss	(1,171		)	(500		)	(671		)	(134.2)%
Gross loss percentage	n/a			n/a
General and administrative expenses	6,527			5,665			862			15.2%
Operating loss	(7,698		)	(6,165		)	(1,533		)

Gross loss - Gross loss for the nine months ended September 30, ~~2016, due to lower bonuses accrued during~~2018 and 2017, ~~as a result~~was $1.2 million and $0.5 million, respectively, representing an increase in gross loss of ~~a combination of a smaller workforce and our consolidated operating loss.~~

Corporate Nine Months Ended September 30, Increase or (Decrease)
2017 2016 Amount Percent
Revenue $ —
$ —
$ —
—%
Gross profit (loss) (500 ) (439 ) (61 ) (13.9)%
Gross profit (loss) percentage n/a
n/a

General and administrative expenses 5,665
5,132
533
10.4%
Operating income (loss) (6,165 ) (5,571 ) (594 )

~~Gross profit (loss) -~~ ~~Gross~~134.2%. The increase in gross loss ~~from our Corporate division increased~~was primarily due to ~~a restructuring of~~higher costs to support our ~~corporate division with additional personnel allocated to our corporate division during 2017 as discussed above.~~strategic initiatives and EPC Division.

General and administrative expenses - General and administrative expenses for ~~our Corporate division increased~~the nine months ended September 30, 2018 and 2017, were $6.5 million (4.1% of consolidated revenue) and $5.7 million (4.2% of consolidated revenue), respectively, representing and increase of 15.2%. The increase was primarily due to a restructuring of our corporate division with additional personnel allocated to our corporate division during 2017 as discussed above as well as expenses incurred for advisors to assist in a strategic financial analysis project in anticipation of the proceeds to be received from the sale of our South Texas assets. Additionally, we have incurred increased legal and advisory fees ~~as we pursue collection~~related to customer disputes, costs associated with the evaluation of ~~claims against two customers. See also Note 9 of the Notes~~strategic alternatives and initiatives to ~~the Consolidated Financial Statements. This has been partially offset by lower bonuses accrued during 2017 as a result of a combination of a smaller workforce~~diversify our business, and ~~our consolidated operating loss.~~higher long-term incentive plan costs.

Liquidity and Capital Resources

~~Historically, we have funded~~Our primary sources of liquidity are our ~~business activities through~~ cash ~~generated~~and cash equivalents, scheduled maturities of our short-term investments, potential proceeds from ~~operations.~~the sale of assets held for sale, and availability under our Credit Agreement (discussed below). Our available liquidity is impacted by changes in our working capital (excluding cash and cash equivalents and short-term investments) and our capital expenditure requirements. At September 30, ~~2017,~~2018, our cash and cash equivalents and short-term investments totaled $54.5 million and our working capital was $124.0 million. Working capital includes $9.5 million of short-term investments and $42.7 million of assets held for sale. Fluctuations in our working capital balance, and its components, are not unusual in our business and are impacted by the size of our projects and the mix of our backlog. Our working capital is particularly impacted by the timing of new project awards and related payments in advance of performing work, and the subsequent achievement of billing milestones or progress billings on backlog as we ~~had~~complete certain phases of work. Working capital is also impacted at period-end by the timing of contracts receivable collections and accounts payable payments on our projects.

A summary of our immediately available liquidity at September 30, 2018, is as follows (in thousands):



Available Liquidity	Total
Cash and cash equivalents	$	45,020
Short-term investments ⁽¹⁾	9,494
Total cash, cash equivalents and short-term investments	54,514
Credit Agreement capacity	40,000
Less: Outstanding letters of credit	2,475
Credit Agreement availability	37,525
Total available liquidity	$	92,039

___________

(1) Includes U.S. Treasuries and other investment-grade commercial paper which can be liquidated quickly in open markets.

Sales of Assets

As discussed in our Overview, we have initiated several strategies to monetize underutilized assets. Specifically, during the

second quarter 2018, we completed the sale of our Texas South Yard for $55.0 million, less selling costs of $1.5 million, for total net proceeds during the nine-months ended September 30, 2018 of approximately $53.5 million and a gain of approximately $3.9 million.

In addition, on September 26, 2018, we entered into an agreement to sell the Texas North Yard and certain associated equipment for $28.0 million. We received $0.5 million during the third quarter 2018 as a deposit on the property, which is refundable under certain circumstances. The sale is anticipated to close in the fourth quarter 2018 and is subject to customary closing conditions, including the purchaser’s right to conduct inspections of the property related to confirmation of title, surveys, environmental conditions, easements and access rights, and third-party consents. Based on the sales price and estimated closing and other costs, we expect to realize a gain on the transaction upon closing. We can provide no ~~amounts outstanding~~assurances that we will successfully close the transaction, that closing will occur under our ~~credit facility, $4.6~~expected timeline or that we will achieve our estimated net proceeds or a gain on the sale. We continue to actively market the remaining Texas North Yard assets held for sale, which primarily consist of three 660-ton crawler cranes, a barge, a plate bending roll machine, and panel line equipment.

Line of Credit

We have a $40.0 million Credit Agreement with Hancock Whitney Bank that can be used for borrowings or letters of credit. On August 27, 2018, we entered into a third amendment to our Credit Agreement, which extended its maturity date from June 9, 2019 to June 9, 2020, and reduced the base tangible net worth requirement from $185.0 million to $180.0 million. The third amendment also removed the inclusion of 50% of Consolidated Net Income (as defined in the Credit Agreement) for each fiscal quarter and the inclusion of 50% of the gain on the sale of our South Texas Properties from our minimum tangible net worth covenant. Accordingly, our amended quarterly financial covenants during the term of the Credit Agreement are as follows:

Ratio of current assets to current liabilities of not less than 1.25:1.00;

Minimum tangible net worth of at least the sum of $180.0 million, plus 100% of the proceeds from any issuance of stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and

Ratio of funded debt to tangible net worth of not more than 0.50:1.00.

Interest on borrowings under the Credit Agreement may be designated, at our option, as either the Wall Street Journal published Prime Rate or LIBOR plus 2.0% per annum. Commitment fees on the unused portion of the Credit Agreement are 0.4% per annum, and interest on outstanding letters of credit is 2.0% per annum. The Credit Agreement is secured by substantially all our assets (other than the assets held for sale at our Texas North Yard).

At September 30, 2018, we had no outstanding borrowings under our Credit Agreement and ~~cash~~$2.5 million of outstanding letters of credit, providing $37.5 million of available capacity. At September 30, 2018, we were in compliance with all of our financial covenants, with a tangible net worth of $203.2 million (as defined by the Credit Agreement) and ~~cash equivalents totaling $17.8 million compared to $51.2 million at December 31, 2016. Working capital was $164.0 million and our~~a ratio of current assets to current liabilities ~~was 4.59~~of 3.37 to ~~1 at~~1.0.

Cash Flow Activity

During the nine months ended September 30, 2018 and 2017, net cash used in operating activities was $18.7 million and $29.6 million, respectively. During the three months ended September 30, 2018 and 2017, net cash provided by operating activities was $7.8 million, compared to ~~$78.0~~cash used in operating activities of $1.6 million, and 3.21 to 1, respectively, at December 31, 2016. Working capital at September 30, 2017, includes $107.0 million related to assets held for sale, primarily related to our South Texas facilities. Our primaryrespectively. The use of cash during the nine months ended September 30, ~~2017, is referenced in the Cash Flow Activities section below.~~

~~At September 30, 2017, our contracts receivable balance was $25.5 million of which we have subsequently collected $8.3 million through October 31, 2017.~~

On June 9, 2017, we entered into a $40.0 million credit agreement with Whitney Bank, as lender. The credit facility matures June 9, 2019 and may be used for issuing letters of credit and/or general corporate and working capital purposes. We believe that

~~the new facility will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations.~~

Interest on drawings under the credit facility may be designated, at our option, as either Base Rate (as defined in the credit facility) or LIBOR plus 2.0% per annum. Unused commitment fees on the undrawn portion of the facility are 0.4% per annum, and interest on undrawn stated amounts under letters of credit issued by the lenders is 2.0% per annum. The credit facility is secured by substantially all of our assets (other than the assets of Gulf Marine Fabricators, L.P., the legal entity that holds our South Texas assets which are currently held for sale).

~~We must comply with the following financial covenants each quarter during the term of the facility:~~


i.	~~Ratio of current assets to current liabilities of not less than 1.25:1.00;~~


~~ii.~~	~~Minimum tangible net worth requirement of at least the sum of:~~


a)	~~$230.0 million, plus~~


b)	An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017 (with no deduction for a net loss in any such fiscal quarter except for any gain or loss in connection with the sale of assets by Gulf Marine Fabricators, L.P.), plus


c)	~~100% of all net proceeds of any issuance of any stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and~~


~~iii.~~	~~Ratio of funded debt to tangible net worth of not more than 0.50:1.00.~~

Concurrent with our execution of the credit facility, we terminated our prior credit facility with JPMorgan Chase Bank, N.A. At the time of the termination, there was approximately $4.6 million of letters of credit outstanding. All were reissued as new letters of credit under the credit facility and accepted by the beneficiaries. Availability under our credit facility for future, additional letters of credit and borrowings is $35.4 million. As of September 30, 2017, we were in compliance with all of our covenants.

Our primary liquidity requirements are for the costs associated with fabrication projects, capital expenditures and payment of dividends to our shareholders. We do not anticipate significant capital expenditures for the remainder of 2017.

On October 21, 2016, a customer of our Shipyards division announced it was in noncompliance with certain financial covenants included in the customer’s debt agreements and stated that, while it had received limited waivers from its lenders, its debt agreements would require further negotiation and amendment. This same customer rejected delivery of the first vessel that we completed and tendered for delivery on February 6, 2017, alleging certain technical deficiencies exist with respect to the vessel. On March 10, 2017, we gave notice for arbitration with our customer in an effort to resolve this matter and subsequently suspended fabrication of the second vessel under contract with this customer, which is included in our arbitration proceedings. We disagree with our customer concerning these alleged technical deficiencies and have put the customer in default under the terms of both vessel contracts. The customer is seeking recovery of $84.8 million representing all purchase price amounts previously paid by the customer under both contracts. On May 17, 2017, the customer filed for protection under Chapter 11 of the United States Bankruptcy Code for reorganization under a negotiated, pre-packaged plan. The customer has emerged from Chapter 11 Bankruptcy and the Bankruptcy Court has approved the customer's retention and acceptance of both contracts. As of September 30, 2017, approximately $4.6 million remained due and outstanding from our customer for the first vessel. The balance due to us for the second vessel upon completion and delivery is approximately $4.9 million. We are working with legal counsel to protect our contractual claims, and we have re-initiated arbitration proceedings in accordance with our contracts. We are in the process of discovery. The customer has recently named a new interim chief executive officer who has made contact with our management, and we are working to resolve our dispute in a constructive manner. We believe that will be able to recover remaining amounts due to us.

On August 25, 2017, our South Texas facilities were impacted by Hurricane Harvey, which made landfall as a category 4 hurricane. As a result, we suffered damages to our South Texas buildings and equipment. Through September 30, 2017, we have incurred approximately $265,000 in clean-up and repair related costs and we expect to incur additional future repair costs in excess of our deductible which management believes are probable of being recovered through insurance proceeds. We maintain coverage on these assets up to a maximum of $25.0 million, subject to a 3.0% deductible with a minimum deductible of $500,000. We are working diligently with our insurance agents and adjusters to finalize our estimate of the damage; however, it may be several months, or even longer, before we can finalize our assessment and receive final payment from our insurance underwriters. Our insurance underwriters have made an initial payment of $3.0 million, and we have recorded a liability for future repairs of $2.7 million which is included in accrued expenses and other liabilities on our balance sheet at September 30, 2017. Based upon our initial assessment of the damages and insurance coverage, management believes that there is no basis to record a net loss at this time and that insurance proceeds will at a minimum be sufficient to reimburse us for all damages and repair costs. Our final

assessment of the loss incurred to our South Texas assets as well as the amount of insurance proceeds we will receive could be more or less than this amount when the claim is ultimately settled and such differences could be material.

In event of one or more sales of our South Texas assets, we expect to use all or a portion of the sales proceeds to invest in our operating liquidity in order to facilitate anticipated future projects, selected capital improvements to enhance and/or expand our existing facilities, mergers and acquisitions to expand our product and service capabilities. We are continuing this effort to identify and analyze specific investment opportunities we believe will enhance the long-term value of the Company that are consistent with our strategy.

On October 26, 2017, our Board of Directors declared a dividend of $0.01 per share on our shares of common stock outstanding, payable November 24, 2017, to shareholders of record on November 10, 2017.

We believe our cash and cash equivalents generated by our future operating activities, proceeds to be received from insurance underwriters, availability under our line of credit and proceeds to be received from future assets sales will be sufficient to fund our capital expenditures and meet our working capital needs for next twelve months to continue to operate, satisfy our contractual operations and pay dividends to our shareholders.

~~Cash Flow Activities~~

For the nine months ended September 30, 2017, net cash used in operating activities was $29.6 million, compared to net cash provided by operating activities of $19.4 million for the nine months ended September 30, 2016. The use of cash in operations during the period2018, was primarily due to the following:

Operating losses for the ~~nine months ended September 30, 2017, in excess~~period, excluding gains from asset sales and insurance recoveries of $6.8 million, bad debt expense of $2.8 million, non-cash amortization of deferred revenue of $0.5 million, and non-cash depreciation and amortization, ~~impairment~~asset impairments, and stock compensation expense totaling $11.3 million;

Increase in contracts receivable and retainage of ~~approximately $19.6~~$6.2 million

~~Payment~~ (exclusive of ~~year-end bonuses related~~bad debt expense of $2.8 million and a $3.0 million reclassification of retainage to ~~2016,~~

~~Progress on liabilities from assumed~~other noncurrent assets during the period as we do not anticipate collection within the next twelve months). The increase in contracts ~~in the LEEVAC transaction. While our purchase price for the acquisition~~receivable, net of the ~~LEEVAC assets during 2016 was $20.0 million, we received a net $3.0 million~~reclassification, is primarily due to slower collections of receivables for our T&M work;

Increase in cash from the seller for the assumption of certain net liabilities and settlement payments on ongoing shipbuilding projects of $23.0 million that were assigned to us in the transaction. We have significantly progressed these contracts, which in turn has resulted in utilization of the working capital and settlement payments received during 2016.

The suspension of two vessel projects following our customer’s refusal to accept delivery of the first vessel in February 2017, and our inability to collect $9.5 million in scheduled payments under these contracts. See also Note 9 of the Notes to the Consolidated Financial Statements; and

~~Build-up of costs for~~ contracts in progress of $11.8 million, primarily related to ~~a customer~~the net billing positions on projects in our ~~Shipyards division with significant milestone payments occurring~~Shipyard Division;

Increase in prepaid expenses, inventory and other assets of $2.5 million, primarily due to the ~~later stages~~aforementioned reclassification of ~~the projects which are expected~~retainage to ~~occur later~~other noncurrent assets; and

Decrease in ~~2017 through the first half~~accrued contract losses and noncurrent deferred revenue of ~~2018.~~$3.2 million.

~~Net~~These uses of cash ~~used~~were partially offset by:

Increase in ~~investing activities for~~advance billings on contracts of $9.8 million, primarily related to the net billing position on projects in our Fabrication Division; and

Increase in accounts payable and accrued expenses of $4.2 million;

During the nine months ended September 30, ~~2017, was $2.4 million, compared to~~2018, net cash provided by investing activities was $55.5 million, compared to net cash used in investing activities of ~~$2.0~~$2.4 million for the nine months ended September 30, ~~2016. The change in cash~~2017. Cash provided by investing activities ~~is primarily~~during the 2018 period was due to ~~cash~~proceeds received from asset sales of $57.7 million, primarily related to the sale of ~~three cranes at~~ our Texas ~~facility for $5.8~~South Yard and insurance proceeds of $9.4 million resulting from hurricane damage to our facilities, offset partially by the purchase of short-term investments of $9.2 million and ~~$1.6 million~~capital expenditures of ~~cash acquired in the LEEVAC transaction during 2016 partially offset by decreases in capital expenditures.~~$2.4 million.

~~Net~~During the nine months ended September 30, 2018 and 2017, net cash used in financing activities was $0.8 million and $1.4 million, respectively. Cash used in financing activities primarily related to tax payments made on behalf of employees from vested stock withholdings.

Future Liquidity Outlook

As discussed in our Overview, we continue to focus on maintaining liquidity and securing meaningful new contract awards and backlog in the near-term, and generating operating income and cash flow from operations in the longer-term. We have made significant progress in our efforts to improve our liquidity, including reductions in costs (including reducing our workforce and reducing the cash compensation paid to our directors and the salaries of our executive officers) and the divestiture of underutilized assets. The primary uses of our liquidity for the remainder 2018 and the foreseeable future are to fund the underutilization of our fabrication facilities in our Shipyard and Fabrication Divisions until we secure and/or begin to execute sufficient backlog to fully recover our overhead costs, working capital requirements for our projects, capital expenditures and enhancements to our Shipyard facilities, the expansion of our EPC Division, corporate administrative expenses and strategic initiatives. Future capital expenditures will be highly dependent upon the amount and timing of future new project awards. Capital expenditures for the nine months ended September 30, ~~2017 and 2016, was $1.4~~2018 were $2.4 million and ~~$603,000, respectively. The~~we anticipate capital expenditures of approximately $1.0 million for the remainder of 2018.

If industry conditions for offshore oil and gas do not improve, we are unable to increase inour backlog, or we are unable to diversify our customer base, we would take additional measures to reduce costs and preserve our cash ~~used in financing activities is due~~until we are able to ~~the~~generate cash ~~payments made to taxing authorities on behalf of employees for their vesting of common stock. During the nine months ended~~flows from operations.

We believe that our cash, cash equivalents and short-term investments at September 30, ~~2017 we received $2.0 million from borrowings~~2018, and availability under our Credit Agreement, will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the date of this Report. Our evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecast for the remainder of 2018 and 2019, which is impacted by our existing backlog and estimates of future new ~~line of credit which were immediately repaid.~~project awards. We can provide no assurances that our financial forecast will be achieved or that we will have sufficient cash or availability under our Credit Agreement to meet planned operating expenses and other unforeseen cash requirements. Accordingly, we may be required to obtain additional bank financing, sell additional assets or conduct equity or debt offerings at a time when it is not beneficial to do so.

Contractual Obligations

There have been no material changes from the information included in our 2017 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report. For more information on our contractual obligations, refer to Part II, Item 7 of our 2017 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report.

Off-Balance Sheet Arrangements

There have been no material changes from the information included in our 2017 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

There have been no material changes in the Company’s market risks during the quarter ended September 30, ~~2017.~~2018. For more information on market risk, refer to Part II, Item ~~7A.~~7A of our 2017 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report.

Item 4. Controls and Procedures.

The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC rules and forms, and that such information is communicated to the Company’s management, including its Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934) as of the end of the period covered by this ~~report.~~Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the design and operation of our disclosure controls and procedures were effective as of the end of the period covered by this ~~report.~~Report.

There have been no changes during the ~~fiscal~~ quarter ended September 30, ~~2017,~~2018, in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings.

~~The Company is~~We are subject to various routine legal proceedings in the normal conduct of ~~its~~our business primarily involving commercial claims, workers’ compensation claims, and claims for personal injury under general maritime laws of the ~~United States~~U.S. and the Jones Act. While the outcome of these lawsuits, legal proceedings and claims cannot be predicted with certainty, ~~management believes~~we believe that the outcome of any such proceedings, even if determined adversely, would not have a material adverse effect on ~~the~~our financial position, results of operations or cash ~~flows~~flows.

On October 2, 2018, we filed a lawsuit against our customer to enforce our rights and remedies under the applicable construction contracts for two MPSVs. The lawsuit was filed in the Twenty-Second Judicial District Court for the Parish of ~~the Company.~~St. Tammany, State of Louisiana and is styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC. See Note 8 to our Consolidated Financial Statements for further information relating to this recent litigation.

Item 1A. Risk Factors.

There have been no material changes from the information included in Item 1A “Risk Factors” included in our 2017 Annual ~~Report on Form 10-K for the year ended December 31, 2016.~~Report.

Item 6. Exhibits.



Exhibit Number	Description of Exhibit

3.1	Composite Articles of Incorporation of the Company incorporated by reference to Exhibit 3.1 of the ~~Company’s~~Company's Form 10-Q filed with the SEC on April 23, ~~2009.~~2009 (SEC File No. 001-34279).
3.2	Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit ~~3.2~~3.1 of the Company’s Form 8-K filed with the SEC on November ~~4, 2016.~~6, 2018 (SEC File no. 001-34279).
10.1	Third Amendment to Credit Agreement dated August 27, 2018. *
10.2	Agreement of Sale between Berry Contracting, L.P. and Gulf Marine Fabricators, L.P. dated as of September 26, 2018. *
31.1	CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. *
31.2	CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. *
32	Section 906 Certification furnished pursuant to 18 U.S.C. Section ~~1350.~~1350. *

101	Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):
	(i)	Consolidated Balance Sheets,
	(ii)	Consolidated Statements of Operations,
	(iii)	Consolidated Statement of Changes in Shareholders’ Equity,
	(iv)	Consolidated Statements of Cash Flows, and
	(v)	Notes to Consolidated Financial Statements.

*	Filed herewith.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this ~~report~~Report to be signed on its behalf by the undersigned thereunto duly authorized.



GULF ISLAND FABRICATION, INC.

BY:	/s/ ~~David~~Westley S. ~~Schorlemer~~Stockton
	~~David~~Westley S. ~~Schorlemer~~Stockton
	Executive Vice President, Chief Financial Officer, Secretary and Treasurer (Principal Financial ~~and Accounting~~ Officer)

Date: ~~October 31, 2017~~November 8, 2018

~~GULF ISLAND FABRICATION, INC.~~

~~EXHIBIT INDEX~~



~~Exhibit~~ ~~Number~~	~~Description of Exhibit~~

~~3.1~~	~~Composite Articles of Incorporation of the Company incorporated by reference to Exhibit 3.1 of the Company’s Form 10-Q filed April 23, 2009.~~
~~3.2~~	~~Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed November 4, 2016.~~
~~31.1~~	~~CEO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934~~.
~~31.2~~	~~CFO Certifications pursuant to Rule 13a-14 under the Securities Exchange Act of 1934.~~
32	~~Section 906 Certification furnished pursuant to 18 U.S.C. Section 1350.~~

~~101~~	~~Attached as Exhibit 101 to this report are the following items formatted in XBRL (Extensible Business Reporting Language):~~

	~~(i)~~	~~Consolidated Balance Sheets,~~
	~~(ii)~~	~~Consolidated Statements of Operations,~~
	~~(iii)~~	~~Consolidated Statement of Changes in Shareholders’ Equity,~~
	~~(iv)~~	~~Consolidated Statements of Cash Flows and~~
	~~(v)~~	~~Notes to Consolidated Financial Statements.~~

- ~~E-1~~39 -



Assets	South Texas Fabrication Yards			Prospect Shipyard			Consolidated
Land	$	5,492		$	—		$	5,492
Buildings and improvements	117,582			—			117,582
Machinery and equipment	93,552			2,719			96,271
Furniture and fixtures	867			82			949
Vehicles	610			—			610
Other	—			—			—
Less: accumulated depreciation	(113,596		)	(298		)	(113,894		)
Total assets held for sale	$	104,507		$	2,503		$	107,010



	Nine Months Ended September 30, 2016
	Fabrication		Shipyards ⁽¹⁾		Services		Corporate			Eliminations			Consolidated
Revenue	$	70,436	$	86,553	$	76,179	$	—		$	(2,304	)	$	230,864
Gross profit (loss)	4,564		9,742		11,158		(439		)	—			25,025
Operating income (loss)	1,743		5,524		8,696		(5,571		)	—			10,392
Total assets	285,320		75,779		100,781		332,617			(457,285		)	337,212
Depreciation and amortization expense	14,081		3,507		1,342		332			—			19,262
Capital expenditures	2,539		534		1,612		730			—			5,415



	September 30, 2017				December 31, 2016
Division	$'s			Labor hours	$'s		Labor hours
Fabrication	$	29,554		254	$	65,444	707
Shipyards	200,909			1,045	59,771		457
Services	21,918			265	7,757		101
Intersegment eliminations	(649		)	—	—		—
Total backlog ⁽¹⁾	$	251,732		1,564	$	132,972	1,265

	Number			Percentage	Number		Percentage
Major customers ⁽²⁾	five			82.7%	two		80.5%

Backlog is expected to be recognized in revenue during:	$'s			Percentage
2017 ⁽³⁾	$	40,352		16.0%
2018 ⁽³⁾	139,529			55.4%
2019 ⁽³⁾	63,451			25.2%
2020 ⁽³⁾	8,400			3.4%
	$	251,732		100.0%