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 June 30, ~~2018~~2019



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

(713) 714-6100

(Registrant’s telephone number, including area code)

Securities registered pursuant to 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock	GIFI	NASDAQ

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 ~~“smaller reporting~~“emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨	Smaller reporting company	x

		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 August ~~9, 2018,~~6, 2019, was ~~15,043,068~~15,237,502.

GULF ISLAND FABRICATION, INC.

I N D E X



		Page

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at June 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018	61
	Consolidated Statements of Operations for the Three and Six Months Ended June 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	72
	Consolidated Statement of Changes in ~~Shareholders~~Shareholders' Equity for the Three and Six Months Ended June 30, 2019 and 2018 (unaudited)	83
	Consolidated Statements of Cash Flows for the ~~Three and~~ Six Months Ended June 30, ~~2018~~2019 and ~~June 30, 2017~~2018 (unaudited)	94
	Notes to Consolidated Financial Statements (unaudited)	105
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	2118
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3736
Item 4.	Controls and Procedures	3736
PART II	Other Information
Item 1.	Legal Proceedings	3837
Item 1A.	Risk Factors	3837
Item 6.	Exhibits	3837
Signatures		3938

- i -

GLOSSARY OF TERMS

As used in this ~~Report~~report on Form 10-Q for the quarter ended June 30, ~~2018,~~2019 ("this Report"), the following abbreviations and terms have the meanings as listed below. ~~Additionally,~~In addition, 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. Certain terms defined below may be redefined separately within this Report when we believe providing a definition upon the first use of the term will assist users of this Report. 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.



~~2017~~2018 Annual ~~Report:~~	Report	Our annual report for the year ended December 31, ~~2017, on Form 10-K as~~2018, filed with the SEC on Form 10-K on March ~~9, 2018.~~1, 2019.

~~ASC:~~		~~FASB Accounting Standards Codification.~~

~~ASU:~~	ASU	Accounting Standards Update.

Balance Sheet	Our Consolidated Balance Sheets, as filed in this Report.

~~Company:~~contract assets		~~Gulf Island Fabrication, Inc.~~Costs and ~~its consolidated subsidiaries.~~estimated earnings recognized to date in excess of cumulative billings.

contract liabilities	Cumulative billings in excess of costs and estimated earnings recognized to date and accrued contract losses.

Credit ~~Agreement:~~Agreement		~~The Company's~~Our $40.0 million revolving credit facility with ~~a third party financial institution~~Hancock Whitney Bank maturing June 9, ~~2019,~~2021, as amended.

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

DTA(s)	Deferred tax asset(s).

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

~~Exchange Act:~~EPS	Income (loss) per share.

Exchange Act	Securities Exchange Act of 1934, as amended.

~~FASB:~~Fabrication AHFS	The machinery and equipment previously located at our Texas North Yard that was not sold in connection with the sale of the Texas North Yard and continues to be held for sale by our Fabrication Division.

FASB	Financial Accounting Standards Board.

~~FPSO:~~Financial Statements	Our consolidated Financial Statements, including comparative consolidated Balance Sheets, Statements of Operations, Statements of Changes in Shareholders' Equity, and Statements of Cash Flows, as filed in this Report.

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

~~GOM:~~	GOM	Gulf of Mexico.

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

- ii -




~~jacket:~~	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:~~	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:~~	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:~~	MPSV	Multi-Purpose Service Vessel.

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

~~offshore:~~	offshore	In unprotected waters outside coastlines.

onshore	Inside the coastline on land.

~~OSV:~~	OSV	Offshore Support Vessel.

Performance Obligation	A contractual obligation to construct and transfer a distinct good or service to a customer. It is the unit of account in Topic 606. The transaction price of a contract is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied.

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

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

pressure ~~vessel:~~	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:~~	SEC	U.S. Securities and Exchange Commission.

Shipyard AHFS	A drydock held for sale by our Shipyard Division.

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

South Texas ~~Properties:~~Properties		~~Historically, our~~Our former Texas North Yard and Texas South ~~Yard properties and equipment located in Aransas Pass and Ingleside, Texas, respectively.~~Yard. The ~~Company sold the~~ Texas South Yard ~~together with improvements and related machinery and equipment~~property was sold on April 20, ~~2018. The~~2018 and the Texas North Yard ~~together with improvements and related machinery and equipment is held for sale.~~was sold on November 15, 2018.

~~SPAR:~~	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.

Statement of Cash Flows	Our Consolidated Statements of Cash Flows, as filed in this Report.

Statement of Operations	Our Consolidated Statements of Operation, as filed in this Report.

subsea ~~templates:~~	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 the ~~Company's~~ performance of ~~construction~~our contracts.

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

- iii -



Texas North ~~Yard:~~	Yard	Our ~~Texas North Yard consists of our~~former fabrication yard, and certain related machinery and equipment, 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~~which was sold on ~~approximately 196 acres. Our Texas North Yard, together with its improvements and related machinery and equipment is held for sale.~~November 15, 2018.

Texas South ~~Yard:~~Yard		~~Historically, our Texas South Yard consisted of our~~Our former fabrication yard, and certain related machinery and equipment, 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. The Company~~which was sold ~~this property~~ on April 20, 2018.

~~this Report~~		~~This quarterly report filed on Form 10-Q for the quarterly period ended June 30, 2018.~~

~~TLP:~~	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.

Topic 606	The revenue recognition criteria prescribed under ASU 2014-09, Revenue from Contracts with Customers.

U.S.	The United States of America.

- iv -

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

GULF ISLAND FABRICATION, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands)


	June 30, 2018		December 31, 2017		June 30, 2019		December 31, 2018
	(Unaudited)		(Audited)		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	32,004	$	8,983	$	30,192	$	70,457
Held-to-maturity, short-term investments	7,481		—
Short-term investments					45,791		8,720
Contracts receivable and retainage, net	31,928		28,466		23,343		22,505
Contracts in progress	36,471		28,373
Insurance receivable	7,197		—
Contract assets					51,334		29,982
Inventory					4,543		6,088
Prepaid expenses and other assets	4,357		3,833		3,987		3,268
Inventory	5,557		4,933
Assets held for sale	43,797		104,576		18,737		18,935
Total current assets	168,792		179,164		177,927		159,955
Property, plant and equipment, net	81,819		88,899		75,862		79,930
Other assets	6,078		2,777
Other noncurrent assets					23,802		18,405
Total assets	$	256,689	$	270,840	$	277,591	$	258,290
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	15,965	$	18,375	$	55,238	$	28,969
Advance billings on contracts	4,165		5,136
Deferred revenue, current	928		4,676
Accrued contract losses	5,999		7,618
Contract liabilities					13,823		16,845
Accrued expenses and other liabilities	9,062		12,741		9,719		10,287
Income tax payable	—		119
Total current liabilities	36,119		48,665		78,780		56,101
Deferred revenue, noncurrent	2,489		769
Other liabilities	2,691		1,913
Other noncurrent liabilities					5,369		1,089
Total liabilities	41,299		51,347		84,149		57,190
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, 15,043,068 issued and outstanding at June 30, 2018, and 14,910,498 at December 31, 2017, respectively	10,888		10,823
Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding					—		—
Common stock, no par value, 20,000 shares authorized, 15,236 shares issued and outstanding at June 30, 2019 and 15,090 at December 31, 2018					11,085		11,021
Additional paid-in capital	101,035		100,456		102,811		102,243
Retained earnings	103,467		108,214		79,546		87,836
Total shareholders’ equity	215,390		219,493		193,442		201,100
Total liabilities and shareholders’ equity	$	256,689	$	270,840	$	277,591	$	258,290

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
June 30, Six Months Ended
June 30,
2018 2017 2018 2017
Revenue $ 54,014
$ 45,868
$ 111,304
$ 83,860
Cost of revenue 54,713
57,488
111,324
100,378
Gross loss (699 ) (11,620 ) (20 ) (16,518 )
General and administrative expenses 5,092
4,640
9,801
8,570
Asset impairment 610
—
1,360
389
Operating loss (6,401 ) (16,260 ) (11,181 ) (25,477 )
Other income (expense):
Interest expense, net (92 ) (146 ) (238 ) (205 )
Other income (expense), net 7,125
(266 ) 6,814
(257 )
Total other income (expense) 7,033
(412 ) 6,576
(462 )
Net income (loss) before income taxes 632
(16,672 ) (4,605 ) (25,939 )
Income tax expense (benefit) 83
(5,749 ) 142
(8,561 )
Net income (loss) $ 549
$ (10,923 ) $ (4,747 ) $ (17,378 )
Per share data:
Basic and diluted income (loss) per share - common shareholders $ 0.04
$ (0.73 ) $ (0.32 ) $ (1.17 )
Cash dividends declared per common share $ —
$ 0.01
$ —
$ 0.02



	Three Months Ended June 30,						Six Months Ended June 30,
	2019			2018			2019			2018
Revenue	$	80,456		$	54,014		$	148,061		$	111,304
Cost of revenue	82,054			54,713			149,106			111,324
Gross loss	(1,598		)	(699		)	(1,045		)	(20		)
General and administrative expense	3,987			5,092			7,821			9,801
Asset impairment and (gain) loss on assets held for sale, net	—			(6,579		)	(70		)	(5,829		)
Other (income) expense, net	(201		)	64			(130		)	375
Operating income (loss)	(5,384		)	724			(8,666		)	(4,367		)
Interest income (expense), net	126			(92		)	388			(238		)
Net income (loss) before income taxes	(5,258		)	632			(8,278		)	(4,605		)
Income tax (expense) benefit	10			(83		)	(12		)	(142		)
Net income (loss)	$	(5,248	)	$	549		$	(8,290	)	$	(4,747	)
Per share data:
Basic and diluted income (loss) per common share	$	(0.34	)	$	0.04		$	(0.55	)	$	(0.32	)

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

GULF ISLAND FABRICATION, INC.

CONSOLIDATED ~~STATEMENT~~STATEMENTS 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, 2018 14,910,498
$ 10,823
$ 100,456
$ 108,214
$ 219,493
Net loss —
—
—
(4,747 ) (4,747 )
Vesting of restricted stock 132,570
(79 ) (708 ) —
(787 )
Compensation expense - restricted stock —
144
1,287
—
1,431
Balance at June 30, 2018 15,043,068
$ 10,888
$ 101,035
$ 103,467
$ 215,390



	Common Stock				Additional Paid-In Capital			Retained Earnings			Total Shareholders’ Equity
	Common Stock
	Shares	Amount
Balance at December 31, 2017	14,910	$	10,823		$	100,456		$	108,214		$	219,493
Net loss	—	—			—			(5,296		)	(5,296		)
Vesting of restricted stock	133	(79		)	(708		)	—			(787		)
Stock-based compensation expense	—	69			607			—			676
Balance at March 31, 2018	15,043	10,813			100,355			102,918			214,086
Net income	—	—			—			549			549
Stock-based compensation expense	—	75			680			—			755
Balance at June 30, 2018	15,043	$	10,888		$	101,035		$	103,467		$	215,390



	Common Stock				Additional Paid-In Capital			Retained Earnings			Total Shareholders’ Equity
	Common Stock
	Shares	Amount
Balance at December 31, 2018	15,090	$	11,021		$	102,243		$	87,836		$	201,100
Net loss	—	—			—			(3,042		)	(3,042		)
Vesting of restricted stock	146	(71		)	(643		)	—			(714		)
Stock-based compensation expense	—	56			504			—			560
Balance at March 31, 2019	15,236	11,006			102,104			84,794			197,904
Net loss	—	—			—			(5,248		)	(5,248		)
Stock-based compensation expense	—	79			707			—			786
Balance at June 30, 2019	15,236	$	11,085		$	102,811		$	79,546		$	193,442

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

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

Six Months Ended
June 30,

2018 2017
Cash flows from operating activities:
Net loss $ (4,747 ) $ (17,378 )
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense 8
17
Depreciation and amortization 5,360
7,476
Amortization of deferred revenue (489 ) (1,887 )
Asset impairment 1,360
389
(Gain) loss on sale of assets, net (3,599 ) 259
Gain on insurance recoveries, net (3,342 ) —
Deferred income taxes —
(8,784 )
Compensation expense - restricted stock 1,431
1,583
Changes in operating assets and liabilities:
Contracts receivable and retainage, net (6,438 ) (17,927 )
Contracts in progress (8,098 ) (4,814 )
Prepaid expenses, inventory, and other assets (1,693 ) 303
Accounts payable (2,410 ) 10,308
Advance billings on contracts (971 ) 4,665
Deferred revenue (1,538 ) (5,078 )
Deferred compensation 726
393
Accrued expenses and other liabilities (436 ) (795 )
Accrued contract losses (1,620 ) 3,127
Current income taxes and other 69
207
Net cash used in operating activities (26,427 ) (27,936 )
Cash flows from investing activities:
Capital expenditures (891 ) (1,824 )
Purchase of held to maturity, short-term investments (7,474 ) —
Proceeds from the sale of property, plant and equipment 56,446
2,120
Recoveries from insurance claims 2,165
—
Net cash provided by investing activities 50,246
296
Cash flows from financing activities:
Tax payments made on behalf of employees from withheld, vested shares of common stock (787 ) (884 )
Payment of financing cost (11 ) (61 )
Payments of dividends on common stock —
(299 )
Proceeds received from borrowings under our Credit Agreement 15,000
—
Repayment of borrowings under our Credit Agreement (15,000 ) —
Net cash used in financing activities (798 ) (1,244 )
Net change in cash and cash equivalents 23,021
(28,884 )
Cash and cash equivalents at beginning of period 8,983
51,167
Cash and cash equivalents at end of period $ 32,004
$ 22,283



	Six Months Ended June 30,

	2019			2018
Cash flows from operating activities:
Net loss	$	(8,290	)	$	(4,747	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and lease asset amortization	4,974			5,308
Other amortization, net	26			(436		)
Bad debt expense	59			8
Asset impairments	299			1,360
(Gain) loss on sale of assets held for sale, net	(369		)	(3,853		)
(Gain) loss on sale of fixed assets and other assets, net	(565		)	254
(Gain) loss on insurance recoveries, net	—			(3,342		)
Stock-based compensation expense	1,346			1,431
Changes in operating assets and liabilities:
Contracts receivable and retainage, net	(896		)	(6,438		)
Contract assets	(21,352		)	(8,098		)
Prepaid expenses, inventory and other current assets	212			(1,665		)
Accounts payable	26,269			(2,410		)
Contract liabilities	(3,023		)	(4,129		)
Accrued expenses and other liabilities	(1,108		)	(437		)
Noncurrent assets and liabilities, net (including long-term retainage)	(466		)	767
Net cash used in operating activities	(2,884		)	(26,427		)
Cash flows from investing activities:
Capital expenditures	(1,359		)	(891		)
Purchases of short-term investments	(45,366		)	(7,474		)
Maturities of short-term investments	8,500			—
Proceeds from sale of property, plant and equipment	1,598			56,446
Recoveries from insurance claims	—			2,165
Net cash provided by (used in) investing activities	(36,627		)	50,246
Cash flows from financing activities:
Proceeds from borrowings under Credit Agreement	—			15,000
Repayment of borrowings under Credit Agreement	—			(15,000		)
Payment of financing cost	(40		)	(11		)
Tax payments for vested stock withholdings	(714		)	(787		)
Net cash used in financing activities	(754		)	(798		)
Net increase (decrease) in cash and cash equivalents	(40,265		)	23,021
Cash and cash equivalents, beginning of period	70,457			8,983
Cash and cash equivalents, end of period	$	30,192		$	32,004

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

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 30, ~~2018~~2019

(Unaudited)

~~NOTE 1 –~~1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Nature of Operations

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 installation,~~project management, hookup, commissioning, repair, maintenance and ~~maintenance services~~civil construction services. We operate and manage our business through three operating divisions ("Fabrication", "Shipyard" and "Services") and one non-operating division ("Corporate"), which represent our reportable segments. During the first quarter 2019, our former EPC Division was operationally combined with ~~specialized crews~~our Fabrication Division. See Note 7 for discussion of our realigned operating divisions and ~~integrated project management capabilities~~related financial information. Our corporate headquarters is located in Houston, Texas, with operating facilities located in Houma, Jennings and Lake Charles, Louisiana.

Significant projects in our backlog include the expansion of a paddle wheel riverboat, the construction of an offshore jacket and deck, six harbor tug vessels, three offshore regional class marine research vessels, two vehicle ferries, two towboats, an ice-breaker tug, and three towing, salvage and rescue ships for ~~EPC projects. We recently~~the U.S. Navy. Recently completed projects include the fabrication of complex modules for ~~the~~a newbuild petrochemical facility, a meteorological tower and platform for an offshore wind project, and construction of ~~a new petrochemical plant,~~two technologically-advanced OSVs and ~~we completed the newbuild construction of a technologically-advanced OSV that we delivered after the end of our fiscal quarter on July 31, 2018. Current~~four harbor tug vessels. Previous projects also include the ~~construction~~fabrication of ten harbor tug vessels and two offshore marine research vessels. We were 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. In 2015, we fabricated wind turbine ~~pedestals~~foundations for the first offshore wind ~~power~~ project in the ~~United States. We also constructed one~~U.S., and construction of two of the largest liftboats servicing the ~~GOM,~~Gulf of Mexico ("GOM"), one of the deepest production jackets in the GOM, and the first ~~SPAR~~single point anchor reservoir ("SPAR") hull fabricated in the ~~United States. Our customers include~~ U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power and marine operators. We operate and manage our business through four operating divisions: Fabrication, Shipyard, Services and EPC. Our corporate headquarters is located in Houston, Texas, with fabrication facilities located in Houma, Jennings and Lake Charles, Louisiana. As

Basis of ~~the date of this Report, we have sold our Texas South Yard, and our Texas North Yard is held for sale.~~Presentation

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

The ~~accompanying unaudited, consolidated financial statements~~Financial Statements have been prepared in accordance with ~~GAAP~~accounting principles generally accepted in the U.S. ("GAAP") for interim financial statements, the instructions to Form 10-Q and Article 10 of Regulation ~~S-X.~~S-X of the U.S. Securities and Exchange Commission (the "SEC"). Accordingly, the ~~consolidated financial statements~~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 six months ended June 30, ~~2018,~~2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018.~~2019.

~~The balance sheet~~Our Consolidated Balance Sheet ("Balance Sheet") at December 31, ~~2017,~~2018, 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. For further information, refer to the ~~consolidated financial statements~~Financial Statements and ~~notes thereto~~related footnotes included in ~~the Company’s 2017~~our 2018 Annual Report. Certain amounts for the 2018 period have been reclassified within our Consolidated Statements of Operations ("Statement of Operations") and our Consolidated Statements of Cash Flows ("Statement of Cash Flows") to conform to our presentation for the 2019 period.

Business Outlook

~~Our primary~~We continue to strategically position the Company to participate in the fabrication of petrochemical and industrial facilities, pursue offshore wind opportunities, and diversify our customer base within all operating divisions. In addition, we continue to focus ~~continues to be~~on maintaining our liquidity and securing meaningful new project awards and backlog in the near-term, and generating operating income and cash ~~flow~~flows from operations in the longer-term. ~~Beginning~~We have made significant progress in 2015 and through the date of this Report, we have implemented initiatives to strategically reposition the Company to attract new customers, participate in the buildup of petrochemical facilities, pursue offshore wind markets, enter the EPC industry and diversify our ~~customers within our Shipyard Division. Additionally, we initiated~~ efforts to ~~rebuild~~increase our backlog and improve and preserve our liquidity, ~~preserve cash and lower costs~~ including ~~reducing our workforce and reducing the cash compensation paid to our directors~~cost reductions and the ~~salaries~~sale of ~~our executive officers as well as developing a plan to sell certain~~ underutilized assets.

~~On April 20, 2018, we sold our Texas South Yard~~ See Note 3 for ~~$55.0 million, less selling costs of $1.5 million. We received approximately $52.7 million at closing, which was in addition to the $0.8 million of previously received earnest money. See~~ further discussion of ~~the~~our recent asset sales and assets held for sale of our Texas South Yard in Note 2. The net proceeds received rebuilt our liquidity, provided support for upcoming projects, our continued investment in our EPC Division and for other general corporate purposes. We continue to market our Texas North Yard and hope to have a negotiated contract for the sale of our Texas North Yard in the near future.at June 30, 2019.

We believe that our cash, ~~and~~ cash equivalents ~~on hand~~ and ~~held-to-maturity,~~ short-term investments at June 30, 2019, and ~~funds available~~availability under our Credit Agreement (defined in Note 4), will be sufficient to enable ~~the Company~~us to fund our operating expenses, meet ~~its~~our working capital ~~needs,~~and capital expenditure requirements, and satisfy any debt service obligations ~~and~~or other funding requirements, for at least twelve months from the date of this Report.

~~Cash and cash equivalents~~Operating Cycle

The ~~Company considers~~durations of our contracts vary and can extend beyond twelve months from the date of contract award. Consistent with industry practice, assets and liabilities have been classified as current under the operating cycle concept whereby all ~~highly liquid~~contract-related items are classified as current regardless of whether cash will be received or paid within a twelve month period. Assets and liabilities classified as current which may not be received or paid within the next twelve months include contract retainage, contract assets and contract liabilities. Variations from normal contract terms may result in the classification of assets and liabilities as noncurrent.

Use of Estimates

The preparation of our Financial Statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosures of contingent assets and liabilities. We believe our most significant estimates and judgments are associated with revenue recognition for our contracts, including application of the percentage-of-completion method, estimating costs to complete each contract and the recognition of incentives, unapproved change orders, claims, and liquidated damages; fair value and recoverability assessments that must be periodically performed with respect to long-lived assets and our assets held for sale; determination of deferred income tax assets, liabilities and related valuation allowances; reserves for bad debts; and liabilities related to self-insurance programs. If the underlying estimates and assumptions upon which our Financial Statements are based change in the future, actual amounts may differ materially from those included in the Financial Statements.

Income (Loss) Per Share

We report basic and diluted income (loss) per share ("EPS") using the "two-class" method as required under GAAP. The calculation of EPS using the two-class method is required when a company has two or more classes of common stock or participating securities. Certain of our unvested restricted stock (which are not included in our basic or diluted weighted average shares outstanding) contain the right to receive non-refundable dividends and therefore represent participating securities. See Note 6 for calculations of our basic and diluted EPS.

Cash Equivalents and Short-term Investments

Cash equivalents - We consider investments with original maturities of three months or less when purchased to be cash equivalents.

~~Held-to-maturity,~~Short-term investments - We consider investments with original maturities of more than three months but less than twelve months to be short-term ~~investments~~

~~Held-to-maturity,~~investments. At June 30, 2019, our short-term investments include U.S. Treasuries ~~and other investment-grade commercial paper~~ with original maturities of less than six ~~months or less.~~months. 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 held-to-maturity,~~ short-term investments are traded on active markets with quoted prices and represent level 1 fair value measurements.

Inventory

Inventory is recorded at the lower of cost or net realizable value determined using the first-in-first-out basis. The cost of inventory includes acquisition costs, production or conversion costs, and other costs incurred to bring the inventory to a current location and condition. Net realizable value is our estimated selling price in the normal course of business, less reasonably predictable costs of completion, disposal and transportation. An allowance for excess or inactive inventory is recorded based on an analysis that considers current inventory levels, historical usage patterns, estimates of future sales and salvage value.

Allowance for Doubtful Accounts

In the normal course of business we extend credit to our customers on a short-term basis and contract receivables are generally not collateralized; however, we typically have the right to place liens on our projects in the event of nonpayment by our customers. We routinely review individual contract receivable balances for collectibility and make provisions for probable uncollectible amounts as necessary. Among the factors considered in our review are the financial condition of our customer and its access to financing, underlying disputes with the customer, the age and value of the receivable balance, and economic conditions in general.

Our customer base historically includes a significant number of energy related companies and their contractors. This concentration of customers in the energy sector may impact our overall exposure to credit risk, either positively or negatively, in that customers may be similarly affected by changes in economic or other conditions. See Note ~~5 related~~2 for further discussion of our allowance for doubtful accounts.

Stock-Based Compensation

Awards under our stock-based compensation plans are calculated using a fair value-based measurement method. We use the straight-line method to recognize share-based compensation expense over the requisite service period of the award. We recognize the excess tax benefit or tax deficiency resulting from the difference between the deduction we receive for tax purposes and the stock-based compensation expense we recognize for financial reporting purposes created when common stock vests, as an income tax benefit or expense in our Statement of Operations.

Tax payments made on behalf of employees to taxing authorities in order to satisfy employee income tax withholding obligations from the vesting of shares under our stock-based compensation plans are classified as a financing activity in our Statement of Cash Flows.

Assets Held for Sale

Assets held for sale are measured at the lower of their carrying amount or fair value less cost to sell. See Note 3 for further discussion of our assets held for sale.

Depreciation Expense

We depreciate property, plant and equipment on a straight-line basis over estimated useful lives ranging from three to 25 years, absent any indicators of impairment. Ordinary maintenance and repairs, which do not extend the physical or economic lives of the plant or equipment, are charged to expense as incurred.

Long-Lived Assets

We review long-lived assets for impairment, which include property, plant and equipment and our lease assets included within other noncurrent assets, when events or changes in circumstances indicate that the carrying amount may not be recoverable. If a recoverability assessment is required, the estimated future undiscounted cash flow associated with the assets or asset groups are compared to their respective carrying amounts to determine if an impairment exists. An impairment loss is measured by comparing the fair value of the asset or asset group to its carrying amount and recording the excess of the carrying amount of the asset or asset group over its fair value as an impairment charge. An asset group constitutes the minimum level for which identifiable cash flows are principally independent of the cash flows of other assets or asset groups. Fair value is determined based on discounted cash flows, appraised values or third party indications of value, as appropriate. During the three and six months ended June 30, 2019, we identified no indicators of impairment.

Fair Value Measurements

Our fair value determinations for financial assets and liabilities are based on the particular facts and circumstances. Financial instruments are required to be categorized within a valuation hierarchy based upon the lowest level of input that is significant to the fair value measurement. The three levels of the valuation hierarchy are as follows:

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

Level 3 - inputs are based upon model-based valuation techniques for which significant assumptions are generally not observable in the market and typically reflect estimates and assumptions that we believe market participants would use in pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.

The carrying amounts reported for financial instruments, including cash and cash equivalents, short-term investments, contracts receivable and accounts payable, approximate their fair values.

Revenue Recognition

General - Our revenue is derived from customer contracts and agreements that are awarded on a competitively bid and negotiated basis using a range of contracting options, including fixed-price, unit-rate and T&M. Our contracts primarily relate to the fabrication and construction of steel structures, modules and marine vessels, and project management services and other service arrangements. We recognize revenue for our contracts in accordance with Accounting Standards Update ("ASU") 2014-09, Topic

606 “Revenue from Contracts with Customers” ("Topic 606"), which was adopted by us on January 1, 2018, and supersedes previous revenue recognition guidance, including industry-specific guidance.

Fixed-Price and Unit-Rate Contracts - Revenue for our fixed-price and unit-rate contracts is recognized using the percentage-of-completion method (an input method), based on contract costs incurred to date compared to total estimated contract costs. Contract costs include direct costs, such as materials and labor, and indirect costs that are attributable to contract activity. Material costs that are significant to a contract and do not reflect an accurate measure of project completion are excluded from the determination of our contract progress. Revenue for such materials is only recognized to the extent of costs incurred. Revenue and gross profit for contracts accounted for using the percentage-of-completion method can be significantly affected by changes in estimated cost to complete such contracts. Significant estimates impacting the cost to complete a contract include: costs of engineering, materials, components, equipment, labor and subcontracts; labor productivity; schedule durations, including subcontractor and supplier progress; contract disputes, including claims; achievement of contractual performance requirements; and contingency, among others. Although our customers retain the right and ability to change, modify or discontinue further work at any stage of a contract, in the event our customers discontinue work, they are required to compensate us for the work performed to date. 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 contracts. Due to the various estimates inherent in our contract accounting, actual results could differ from those estimates, which could result in material changes to our ~~fair~~Financial Statements and related disclosures.

T&M Contracts - 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. Our 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 ~~measurements.~~of our performance completed at the time of invoicing.

Variable Consideration - Revenue and gross profit for contracts can be significantly affected by variable consideration, which can be in the form of unapproved change orders, claims, incentives, and liquidated damages that may not be resolved until the later stages of the contract or after the contract has been completed and delivery occurs. We estimate variable consideration based on the amount we expect to be entitled and include estimated amounts in 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.

Adoption of Topic 606 - As discussed above, on January 1, 2018 we adopted Topic 606. Prior to our adoption of Topic 606, our determination of percentage-of-completion for our fixed-price and unit-rate contracts was based on the percentage of direct labor hours incurred to date compared to total estimated direct labor hours, and revenue for materials was recognized only to the extent of costs incurred. However, in our adoption of Topic 606, we adjusted our measure of progress for the determination of percentage-of-completion to include subcontract labor hours in addition to direct labor hours. Accordingly, our determination of percentage-of-completion for the three and six months ended June 30, 2018, was based on this method.

During the fourth quarter 2018, we concluded that the use of labor hours for the determination of percentage-of-completion for our fixed-price and unit-rate contracts was not appropriate based on the changing mix of our contracts, which include an increasing amount of engineered equipment, manufactured materials, and subcontracted services and materials. We also concluded that in our adoption of Topic 606 as of January 1, 2018, our determination of percentage-of-completion for our fixed-price and unit-rate contracts should have been based on total contract costs incurred to date compared to total estimated contract costs. We further concluded that material costs that are significant to a contract and do not reflect an accurate measure of project completion should be excluded from the determination of our contract progress, and revenue for such materials should only be recognized to the extent of costs incurred. Accordingly, during the fourth quarter 2018 we corrected our percentage-of-completion estimates for our fixed-price and unit-rate contracts to be based on total costs incurred to date compared to total estimated contract costs. Accordingly, our determination of percentage-of-completion for three and six months ended June 30, 2019, was based on this method. The impact of the difference in methods of determining percentage-of-completion between the 2019 and 2018 periods was not material.

During 2018 we also evaluated the required cumulative effect adjustment to retained earnings as of January 1, 2018 for the adoption impact of Topic 606. Based on this evaluation, we determined that the cumulative effect adjustment would have been $0.4 million, which we did not believe was material to our Financial Statements. Accordingly, no cumulative adjustment to retained earnings as of January 1, 2018 was recorded.

Income Taxes

AsIncome taxes have been provided using the liability method. Deferred income taxes reflect the net tax effects of ~~December 31, 2017, we had gross, federal net operating losses that~~temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes using enacted rates expected to be in effect during the year in which the differences are ~~eligible for carryforward~~expected to offset future taxable income of $62.8 million, of which $4.0 million will expire on December 31, 2035. Our remaining federal net operating loss carryforwards will expire December 31, 2037. We have provided areverse.

A valuation allowance is provided to reserve for deferred tax assets ("DTA(s)") if, based upon the available evidence, it is more likely than not that some or all of the ~~deferred tax assets~~DTAs will not be realized. AsThe realization of our DTAs depends on our ability to generate sufficient taxable income of the appropriate character and in the appropriate jurisdictions.

Reserves for uncertain tax positions are recognized when we consider it more likely than not that additional tax will be due in excess of amounts reflected in our income tax returns, irrespective of whether or not we have received tax assessments. Interest and penalties on uncertain tax positions are recorded within income tax expense.

Pre-contract Costs

Pre-contract costs are generally charged to cost of revenue as incurred, but in certain cases their recognition may be deferred if specific probability criteria are met. At June 30, ~~2018~~2019 and December 31, ~~2017,~~2018, we had ~~a valuation allowance of $1.4 million and $0.4 million, respectively offsetting our~~no deferred ~~tax assets.~~pre-contract costs.

~~We continue to evaluate~~Other (Income) Expense, Net

Other (income) expense, net, generally represents (recoveries) provisions for bad debts, (gains) losses associated with the ~~impact~~sale or disposition of ~~the Tax Cuts~~property and ~~Jobs Act of 2017. No revisions were recorded during the three or six months ended June 30, 2018,~~equipment other than assets held for sale, and ~~we have not made a material adjustment to the provisional tax amounts we recorded under Staff Accounting Bulletin 118 at December 31, 2017.~~(income) expense associated with certain nonrecurring items.

New Accounting Standards

~~On May 28, 2014,~~Leases - In the FASB issued ASU No. 2014-09, Topic 606 “Revenue from Contracts with Customers” which supersedes the revenue recognition requirements in FASB 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 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 T&M contracts is recognized at the contracted rates as the work is performed, the costs are incurred and when collection is reasonably assured.

Wefirst quarter 2019, we adopted Topic 606, as required, effective January 1, 2018. Our implementation included a detailed review of our significant contracts that were not substantially complete. We concluded that Topic 606 did not impact the timing of recognition of revenue from T&M contracts which is recognized as the work is performed and the costs are incurred at the contracted rates. Our evaluation concluded that revenue recognition from 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. Adoption of Topic 606, however, did require us to include contract labor amounts and certain costs from outside services within our measure of progress of percent complete in order to comply with Topic 606. Previously, we treated certain of these costs as "pass-through costs." Our assessment of these costs for the significant contracts in place at the time of adoption concluded that adoption of Topic 606 effective January 1, 2018, was immaterial to the consolidated financial statements and no cumulative adjustment was required. See Note 3 for further discussion regarding the adoption of Topic 606.

~~In February 2016, the FASB issued~~ ASU 2016-02, “Leases,” which ~~requires lessees~~required us to record ~~most~~a lease liability on our Balance Sheet equal to the present value of our lease payments for leased assets, and record a lease asset on our Balance Sheet representing our right to use the underlying leased assets for all leases ~~on their balance sheet but recognize expenses~~having an original term of longer than 12-months. In our adoption we elected the modified retrospective transition method, and accordingly, prior periods have not been restated and continue to be reported under the lease standard in ~~a manner similar to current guidance.~~effect during such periods. We also elected certain practical expedients provided by ASU 2016-02, ~~will be effective~~including not recording an asset or liability for ~~annual periods beginning after December 15, 2018.~~ leases having a term of 12-months or less and not separating lease and non-lease components for our leases. Upon adoption, we recorded operating lease assets and lease liabilities of approximately $7.2 million and $5.3 million, respectively, at January 1, 2019. Included in our lease asset was an intangible asset of $1.9 million associated with two favorable lease obligations recorded in connection with a former acquisition, which was reclassified as a lease asset under ASU 2016-02.

The lease asset is reflected within other noncurrent assets, and the current and noncurrent portions of the lease liability are reflected within accrued expenses and other liabilities, and other noncurrent liabilities, respectively, on our Balance Sheet. At June 30, 2019, our lease asset, current lease liability and long-term lease liability were $6.9 million, $0.3 million and $4.8 million, respectively. For leases with escalations over the life of the lease, we recognize expense on a straight-line basis. See Note 5 for further discussion of our lease liabilities.

Stock-based grants - In the first quarter 2019, we adopted ASU 2018-07, "Improvements to Non-employee Share-Based Payment Accounting," which simplifies the accounting for share-based payments granted to non-employees for goods and services. Under the ASU, most of the guidance for such payments to non-employees is ~~required~~now aligned with the requirements for share-based payments to ~~be applied using~~employees. The adoption of the new standard did not have a ~~modified retrospective approach. We are currently evaluating the effect that ASU 2016-02 will have~~material impact on our financial position, ~~and~~results of operations or related ~~disclosures; however, we expect to record our lease obligations on our balance sheet.~~disclosures.

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 –~~2. REVENUE, CONTRACT ASSETS AND LIABILITIES AND OTHER CONTRACT MATTERS

As discussed in Note 1, we recognize revenue for our contracts in accordance with Topic 606. Summarized below are required disclosures under Topic 606 and other relevant guidance.

Disaggregation of Revenue

The following tables summarize revenue for each of our operating segments, disaggregated by contract type, for the three and six months ended June 30, 2019 and 2018 (in thousands):



		Three Months Ended June 30, 2019
		Fabrication		Shipyard		Services		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	22,415	$	36,607	$	12,668	$	(3,232	)	$	68,458
T&M ⁽²⁾		—		960		8,187		—			9,147
Other		—		—		3,210		(359		)	2,851
	Total	$	22,415	$	37,567	$	24,065	$	(3,591	)	$	80,456



		Three Months Ended June 30, 2018
		Fabrication		Shipyard		Services		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	9,472	$	21,259	$	10,576	$	(1,042	)	$	40,265
T&M ⁽²⁾		—		2,361		10,486		—			12,847
Other		—		—		1,143		(241		)	902
	Total	$	9,472	$	23,620	$	22,205	$	(1,283	)	$	54,014



		Six Months Ended June 30, 2019
		Fabrication		Shipyard		Services		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	35,046	$	70,233	$	18,899	$	(3,846	)	$	120,332
T&M ⁽²⁾		—		3,921		18,809		—			22,730
Other		—		—		5,959		(960		)	4,999
	Total	$	35,046	$	74,154	$	43,667	$	(4,806	)	$	148,061



		Six Months Ended June 30, 2018
		Fabrication		Shipyard		Services		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	26,815	$	38,481	$	20,866	$	(1,495	)	$	84,667
T&M ⁽²⁾		—		3,704		21,071		—			24,775
Other		—		—		2,138		(276		)	1,862
	Total	$	26,815	$	42,185	$	44,075	$	(1,771	)	$	111,304

____________

(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.

Future Performance Obligations Required Under Contracts

A summary of our remaining performance obligations by operating segment at June 30, 2019, is as follows (in thousands).



Segment	Performance Obligations
Fabrication	$	53,496
Shipyard ⁽¹⁾	388,239
Services	12,787
Total	$	454,522

_____________


(1)	Amount excludes approximately $21.9 million of remaining performance obligations related to contracts for the construction of two MPSVs that are subject to dispute pursuant to a termination notice from our customer. See Note 5 for further discussion of these contracts.

We expect to recognize revenue for our remaining performance obligations at June 30, 2019, in the following periods (in thousands):



Year	Performance Obligations
Remainder of 2019	$	146,150
2020	205,651
2021	96,481
Thereafter	6,240
Total	$	454,522

Contracts Assets and Liabilities

Revenue recognition and customer invoicing for our fixed-price and unit-rate contracts may occur at different times. Revenue recognition is based upon our estimated percentage-of-completion as discussed in Note 1; however, customer invoicing is generally dependent upon predetermined billing terms, which could provide for customer payments in advance of performing the work, milestone billings based on the completion of certain phases of the work, or billings when services are provided. Revenue recognized in excess of amounts billed is reflected as contract assets on our Balance Sheet. Amounts billed in excess of revenue recognized, and accrued contract losses, are reflected as contract liabilities on our Balance Sheet. Contract assets and contract liabilities included in our Balance Sheet at June 30, 2019 and December 31, 2018, are as follows (in thousands):



	June 30,			December 31,
	2019			2018
Contract assets	$	51,334		$	29,982
Contract liabilities ^{(1), (2), (3)}	(13,823		)	(16,845		)
Contracts in progress, net	$	37,511		$	13,137

______________


(1)	The decrease in contract liabilities compared to December 31, 2018, was primarily due to the unwind of advance payments on a project in our Fabrication Division, offset partially be an increase in advance payments on two projects in our Shipyard Division.

(2)

Revenue recognized during the three months ended June 30, 2019 and 2018 related to amounts included in our contract liabilities balance at March 31, 2019 and 2018, was $7.6 million and $4.1 million respectively. Revenue recognized during the six months ended June 30, 2019 and 2018 related to amounts included in our contract liabilities balance at December 31, 2018 and 2017, was $13.9 million and $4.9 million, respectively.


(3)	Contract liabilities at June 30, 2019 and December 31, 2018, includes accrued contract losses of $2.0 million and $2.4 million, respectively. See "Project Changes in Estimates" below for further discussion of our accrued contract losses.

Allowance for Doubtful Accounts

Our provision for bad debts for the six months ended June 30, 2019 and 2018 was $0.1 million and $8,000, respectively, and is included in other (income) expense, net on our Statement of Operations. Our allowance for doubtful accounts at June 30, 2019 and December 31, 2018 was $0.1 million and $0.4 million, respectively.

Variable Consideration

For the three and six months ended June 30, 2019 and 2018, we had no material amounts in revenue related to unapproved change orders, claims, or incentives. However, at June 30, 2019 and December 31, 2018, certain projects in our Shipyard Division reflected a reduction to our estimated contract price for liquidated damages of $11.3 million and $11.2 million, respectively, of which $11.2 million was recorded during 2017.

Changes in Project Estimates and Other Project Matters

Changes in Project Estimates - For the three and six months ended June 30, 2019, significant changes in estimated margins on projects resulted in an increase in our operating loss of $2.3 million and $2.0 million, respectively. The changes in estimates were associated with our harbor tug projects and ice-breaker tug project.

The changes in estimates for the harbor tug projects resulted in an increase in our operating loss of $1.4 million and $1.2 million for the three and six months ended June 30, 2019, respectively. The changes in estimates were the result of increased forecast costs, primarily associated with the impact of limitations in craft labor availability and the required use of contract labor in lieu of direct hire labor, resulting in lower than anticipated craft labor productivity and extensions of schedule for the projects. The revised forecasts incorporate actual results obtained from the completion of the third and fourth harbor tugs in the second quarter 2019 and progress achieved on the remaining six harbor tugs, which are scheduled to be completed at various dates ranging from the third quarter 2019 through the fourth quarter 2020. Our forecasts anticipate improved craft labor productivity with the completion of each subsequent vessel. The projects were in a loss position at June 30, 2019 and our reserve for estimated losses on the projects was $1.6 million. If future craft labor productivity differs from our current estimates, we are unable to achieve our progress estimates, our schedules are further extended or the projects incur schedule liquidated damages, the projects would experience further losses.

The changes in estimates for the ice-breaker tug project resulted in an increase in our operating loss of $0.9 million and $0.8 million for the three and six months ended June 30, 2019, respectively. The changes in estimates were the result of increased forecast costs, primarily associated with the impact of incomplete and deficient subcontracted production engineering, resulting in construction rework and disruption, lower than anticipated craft labor productivity and an extension of schedule for the project. The project was in a loss position at June 30, 2019 and our reserve for estimated losses on the project was $0.1 million. If future craft labor productivity differs from our current estimates, we are unable to achieve our progress estimates, or our schedule is further extended, the project would experience further losses.

For the three and six months ended June 30, 2018, individual projects with significant changes in estimated margins did not have a material net impact on our loss from operations.

Other Project Matters - Certain imported materials used, or forecast to be used, for our projects are currently subject to existing, new or increased tariffs or duties. We believe such amounts, if incurred, are recoverable from our customers under the contractual provisions of our contracts; however, we can provide no assurances that we will successfully recover such amounts.

3. ASSETS HELD FOR SALE

~~South Texas Properties:~~A summary of our assets held for sale at June 30, 2019, is as follows (in thousands):




Assets	Fabrication Division			Shipyard Division			Consolidated
Machinery and equipment	$	25,684		$	1,222		$	26,906
Accumulated depreciation	(7,871		)	(298		)	(8,169		)
Total	$	17,813		$	924		$	18,737

~~On April 20,~~

Fabrication Division Assets Held for Sale

South Texas Properties - During the first quarter 2017, we classified our fabrication yards and certain associated equipment in Ingleside, Texas ("Texas South Yard") and Aransas Pass, Texas ("Texas North Yard") (collectively, "South Texas Properties") as held for sale. During the second and fourth quarters of 2018, we ~~closed~~completed the sale of the Texas South Yard and Texas North Yard, respectively, which included both fabrication yards and certain equipment. In connection with the sale of the Texas South Yard we received net proceeds of $53.8 million during the six months ended June 30, 2018 and recognized a gain of $3.9 million during the three and six months ended June 30, 2018.

At June 30, 2019, our Fabrication Division continued to have $17.8 million of assets held for sale ("Fabrication AHFS"), which were initially expected to be sold with the South Texas Properties. These assets consist primarily of three 660-ton crawler cranes, a deck barge, two plate bending roll machines and panel line equipment. The Fabrication AHFS were relocated to our fabrication yard in Houma, Louisiana.

Hurricane Harvey Insurance Recoveries - During the third quarter 2017, buildings and equipment located at our South Texas Properties were damaged by Hurricane Harvey. In connection therewith, during 2017 we received $6.0 million of insurance proceeds as an initial payment from our insurance carriers, of which approximately $3.2 million was reflected as a liability on our Balance Sheet at December 31, 2017, related to estimated future repairs associated with Hurricane Harvey. In addition, during the second quarter 2018, we agreed to a global settlement with our insurance carriers for total insurance payments of $15.4 million, inclusive of the $6.0 million payment received during 2017, a $2.2 million payment received during the six months ended June 30, 2018, and a $7.2 million payment received during the three months ended September 30, 2018, which was reflected as a receivable on our Balance Sheet at June 30, 2018. In applying the settlement proceeds (which were inclusive of agreed upon deductibles), we allocated the 2018 recoveries and the liability accrued at December 31, 2017, as follows:

$9.0 million, which offset impairments of property and equipment, primarily at our Texas North Yard, resulting in no net gain or loss. Our evaluation considered the Texas North Yard as a single asset group given the sale of our Texas South Yard had been completed. The impairments were based upon our best estimate of the decline in fair value of the asset group as a result of Hurricane Harvey; and

$3.6 million gain, recorded during the three months ended June 30, 2018, which is included within asset impairments and (gain) loss on assets held for a sale, ~~price~~net on our Statement of ~~$55.0~~Operations.

Other - During the six months ended June 30, 2019 and 2018, we received proceeds of $0.4 million ~~less selling costs of $1.5 million. We received approximately $52.7~~and $0.2 million, ~~at closing which was in addition~~respectively, related to the ~~$0.8~~sale of assets that were held for sale. During the three months ended June 30, 2018, we recorded expense of $0.6 million related to the impairment of ~~previously received earnest money. The net proceeds received rebuilt our liquidity, which provided support~~assets that were held for ~~projects, our ontinued investment in our EPC Division~~sale. During the six months ended June 30, 2019 and ~~for other general corporate purposes. We recognized~~2018, we recorded a gain of ~~approximately $3.9~~$0.1 million ~~from~~and expense of $1.4 million, respectively, related to the ~~sale during the second quarter~~net impact of ~~2018; however, we do not anticipate any material cash tax liability given our NOLs.~~

~~Our Texas North Yard represents excess capacity within our Fabrication Division. We continue to market our Texas North Yard with interested parties~~impairments of assets and ~~hope to have a negotiated contract for~~(gains) losses on the sale of assets that were held for sale. The net gain and charges are included within asset impairments and (gain) loss on assets held for sale, net on our ~~Texas North Yard in the near future.~~Statement of Operations.

~~We do not expect the~~The sale of ~~these assets to~~our South Texas Properties did not impact ~~in any respect~~ our ability to operate our Fabrication Division. ~~The~~Further, the sale of our South Texas Properties, ~~does~~and the Fabrication AHFS, did not qualify for discontinued operations presentation as we continue to operate our Fabrication Division at ~~other facilities.~~

~~Hurricane Harvey Insurance Recoveries:~~

~~On August 25, 2017, buildings and equipment located at~~ our ~~South Texas Properties were damaged by Hurricane Harvey which made landfall as a Category 4 hurricane. On June 28, 2018, we agreed to a global settlement with our insurance carriers~~fabrication yard in the amount of $15.4 million. As of June 30, 2018, we had received payments totaling $8.2 million and the remaining $7.2 million has been recorded as an insurance receivable on our Consolidated Balance Sheet as of June 30, 2018, which represents a non-cash change within our Consolidated Statement of Cash Flows related to our insurance receivable. As of the date of this Report, we have received payment for the full settlement amount.

In applying the settlement, we allocated the claim amounts less agreed upon deductibles to the respective groups of assets and reimbursement of costs incurred included in our settlement agreement as follows:

~~Clean-up and repair related costs of $1.6 million, less deductibles applied of approximately $0.3 million that we have incurred since August 25, 2017, through June 30, 2018.~~

~~A gain on insurance recoveries of~~ ~~$3.6 million~~ included within other income (expense) on our Consolidated Statement of Operations that was recorded during the second quarter of 2018 primarily related to two buildings that were declared a total loss and five damaged cranes that were sold during the second quarter of 2018.

Insurance recoveries of $8.9 million which offset impairments of damaged assets at our Texas North Yard. Because we do not intend to repair the remaining buildings, improvements and related equipment, we recorded an impairment of $8.9 million, $5.1 million of which was recorded during the three months ended March 31, 2018. Our impairment was based upon our best estimate of the decline in the fair value of the property and related equipment. The insurance recovery fully offset this amount.

During the second quarter of 2018, we recorded an impairment of $0.6 million primarily related to a piece of equipment that we sold during July 2018. During the three months ended March 31, 2018, we recorded an impairment of $0.8 million related to a piece of equipment at our Texas North Yard that we intend to sell at auction. The impairments were calculated as their net book values less management's estimated net proceeds from the sales.Houma, Louisiana.

Shipyard Division ~~Assets:~~Assets Held for Sale

~~Our~~At June 30, 2019, our Shipyard Division had $0.9 million of assets held for sale ~~at June 30, 2018, primarily consist~~("Shipyard AHFS"), which consists of a 2,500-ton drydock located at our shipyard in Houma, ~~Shipyard. During the first quarter of 2017, management placed the assets at our former Prospect~~Louisiana. The Shipyard for sale, and we recorded an impairment of $0.4 million related to those assets based upon their estimated sale price. During the second quarter of 2017, we sold two drydocks for proceeds of $2.0 million and recorded a loss on sale of $0.3 million. During the fourth quarter of 2017, we recorded an additional impairment of $0.6 million in connection with our termination of the former Prospect Shipyard lease. Our

~~net book value of property, plant and equipment for these assets was $1.9 million at June 30, 2018. Our shipyard assets held for sale do~~AHFS did not qualify for discontinued operations presentation.

~~A summary~~

4. CREDIT FACILITIES

Credit Agreement

We have a $40.0 million revolving credit facility with Hancock Whitney Bank ("Credit Agreement") that can be used for borrowings or letters of credit. On May 1, 2019, we amended our Credit Agreement to extend its maturity date from June 9, 2020 to June 9, 2021 and amend certain financial covenants. Our amended quarterly financial covenants at June 30, 2019, and for the remaining term of the Credit Agreement, are as follows:

Ratio of current assets ~~included~~to current liabilities of not less than 2.00:1.00;

Minimum tangible net worth of at least the sum of $170.0 million, plus 100% of the net proceeds from any issuance of stock or other equity after deducting any fees, commissions, expenses and other costs incurred in ~~assets held for~~such offering; and

Ratio of funded debt (which includes outstanding letters of credit) to tangible net worth of not more than 0.50:1.00.

Our Credit Agreement also includes restrictions regarding our ability to: (i) grant liens; (ii) make certain loans or investments; (iii) incur additional indebtedness or guarantee other indebtedness in excess of specified levels; (iv) make any material change to the nature of our business or undergo a fundamental change; (v) make any material dispositions; (vi) acquire another company or all or substantially all of its assets; (vii) enter into a merger, consolidation, or sale leaseback transaction; or (viii) declare and pay dividends if any potential default or event of default occurs.

Interest on borrowings under the Credit Agreement may be designated, at our option, as ofeither the Wall Street Journal published Prime Rate (5.5% at June 30, ~~2018, including~~2019) or LIBOR (2.4% at June 30, 2019) 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 ~~Texas North Yard~~assets (with a negative pledge on our real property).

At June 30, 2019, we had no outstanding borrowings under our Credit Agreement and $10.7 million of outstanding letters of credit, providing $29.3 million of available capacity. At June 30, 2019, we were in compliance with all of our financial covenants, with a tangible net worth of $191.3 million (as defined by the ~~Shipyard Division~~Credit Agreement), a ratio of current assets ~~is as follows (in thousands):~~to current liabilities of 2.26 to 1.0, and a ratio of funded debt to tangible net worth of 0.06:1.0.

Assets Texas North Yard Shipyard Division Assets Consolidated
Land $ 2,157
$ —
$ 2,157
Buildings and improvements 28,368
—
28,368
Machinery and equipment 55,170
2,187
57,357
Less: accumulated depreciation (43,787 ) (298 ) (44,085 )
Total assets held for sale $ 41,908
$ 1,889
$ 43,797
Surety Bonds

We issue surety bonds in the ordinary course of business to support our projects. At June 30, 2019, we had $375.9 million of outstanding surety bonds.

~~NOTE 3 – REVENUE RECOGNITION~~5. COMMITMENTS AND CONTINGENCIES

~~The Company uses~~

We are subject to various routine legal proceedings in the ~~percentage-of-completion accounting method to recognize revenue from fixed-price~~normal conduct of business, primarily involving commercial disputes and ~~unit-rate contracts computed using the percentage of labor hours incurred as compared to estimated total labor hours to complete each contract. Revenue recognized in a period~~claims, workers’ compensation claims, and claims for ~~a contract is the pro rata portion~~personal injury under general maritime laws of the ~~contract value (excluding pass-through costs) based upon~~U.S. and the ~~labor hours incurred~~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

During the first quarter 2018, 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 vessels 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 vessels. We have notified and met with our Surety regarding our disagreement with, and objection to, the ~~total labor hours estimated~~customer's purported terminations and its claims. Discussions with the Surety are ongoing. On October 2, 2018, we filed a lawsuit against the customer to ~~complete~~enforce our rights and remedies under the ~~contract plus pass-through costs incurred during~~applicable construction contracts. Our lawsuit disputes the ~~period.~~propriety of the customer’s purported terminations of the construction contracts and seeks to recover damages associated with the customer’s actions. The customer filed its response to our lawsuit denying many of the allegations in the lawsuit and asserting a counterclaim against us seeking, among other things, declaratory judgment as to the validity of the customer's purported terminations of the construction contracts and other purported claims for which the customer is seeking damages in an unspecified amount. We filed a response to the counterclaim denying all of the customer's claims. The customer subsequently filed a motion with the court seeking, among other things, to obtain possession of the vessels. A hearing on that motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels was denied by the court.

~~Materials and subcontractor services that represent an insignificant portion~~We are unable to determine the probability of ~~the work to complete the project do not reflect an accurate measure of project completion are considered pass-through costs. Prior~~a favorable or unfavorable outcome with respect to the ~~adoption~~dispute or estimate the amount of ~~Topic 606,~~potential loss, if any, related to this matter. We can provide no assurances that we ~~defined pass-through~~will not incur additional costs as ~~material, freight, equipment rental,~~we pursue our rights and ~~sub-contractor services. Pass-through costs are~~remedies under the contracts and defend against the customer's claims. At June 30, 2019 and December 31, 2018, other noncurrent assets on our Balance Sheet included ina net contract asset of $12.5 million, which consisted of our contract asset, accrued contract losses, and deferred revenue ~~and direct costs of revenue with no impact on the gross profit realized for that particular period.~~

Revenue from T&M contracts is recognized as the work is performed, costs are incurred at the contracted rates and when collection is reasonably assured. The Company's 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 the Company’s performance completedbalances at the time of ~~invoicing. Accordingly,~~ the ~~Company has elected~~customer's purported termination of the contracts.

Insurance

We may be exposed to ~~adopt~~future losses through our use of deductibles and self-insured retentions for our exposures related to third party liability and workers' compensation. We expect liabilities in excess of any deductibles and self-insured retentions to be covered by insurance. To the ~~“right~~extent we are self-insured, reserves are recorded based upon our estimates, with input from legal and insurance advisors. Changes in assumptions, as well as changes in actual experience, could cause these estimates to ~~invoice” practical expedient for T&M~~change.

Letters of Credit and Surety Bonds

We obtain letters of credit under our Credit Agreement or surety bonds from financial institutions to provide to our customers in order to secure advance payments or guarantee performance under our contracts, or in lieu of retention being withheld on our contracts. ~~The adoption~~With respect to a letter of ~~this practical expedient allows the Company to recognize revenue~~credit under our Credit Agreement, any advance payment in the ~~amount it has the right~~event of non-performance under a contract would become a borrowing under our Credit Agreement and thus a direct obligation. With respect to ~~invoice (as the work is performed and costs are incurred at the contracted rates).~~

~~Revenue and gross profit on contracts can be significantly affected by variable consideration, which can be~~a surety bond, any advance payment in the ~~form~~event of ~~unpriced change orders, claims, incentives, penalties, and liquidating damages that may not be resolved until the later stages~~non-performance is subject to indemnification of the Surety by us, which may require us to borrow under our Credit Agreement. When a contract is complete, the contingent obligation terminates and letters of credit or ~~after~~surety bonds are returned. See Note 4 for further discussion of our Credit Agreement and surety bonds.

Leases

Our significant operating leases include our corporate office in Houston, Texas and our shipyard facilities in Lake Charles and Jennings, Louisiana. Our corporate office lease expires in 2025 and our Lake Charles and Jennings leases include renewal options that allow us to extend the ~~contract has been completed~~lease terms through 2038 and ~~delivery occurs.~~2045, respectively. We ~~estimate variable consideration~~are reasonably certain we will exercise the renewal options and have therefore included the optional renewal periods in our expected lease terms and the measurement of our operating lease assets and liabilities. The table below sets forth the approximate future lease payments related to our operating leases with initial terms of more than one year (in thousands):



Period	Payments
Remainder of 2019	$	326
2020	659
2021	668
2022	677
2023	676
Thereafter	6,173
Total lease payments	9,179
Less interest	(4,084		)
Present value of lease liabilities	$	5,095

The discount rate used to determine the present value of our lease liabilities was based on the ~~most likely amount~~interest rate on our Credit Agreement adjusted for terms similar 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 six months ended~~our leased properties. At June 30, ~~2018~~2019, our weighted-average remaining lease term was approximately 16.0 years and ~~2017, we included no amounts in revenue related~~the weighted-average discount rate used to ~~unpriced change orders, claims, or incentives. As disclosed in~~derive our 2017 Annual Report, we recorded a reduction to our estimated contract price of $11.7 million of variable consideration related to liquidated damages on projects in our Shipyard Division during the fourth quarter of 2017.

~~Adoption of Topic 606~~

~~As discussed in Note 1, we adopted Topic 606 on January 1, 2018. The reported results~~lease liability was 7.5%. Cash paid for lease liabilities for the three and six months ended June 30, ~~2018, reflect~~2019 was $0.2 million and $0.3 million, respectively.

Environmental Matters

Our operations are subject to extensive and changing U.S. federal, state and local laws and regulations, as well as the ~~application~~laws of ~~Topic 606 guidance while the reported results for 2017 were prepared under the guidance of Topic 605. Topic 606 represents a change in accounting principle~~other countries, that establish health and ~~requires enhanced disclosures related~~environmental quality standards. These standards, among others, relate to ~~the disaggregation of revenue~~air and water pollutants and the ~~anticipated timing~~management and ~~completion~~disposal of ~~remaining performance obligations.~~hazardous substances and wastes. We are exposed to potential liability for personal injury or property damage caused by any release, spill, exposure or other accident involving such pollutants, substances or wastes. In connection with the historical operation of our facilities, including those associated with acquired operations, substances which currently are or might be considered hazardous were used or disposed of at some sites that will or may require us to make expenditures for remediation. We believe we are in compliance, in all material respects, with environmental laws and regulations and maintain insurance coverage to mitigate exposure to environmental liabilities. We do not believe any environmental matters will have a material adverse effect on our financial condition, results of operations or cash flow.

Our adoption of Topic 606 required us to review our fixed-price and unit-rate contracts 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~~6. INCOME (LOSS) PER COMMON SHARE

The following table presents the computation of the project. In the event our customers discontinue work, they are required to compensate us for the work performed to date. We determined that the significant inputs based upon labor hours most accurately reflects our primary profit generating activity as it best represents our efforts to construct the asset for our customer.

~~Our adoption of Topic 606~~basic and diluted income (loss) per share for the three and six months ended June 30, 2019 and 2018 ~~was immaterial and is not expected to have a significant impact on future financial results.~~

~~Disaggregation of Revenue~~

~~The following tables detail our revenue within each division disaggregated by contract type and timing of revenue recognition~~(in thousands, except for ~~the three and six months ended June 30, 2018 and 2017 (in thousands)~~per share amounts):

Three Months Ended June 30, 2018
Fabrication
Shipyard
Services
EPC
Eliminations
Total
Contract Type
Lump sum and fixed-price construction ⁽¹⁾
$ 8,590
$ 21,260
$ 11,718
$ —
$ (1,283 ) $ 40,285
Service contract revenue ⁽²⁾
—
2,360
10,487
—
—
12,847
Other ⁽³⁾
—
—
—
882
—
882
Total $ 8,590
$ 23,620
$ 22,205
$ 882
$ (1,283 ) $ 54,014

Three Months Ended June 30, 2017
Fabrication
Shipyard
Services
EPC
Eliminations
Total
Contract Type
Lump sum and fixed-price construction ⁽¹⁾
$ 13,990
$ 17,021
$ 9,103
$ —
$ (1,821 ) $ 38,293
Service contract revenue ⁽²⁾
—
1,282
6,293
—
—
7,575
Other ⁽³⁾
—
—
—
—
—
—
Total $ 13,990
$ 18,303
$ 15,396
$ —
$ (1,821 ) $ 45,868

Six Months Ended June 30, 2018
Fabrication
Shipyard
Services
EPC
Eliminations
Total
Contract Type
Lump sum and fixed-price construction ⁽¹⁾
$ 25,860
$ 38,481
$ 23,004
$ —
$ (1,771 ) $ 85,574
Service contract revenue ⁽²⁾
—
3,704
21,071
—
—
24,775
Other ⁽³⁾
—
—
—
955
—
955
Total $ 25,860
$ 42,185
$ 44,075
$ 955
$ (1,771 ) $ 111,304

Six Months Ended June 30, 2017
Fabrication
Shipyard
Services
EPC
Eliminations
Total
Contract Type
Lump sum and fixed-price construction ⁽¹⁾
$ 24,199
$ 33,727
$ 14,822
$ —
$ (3,170 ) $ 69,578
Service contract revenue ⁽²⁾
—
2,997
11,285
—
—
14,282
Other ⁽³⁾
—
—
—
—
—
—
Total $ 24,199
$ 36,724
$ 26,107
$ —
$ (3,170 ) $ 83,860

~~____________~~

~~(1) Revenue is recognized as the contract is progressed over time.~~

~~(2) Amounts are T&M. Revenue is recognized as the work is performed and costs are incurred at the contracted rates.~~

~~(3) Other revenue is primarily from our EPC Division and represents early work authorized by SeaOne. Revenue is recognized as the contract is progressed over time.~~

~~Future Performance Required Under Fixed-Price Contracts~~

~~Topic 606 requires companies to disclose the remaining revenue to be earned under performance obligations for the portion of contracts yet to be completed as of June 30, 2018 (in thousands).~~

By Segment Performance Obligations as of June 30, 2018
Fabrication $ 1,871
Shipyard ⁽¹⁾
295,506
Services 7,607
EPC 1,618
Intersegment eliminations (193 )
Total $ 306,409

~~_____________~~

(1) Amount excludes approximately $30.2 million in the aggregate of remaining performance obligations under dispute pursuant to a termination notice from a customer relating to contracts to build MPSVs.

~~We expect to recognize our remaining performance obligations in revenue in the following periods:~~

Year $'s
Remainder of 2018 $ 86,378
2019 140,831
2020 69,890
2021 8,645
2022 665
Total $ 306,409

~~Contracts in Progress and Advance Billings on Contracts~~

Revenue recognition and customer invoicing may occur at different times. Revenue recognition is based upon our calculation of percent of work complete; however, customer invoicing will generally depend upon a predetermined billing schedule as stated in the contract which could allow for customer advance payments or invoicing based upon achievement of certain milestones. Revenue earned but not yet invoiced is reflected as contracts in progress and included in current assets on our consolidated balance sheet. Billings made to our customers in advance of revenue being earned are reflected as advance billings on contracts and included in current liabilities on our balance sheet. Contracts in progress at June 30, 2018, totaled $36.5 million with $31.1 million relating to three major customers. Advance billings on contracts at June 30, 2018, was $4.2 million and included advances of $3.5 million from five major customers. Accrued contract losses were $6.0 million and $7.6 million as of June 30, 2018, and December 31, 2017, respectively.

~~NOTE 4 – CONTRACTS RECEIVABLE AND RETAINAGE~~

Our customers include: (1) major and large independent oil and gas companies, (2) petrochemical and industrial facilities, (3) marine companies and their contractors and (4) agencies of the U.S. Government. Of our contracts receivable balance at June 30, 2018, $12.3 million, or 38.4%, was with one customer. The significant projects for this one customer consist of offshore services related to repair, installation and hook-up work within our Services Division.

As of June 30, 2018, we included an allowance for bad debt of $0.9 million in our contract receivable balance which primarily relates to a customer within our Fabrication Division for the storage of an offshore drilling platform that was fully reserved in 2016.

~~NOTE 5 – FAIR VALUE MEASUREMENTS~~

The Company makes 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;~~

~~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; 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, held-to-maturity, short-term investments, accounts receivables and accounts payables, 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 costs to sell. The determination of fair value generally requires the use of significant judgment. We have classified our assets at our Texas North Yard and a drydock within our Shipyard Division as assets held for sale at June 30, 2018. See Note 2 for further disclosure relating to our assets held for sale.

On June 28, 2018, we agreed to a global settlement with our insurance carriers in the amount of $15.4 million. In applying the settlement amounts, we allocated the claim amounts less agreed upon deductibles included in our settlement agreement to the respective groups of assets and reimbursement of costs incurred related to our storm preparation and clean-up. During the first quarter of 2018, management determined its intention was to sell the remaining Texas North Yard and related equipment and not to expend any of the insurance funds for repairs. As of June 30, 2018, we reviewed the remaining buildings and equipment at the Texas North Yard, and we impaired our Texas North Yard in total by $8.9 million, $5.1 million of which was previously recorded during the three months ended March 31, 2018, based upon our best estimate of the decline in the fair value of the property and related equipment. We recorded a corresponding insurance recovery fully offsetting this amount. See further discussion of the application of our Hurricane Harvey insurance recoveries in Note 2.

During the second quarter of 2018, we recorded an impairment of $0.6 million related to a piece of equipment that we sold during the third quarter of 2018. During the three months ended March 31, 2018, we recorded an impairment of $0.8 million related to a piece of equipment at our Texas North Yard that we intend to sell at auction. The impairments were calculated as management's estimated net proceeds from the sales less their net book values. During the six months ended June 30, 2017, we recorded an impairment of $0.4 related to the Shipyard Division assets held for sale. Our impairments represent level 3 fair value measurements.

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

~~Earnings per Share:~~

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

Three Months Ended June 30, Six Months Ended June 30,
2018 2017 2018 2017
Basic and diluted:
Numerator:
Net income (loss) $ 549
$ (10,923 ) $ (4,747 ) $ (17,378 )
Less: Distributed and undistributed loss (unvested restricted stock) —
(53 ) —
(87 )
Net income (loss) attributable to common shareholders $ 549
$ (10,870 ) $ (4,747 ) $ (17,291 )
Denominator:
Weighted-average shares⁽¹⁾
15,043
14,851
15,004
14,805
Basic and diluted income (loss per share - common shareholders $ 0.04
$ (0.73 ) $ (0.32 ) $ (1.17 )



	Three Months Ended June 30,					Six Months Ended June 30,
	2019			2018		2019			2018
Net income (loss) attributable to common shareholders	$	(5,248	)	$	549	$	(8,290	)	$	(4,747	)
Weighted-average shares⁽¹⁾	15,236			15,043		15,194			15,004
Basic and diluted income (loss) per common share	$	(0.34	)	$	0.04	$	(0.55	)	$	(0.32	)

______________

(1) We have no dilutive securities.

~~NOTE 7 – LINE OF CREDIT~~

We have a $40.0 million Credit Agreement maturing June 9, 2019. The Credit Agreement allows the Company to use up to the full amount of the available borrowing base for letters of credit and general corporate purposes. We believe that our Credit Agreement, 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 Agreement may be designated, at our option, as either Base Rate (as defined in the Credit Agreement) or LIBOR plus 2% per annum. Unused commitment fees on the undrawn portion of the Credit Agreement are 0.4% per annum, and interest on undrawn stated amounts under letters of credit issued by the lender is 2% per annum. The Credit Agreement is secured by substantially all of our assets (other than the remaining assets held for sale at our South Texas Properties).

~~At June 30, 2018, we had no amount outstanding under our Credit Agreement, and we had outstanding letters of credit of $5.5 million leaving availability of $34.5 million.~~

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


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)	~~$185.0 million, plus~~


b)	An amount equal to 50% of consolidated net income for each fiscal quarter ending after June 30, 2017, including 50% of any gain attributable to the sale of all or substantially all of our South Texas Properties (with no deduction for a net loss in any such fiscal quarter), plus


c)	~~100% of the 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.~~

~~As of June 30, 2018, we were in compliance with all of our financial covenants.~~

~~NOTE 8 -~~7. SEGMENT DISCLOSURES

~~We have structured~~During 2018, we operated and managed our ~~operations with~~business through four operating divisions ("Fabrication", "Shipyard", "Services" and "EPC") and one ~~corporate~~ non-operating ~~division.~~division ("Corporate"), which represented our reportable segments. During the first quarter 2019, our EPC Division was operationally combined with our Fabrication Division. Our EPC Division was previously created to support the pursuit of a specific EPC project and other projects that require project management of EPC activities. Our operational combination of the EPC Division with the Fabrication Division is the result of our reduced emphasis on EPC project management opportunities and greater focus on offshore wind and modular fabrication opportunities. As a result of the aforementioned, we currently operate and manage our business through three operating divisions ("Fabrication", "Shipyard" and "Services") and one non-operating division ("Corporate"), which represent our current reportable segments. The segment results for the EPC Division for the three and six months ended June 30, 2018 were combined with the Fabrication Division to conform to the presentations of our reportable segments for the 2019 periods. We believe that our operating divisions ~~and our corporate non-operating division each represent a~~meet the criteria of reportable ~~segment~~segments under GAAP. Our EPC Division was created in December 2017 to manage expected work we will perform for the SeaOne Project and other projects that may require EPC project management services. As part of our efforts to strategically reposition the Company (see Note 1), we may change how we manage the business which could result in a change in our reporting segments in future periods. Ourthree operating divisions and ~~corporate non-operating division at June 30, 2018~~Corporate Division are discussed ~~below.~~

below:

Fabrication Division - Our Fabrication Division ~~primarily~~ fabricates ~~structures such as~~modules for petrochemical and industrial facilities, foundations for alternative energy developments and other complex structures. Our Fabrication Division also fabricates offshore drilling and production platforms and other ~~steel~~offshore structures for customers in the oil and gas 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)~~FPSOs), piles, wellhead protectors, subsea templates, and various production, compressor, and utility modules along with pressure vessels. ~~Our~~In addition, our Fabrication Division ~~also fabricates structures for alternative energy customers (such as the five jackets and piles we constructed for the first~~supports our efforts to pursue offshore wind ~~power~~opportunities and other projects that require project ~~in the United States) as well as modules for petrochemical facilities. We perform these~~management of EPC activities. These activities ~~out of~~are performed at our fabrication ~~yards~~yard in Houma, Louisiana. ~~As of the date of this Report, our Texas South Yard has been sold and our Texas North Yard is held for sale. See Note 2 for further disclosure relating to our South Texas Properties.~~

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

Services Division - Our Services Division ~~primarily~~ provides interconnect piping and related services on offshore platforms and ~~inshore~~inland structures. Interconnect piping services involve sending employee crews to offshore platforms in the GOM to perform welding and other activities required to connect production equipment, service modules and other equipment on a platform. WeOur Services Division also ~~contract~~contracts with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the southeastern ~~United States~~U.S. for various on-site construction and maintenance activities. In addition, our Services Division fabricates packaged skid units and performs various municipal and drainage projects, such as pump stations, levee reinforcement, bulkheads and other public works projects for state and local governments. ~~We perform these~~These services are performed at customer facilities or at our services yard in Houma, ~~Services Yard.~~Louisiana.

~~EPC Division -~~ Late in the fourth quarter of 2017, SeaOne selected us as the prime contractor for the engineering, procurement, construction, installation, commissioning and start-up operations for their 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. SeaOne’s selection of the Company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on the terms of the engagement with SeaOne. We created our EPC Division to manage this project and future similar projects. We understand that SeaOne is in the process of securing financing to move forward with its project. We are hopeful that the SeaOne Project will initiate planning and initial construction efforts in early 2019. We are strengthening our internal project management capabilities through the hiring of additional personnel to service this potential project.

Corporate Division - Our Corporate Division ~~primarily includes expenses~~represents costs that do not directly relate to ~~the operations or shared services provided to~~ our ~~four~~three operating divisions. ~~Expenses for shared services such as human resources, insurance, business development and accounting salaries are allocated to the operating divisions. Expenses that are not allocated~~Such costs 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. Costs incurred by our Corporate Division on behalf of our operating divisions are allocated to the operating divisions. Such costs include, but are not limited to, costs related to human resources, insurance, sales and marketing, information technology and accounting.

We generally evaluate the performance of, and allocate resources to, our operating divisions based upon revenue, gross profit (loss) and operating income (loss). Division assets are comprised of all assets attributable to each division. ~~Corporate administrative costs and overhead~~Intersegment revenues are ~~allocated to our four operating divisions for expenses that directly relate to the operations or relate to shared services as discussed above. Intersegment revenue is~~ priced at the estimated fair value of work performed. Summarized financial information ~~concerning~~for our ~~divisions~~segments as of and for the three ~~and six~~ months ended June 30, ~~2018,~~2019 and ~~2017,~~2018, is as follows (in thousands):


	Three Months Ended June 30, 2018																			Three Months Ended June 30, 2019
	Fabrication			Shipyard			Services		EPC		Corporate			Eliminations			Consolidated			Fabrication			Shipyard			Services		Corporate			Consolidated
Revenue	$	8,590		$	23,620		$	22,205	$	882	$	—		$	(1,283	)	$	54,014		$	22,415		$	37,567		$	24,065	$	(3,591	)	$	80,456
Gross profit (loss)	(1,667		)	(2,776		)	3,585		543		(384		)	—			(699		)	(677		)	(2,912		)	2,137		(146		)	(1,598		)
Operating income (loss)	(3,227		)	(3,374		)	2,823		58		(2,681		)	—			(6,401		)	(1,211		)	(3,564		)	1,728		(2,337		)	(5,384		)
Total assets ⁽¹⁾	101,498			88,305			35,197		888		30,801			—			256,689
Depreciation and amortization expense	1,047			1,051			383		—		130			—			2,611			891			1,047			363		121			2,422
Capital expenditures	—			653			98		—		69			—			820			131			712			266		—			1,109

Total assets ⁽¹⁾																				59,607			106,092			31,163		80,729			277,591


	Three Months Ended June 30, 2017																		Three Months Ended June 30, 2018
	Fabrication		Shipyard			Services			EPC	Corporate			Eliminations			Consolidated			Fabrication			Shipyard			Services		Corporate			Consolidated
Revenue	$	13,990	$	18,303		$	15,396		—	$	—		$	(1,821	)	$	45,868		$	9,472		$	23,620		$	22,205	$	(1,283	)	$	54,014
Gross profit (loss)	1,931		(13,851		)	390			—	(90		)	—			(11,620		)	(1,124		)	(2,776		)	3,585		(384		)	(699		)
Operating income (loss)	1,098		(14,834		)	(257		)	—	(2,267		)	—			(16,260		)	4,212			(3,377		)	2,835		(2,946		)	724
Total assets ⁽¹⁾	164,211		98,393			30,592			—	14,390			—			307,586
Depreciation and amortization expense	1,152		995			422			—	207			—			2,776			1,047			1,051			383		112			2,593
Capital expenditures	746		546			106			—	35			—			1,433			—			653			98		69			820

Total assets ⁽¹⁾																			98,526			81,015			33,141		44,007			256,689


	Six Months Ended June 30, 2018																				Six Months Ended June 30, 2019
	Fabrication			Shipyard			Services		EPC			Corporate			Eliminations			Consolidated			Fabrication			Shipyard			Services		Corporate			Consolidated
Revenue	$	25,860		$	42,185		$	44,075	$	955		$	—		$	(1,771	)	$	111,304		$	35,046		$	74,154		$	43,667	$	(4,806	)	$	148,061
Gross profit (loss)	(1,886		)	(3,799		)	6,199		235			(769		)	—			(20		)	(1,449		)	(3,192		)	3,878		(282		)	(1,045		)
Operating income (loss)	(4,821		)	(5,192		)	4,703		(667		)	(5,204		)	—			(11,181		)	(2,751		)	(4,468		)	3,017		(4,464		)	(8,666		)
Total assets ⁽¹⁾	101,498			88,305			35,197		888			30,801			—			256,689
Depreciation and amortization expense	2,196			2,120			776		—			268			—			5,360			1,858			2,156			737		223			4,974
Capital expenditures	—			659			163		—			69			—			891			145			734			480		—			1,359
Total assets ⁽¹⁾																					59,607			106,092			31,163		80,729			277,591


	Six Months Ended June 30, 2017																				Six Months Ended June 30, 2018
	Fabrication			Shipyard			Services			EPC		Corporate			Eliminations			Consolidated			Fabrication			Shipyard			Services		Corporate			Consolidated
Revenue	$	24,199		$	36,724		$	26,107		$	—	$	—		$	(3,170	)	$	83,860		$	26,815		$	42,185		$	44,075	$	(1,771	)	$	111,304
Gross profit (loss)	(1,034		)	(15,556		)	423			—		(351		)	—			(16,518		)	(1,651		)	(3,799		)	6,199		(769		)	(20		)
Operating loss	(2,688		)	(17,892		)	(890		)	—		(4,007		)	—			(25,477		)
Total assets ⁽¹⁾	164,211			98,393			30,592			—		14,390			—			307,586
Operating income (loss)																					1,705			(5,356		)	4,741		(5,457		)	(4,367		)
Depreciation and amortization expense	4,287			2,004			854			—		331			—			7,476			2,196			2,120			776		216			5,308
Capital expenditures	848			818			106			—		52			—			1,824			—			659			163		69			891
Total assets ⁽¹⁾																					98,526			81,015			33,141		44,007			256,689

~~_______________~~____________

~~1) Intercompany balances have been excluded.~~

~~NOTE 9 – COMMITMENTS AND CONTINGENCIES~~

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

~~MPSV Termination Letter~~

We received a notice of purported termination from a customer within our Shipyard Division related to the construction of two MPSVs. We dispute the purported termination and disagree with the customer’s reasons for same. Pending resolution of the dispute, all work has been stopped and the vessels and associated equipment and material are in our care and custody at our shipyard in Houma, Louisiana. The customer has notified our Surety of its intent to require completion of the vessel under the Surety's bond. We have notified and met with our Surety regarding our disagreement with our customer's claims. Discussion with the Surety are ongoing. The Company will continue to enforce its rights under the agreements and defend any claims asserted against the Company by its customer. Management is unable to estimate the probability of a favorable or unfavorable outcome as well as an estimate of potential loss, if any, at this time. We cannot guarantee that we will not incur additional costs as we negotiate with this customer. At June 30, 2018, our net balance sheet exposure was $12.4 million.

~~NOTE 10 – SUBSEQUENT EVENTS~~

During the first quarter of 2018, we executed a contract for the construction and delivery of one towing, salvage and rescue ship ("T-ATS") 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 thus given a notification to proceed. We were recently notified that this unsuccessful bidder has filed a subsequent protest with the Department of Justice. We have been granted a partial stay which allows us to proceed with design development, planning, scheduling and material ordering leading up to the start of construction. Actual construction of the vessel cannot begin until a final ruling is issued by the Department of Justice. We are in process of working with the U.S. Navy to re-establish a timeline under this contract.


(1)	Cash and short-term investments are reported within our Corporate Division. Total assets previously reported for 2018 have been recast to conform to our presentation for 2019.

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

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 significant trends that may impact our future performance. This discussion should be read in conjunction with our Financial Statements and the related notes thereto.

Cautionary Statement on Forward-Looking Information

This Report contains forward-looking statements in which we discuss our potential future ~~performance, primarily in~~performance. Forward-looking statements, within the ~~section entitled “Management’s Discussion and Analysis~~meaning of ~~Financial Condition and Results~~the safe harbor provisions of ~~Operations.” Forward-looking statements~~the U.S. Private Securities Litigation Reform Act of 1995, are all statements other than statements of historical 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.

We caution readers that forward-looking statements are not guarantees of future performance and actual results may differ materially from those anticipated, projected or assumed in the forward-looking statements. Important factors that can cause our actual results to differ materially from those anticipated in the forward-looking statements include the cyclical nature of the oil and gas industry, competition, consolidation of our customers, timing and award of new contracts, reliance on significant customers, financial ability and credit worthiness of our customers, nature of our contract terms, competitive pricing and cost overruns on our projects, adjustments to previously reported profits or losses under the percentage-of-completion method, weather conditions, changes in backlog estimates, suspension or 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 amend or obtain new debt financing or credit facilities on favorable terms, ability to remain in compliance with our covenants contained in our Credit Agreement, ability to generate sufficient cash flow, ability to sell certain assets, ~~advancement on the SeaOne Project,~~customer or subcontractor disputes, 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~~barriers to ~~previously reported profits under the percentage-of-completion method,~~entry into new lines of business, ability to employ skilled workers, loss of key personnel, performance of subcontractors and dependence on suppliers, changes in trade policies of the U.S. and other countries, compliance with regulatory and environmental laws, ~~ability to utilize navigation~~lack of navigability of canals ~~performance~~and rivers, shutdowns of ~~subcontractors,~~the U.S. government, systems and information technology interruption or failure and data security breaches, performance of partners in our joint ventures and other strategic alliances, and other factors described in Item ~~1A. “Risk Factors” included~~1A "Risk Factors" in our ~~2017~~2018 Annual Report as may be updated by subsequent filings with the 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

Certain terms are defined in the “Glossary of Terms” beginning on page ii.

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, ~~and~~ alternative energy ~~projects~~ and shipping and marine transportation operations. We also provide ~~related installation,~~project management, hookup, commissioning, repair, maintenance and ~~maintenance services with specialized crews and integrated project management capabilities.~~civil construction services. Our customers include United States ("U.S.") and, to a lesser extent, international energy ~~producers,~~producers; petrochemical, industrial, power, and marine ~~operators~~operators; EPC companies; and agencies of the ~~United States~~U.S. Government. We

During 2018, we operated and managed our business through four operating divisions ("Fabrication", "Shipyard", "Services" and "EPC") and one non-operating division ("Corporate"), which represented our reportable segments. During the first quarter 2019, our EPC Division was operationally combined with our Fabrication Division. Our EPC Division was previously created to support the pursuit of a specific EPC project and other projects that require project management of EPC activities. Our operational combination of the EPC Division with the Fabrication Division is the result of our reduced emphasis on EPC project management opportunities and greater focus on offshore wind and modular fabrication opportunities. As a result of the aforementioned, we now operate and manage our business through ~~four~~three operating ~~divisions:~~divisions ("Fabrication", "Shipyard" and "Services") and one non-operating division ("Corporate"), which represent our reportable segments. The segment results for the EPC Division for the three and six months ended June 30, 2018 were combined with the Fabrication ~~Shipyard, Services and EPC.~~Division to conform to the presentation of our reportable segments for the 2019 period. Our corporate headquarters is located in Houston, Texas, with ~~fabrication~~operating facilities located in Houma, Jennings and Lake Charles, Louisiana. ~~As of the date of this Report, we have sold our Texas South Yard, and our Texas North Yard is held for sale.~~

Beginning in ~~2015~~late 2014, a severe and sustained decline in oil and gas prices led to a significant decline in oil and gas industry drilling activities and capital spending from our traditional offshore customer base. As a result, our operating results and cash flows were negatively impacted as we experienced reductions in revenue, lower margins due to competitive pricing and a significant underutilization of our facilities in our Fabrication and Shipyard Divisions. In addition, during 2017 we incurred losses on a project in our Shipyard Division. As a result of these market changes and project losses, we implemented initiatives to preserve and improve our liquidity through cost reduction efforts and the ~~date~~sale of ~~this Report,~~underutilized assets. Further, to reduce our Fabrication Division's reliance on offshore oil and gas construction and our Shipyard Division's reliance on marine vessel work related to the oil and gas sector, we ~~have implemented a number of initiatives~~began to strategically reposition the Company to ~~attract new customers,~~ participate in the ~~buildup~~fabrication of petrochemical and industrial facilities, pursue offshore wind ~~markets, enter the EPC industry~~opportunities and diversify our ~~customers~~customer base within all our ~~Shipyard Division. Additionally, we initiated~~operating divisions. We have made significant progress in our efforts to ~~rebuild~~reposition the Company, increase our backlog and improve and preserve our liquidity, ~~preserve cash and lower costs~~ including ~~reducing our workforce and,~~cost reductions (including reducing the ~~cash~~ compensation paid to our directors and executive officers) and the ~~salaries~~sale of ~~our executive officers as well as developing a plan to sell certain~~ underutilized assets.

~~Sales~~Ongoing Effort to Divest of Underutilized Assets

~~In early~~South Texas Properties and Fabrication Assets Held for Sale - During the first quarter 2017, we ~~announced~~classified our ~~plan to rationalize underutilized assets including the two~~ fabrication yards and ~~related~~certain associated equipment ~~located at our~~in Ingleside, Texas ("Texas South Yard") and Aransas Pass, Texas ~~Properties.~~

~~On April 20,~~("Texas North Yard") (collectively, "South Texas Properties") as held for sale. During the second and fourth quarters of 2018, we closed on the sale of our Texas South Yard for $55 million, less selling costs of $1.5 million. We received approximately $52.7 million at closing, which was in addition to the $0.8 million of previously received earnest money. The net proceeds received rebuilt our liquidity, provided support for upcoming projects, continued investment in our EPC Division and for other general corporate purposes. See Note 2 of the Notes to Consolidated Financial Statements for further discussion of the sale of our Texas South Yard. We recognized a gain on sale during the second quarter of 2018 related to this transaction of approximately $3.9 million. Completingcompleted the sale of the Texas South Yard ~~was an important liquidity generating event~~ and ~~will facilitate the Company’s continued strategic repositioning from offshore oil and gas markets to a more diversified customer base. We continue to market our~~ Texas North Yard, respectively, which included both fabrication yards and ~~hope~~certain equipment. At June 30, 2019, our Fabrication Division continued to have $17.8 million of assets held for sale ("Fabrication AHFS") which were initially expected to be sold with the South Texas Properties. These assets consist primarily of three 660-ton crawler cranes, a ~~negotiated contract for the sale of~~deck barge, two plate bending roll machines and panel line equipment. The Fabrication AHFS were relocated to our ~~Texas North Yard~~fabrication yard in ~~the near future.~~Houma, Louisiana.

During the second quarter of 2018, we recorded an impairment of $0.6 million primarily related to a piece of equipment that we sold in July 2018. During the three months ended March 31, 2018, we recorded an impairment of $0.8 million related to a piece of equipment at our Texas North Yard that we intend to sell at auction. The impairments were calculated as management's estimated net proceeds from the sales less their net book values.

~~Hurricane Harvey and Insurance Recoveries~~

On August 25, 2017, buildings and equipment located at our South Texas Properties were damaged by Hurricane Harvey, which made landfall as a Category 4 hurricane. On June 28, 2018, we agreed to a global settlement with our insurance carriers in the amount of $15.4 million. As ofShipyard Assets Held for Sale - At June 30, ~~2018, we~~2019, our Shipyard Division had ~~received payments totaling $8.2~~$0.9 million and the remaining $7.2 million has been recorded as an insurance receivable on our Consolidated Balance Sheet as of June 30, 2018, which represents a non-cash change within our Consolidated Statement of Cash Flows related to our insurance receivable. As of the date of this Report, we have received payment for the full settlement amount.

~~In applying the settlement, we allocated the claim amounts less agreed upon deductibles to the respective groups~~ of assets ~~and reimbursement~~held for sale, which consists of ~~costs incurred included in our settlement agreement as follows:~~

~~Clean-up and repair related costs of $1.6 million, less deductibles applied of approximately $0.3 million that we have incurred since August 25, 2017 through June 30, 2018.~~

A gain on insurance recoveries of $3.6 million included within other income (expense) on our Consolidated Statement of Operations that was recorded during the second quarter of 2018 primarily related to two buildings that were declared a ~~total loss and five damaged cranes that were sold during the second quarter of 2018.~~

Insurance recoveries of $8.9 million which offset impairment of damaged assets at the Texas North Yard. Because we do not intend to repair the remaining buildings, improvements and related equipment, we recorded impairment of $8.9 million, $5.1 million of which was recorded during the three months ended March 31, 2018. Our impairment was based

~~upon our best estimate of the decline in the fair value of the property and related equipment. The insurance recovery fully offset this amount.~~2,500-ton drydock.

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

~~Petrochemical~~Pursuit of petrochemical and industrial fabrication work - ~~During~~We continue to focus our business development efforts on petrochemical and industrial fabrication opportunities in response to the ~~second quarter~~depressed offshore fabrication market. Although we have been impacted by the timing and delay of project opportunities, our volume of bidding activity for onshore modules and structures has continued to increase and is at its highest level since we commenced our initiative. Further, during 2018 we completed the fabrication and timely delivery of four large modules for a new petrochemical ~~facility. We delivered these modules on time. We continue to search for additional fabrication work~~facility in the ~~petrochemical industry to add~~U.S., providing increased confidence to our ~~current backlog.~~customers that we can successfully compete and execute in the onshore fabrication market.

Pursuit of offshore wind - We continue to believe that future requirements ~~from generators and utilities~~ to provide electricity from renewable and green sources will result in ~~continued~~ growth of offshore wind projects. WeFurther, we believe we possess the expertise and relationships to successfully participate in this growing market. During 2015, we fabricated wind turbine ~~pedestals~~foundations for the first offshore wind power project in the ~~United States in 2015,~~U.S., and ~~we believe that we possess the expertise to obtain significant future work in this sector. During the first quarter of~~during 2018, we ~~signed~~fabricated a ~~contract for the fabrication of one~~ meteorological tower and platform for ~~a customer's~~an offshore wind project located off the U.S. coast of Maryland. ~~We completed the fabrication work in the second quarter of 2018 and have included invoiced amounts in contracts receivable on~~These projects demonstrate our ~~Consolidated Balance Sheet. This project was relatively small; however, it represents our continued~~ ability to provide structures for this emerging industry. We ~~may~~are also ~~partner with other companies~~strengthening our project management capabilities to ~~take advantage of growth in this area. We have~~support potential offshore wind projects and recently executed a ~~teaming~~cooperation agreement with ~~the EEW Group~~Smulders to ~~source future~~jointly pursue U.S. offshore wind ~~projects. There~~opportunities. Smulders, a Belgian company, is a major fabrication supplier of offshore wind structures in Europe. Although we believe such a relationship will help to strategically position us in our pursuit of offshore wind projects, we can provide no ~~guarantee~~assurances that we will ~~be successful in participating in any~~successfully obtain future project awards as a result of ~~these future projects.~~this arrangement.

Diversification and Growth of our Customer Base - We are continuing to diversify our customer base within our operating divisions.

Shipyard Division - Within our Shipyard Division ~~customer base~~we have increased our backlog with customers outside of the oil and gas sector. At June 30, 2019, projects in our backlog include:


–	The construction of three towing, salvage and rescue ships for the U.S. Navy (individual project values of approximately $64.0 million), with customer options for five additional vessels;


–	The construction of three regional class research vessels (individual project values of approximately $69.0 to $77.0 million); and


–	The construction of six harbor tug vessels.

Fabrication Division - ~~- We~~Within our Fabrication Division we successfully increased our backlog with traditional and non-traditional fabrication work as we continue to ~~be successful~~pursue petrochemical and industrial fabrication opportunities for modules and structures. At June 30, 2019, projects in our ~~efforts to diversify~~backlog include:


–	The fabrication of an offshore jacket and deck (destined for Trinidad);


–	The expansion and delivery of a 245-guest paddle wheel riverboat. The riverboat will be reconfigured using the existing hull of a former gaming vessel; and


–	The construction of two, forty vehicle ferries.

These projects represent large steel structures that are well suited for our ~~capabilities within our Shipyard Division.~~fabrication yard in Houma, Louisiana.

We signed change orders on May 1, 2018, with two different customers. Each change order was for the construction of one additional harbor tug boat for approximately $13.0 million per boat. Each customer has an additional option for one more harbor tug boat. We are now constructing a total of five harbor tug boats for each customer. If the additional options are exercised, we will build a total of 12 harbor tug boats for these two customers.

On June 11, 2018, one of our customers exercised their option for a second, newbuild construction of an additional Regional Class Research Vessel ("RCRV") for $67.6 million. The first vessel was awarded in July of 2017 which included options for two additional vessels.

~~Continued growth within our~~ Services Division - ~~Generally, we believe demand for~~Within our Services Division ~~will increase in 2018 beyond the contractual backlog amount in place as of June 30, 2018. Work~~demand for services associated with offshore tie-backs, upgrades and maintenance remains ~~strong.~~strong, and we anticipate it will continue for the remainder of 2019. We will continue to pursue opportunities ~~within the offshore/inshore~~for offshore and onshore plant expansion and maintenance ~~programs as well as targeting growth of developing fields~~work and have targeted service opportunities within the shale basins in West Texas.

~~Our EPC Division~~ - As discussed in our 2017 Annual Report, we were selected as the prime contractor for the 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. SeaOne’s selection of us is non-binding and commencement of the project remains subject to a number of conditions, including agreement on terms of the engagement with SeaOne. In anticipation of this project advancing, we are enhancing our internal project management capabilities through the hiring of additional personnel to service this project. We received an additional early works purchase order from SeaOne for approximately $1.2 million. We continue to work with SeaOne on finalizing initial engineering design and project pricing. We understand that SeaOne is in the process of securing financing to move forward with its project. We are hopeful that the SeaOne Project will initiate planning and initial construction efforts in early 2019.

~~Completion of our~~ MPSV ~~contract~~Contracts Dispute - ~~As previously disclosed, on March 19,~~During the first quarter 2018, we received ~~a notice~~notices of ~~purported~~termination ~~from a customer within our Shipyard Division related to~~of the contracts for the construction of two ~~MPSVs.~~MPSVs from one of our Shipyard Division customers. We dispute the purported ~~termination~~terminations and disagree with the customer’s reasons for ~~same.~~such terminations. Pending the resolution of the dispute, we have ceased all work ~~has been stopped~~ and the partially completed vessels

and associated equipment and ~~material are in our care and custody~~materials remain at our shipyard in Houma, Louisiana. The customer ~~has~~also notified our Surety of its ~~intent to require completion~~purported terminations of the ~~vessel~~construction contracts and made claims under the ~~Surety's bond.~~bonds issued by the Surety in connection with the construction of the vessels. We have notified and met with our Surety regarding our disagreement with, ~~our~~and objection to, the customer's purported termination and its claims. Discussions with the Surety are ongoing. ~~The Company will continue~~On October 2, 2018, we filed a lawsuit against the customer to enforce ~~its~~our rights and remedies under the ~~agreements~~applicable construction contracts. Our lawsuit disputes the propriety of the customer’s purported termination of the construction contracts and ~~defend any~~seeks to recover damages associated with the customer’s actions. The customer filed its response to our lawsuit denying many of the allegations in the lawsuit and asserting a counterclaim against us seeking, among other things, declaratory judgment as to the validity of the customer’s purported terminations of the construction contracts and other purported claims ~~asserted against~~for which the ~~Company~~customer is seeking damages in an unspecified amount. We filed a response to the counterclaim denying all of the customer’s claims. The customer subsequently filed a motion with the court seeking, among other things, to obtain possession of the vessels. A hearing on that motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels was denied by ~~its customer. Management is~~the court.

We are unable to ~~estimate~~determine the probability of a favorable or unfavorable outcome ~~as well as an~~with respect to the dispute or estimate the amount of potential loss, if any, atrelated to this ~~time.~~matter. We ~~cannot guarantee~~can provide no assurances that we will not incur additional costs as we ~~negotiate with this customer.~~pursue our rights and remedies under the contracts and defend against the customer’s claims. At June 30, ~~2018,~~2019, other noncurrent assets on our Balance Sheet included a net ~~balance sheet exposure was $12.4 million.~~contract asset of $12.5 million related to these projects. See Note 5 of our Financial Statements for further discussion of our dispute.

Review of Alternative Strategies

On May 6, 2019, we announced that our Board of Directors has established a special committee to initiate a process to explore alternative strategies for the Company focusing on enhancing shareholder value. There can be no assurance that this review will result in any transaction or other strategic change or outcome for the Company.

Operating Outlook

~~Looking forward, our~~Our results of operations will be affected ~~primarily~~prospectively by the overall demand and market for our ~~services and the overall number of projects~~services. Further, our success in the market place. As discussed above, a significant portion of our historical customer base has been impacted by the continued level of exploration and development activity for oil and gas. We have implemented a number of initiatives to strategically ~~reposition~~repositioning the Company to ~~attract new customers,~~ participate in the ~~buildup~~fabrication of petrochemical and industrial facilities, pursue offshore wind ~~markets, enter the EPC industry~~opportunities and diversify our ~~customers~~customer base within ~~our Shipyard Division. The success~~all of our ~~initiatives to strategically reposition the Company and our future operations~~operating divisions, will be determined ~~by:~~by, among other things:

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

~~Our successful execution of an agreement with SeaOne~~wind developments, and ~~the~~our ability ~~of SeaOne~~ to ~~obtain financing;~~

secure new project awards;

Continued growth within our Shipyard and Services ~~divisions;~~

Divisions;

Our ability to ~~win contracts~~secure new project awards through competitive bidding and/or ~~alliance/~~alliance and partnering arrangements;

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

Our ability to resolve aour dispute ~~over purported~~with ~~a Shipyard~~our customer related to the construction of two MPSVs.

We continue to respond to the competitive ~~forces~~environment within our industry and ~~continue to~~ actively compete for additional ~~bidding~~ opportunities. WeOur focus remains on our liquidity and securing meaningful new project awards and backlog in the near-term, and generating operating income and cash flows from operations in the longer-term. Operating results for our Services Division have been strong and we have increased our backlog within our Shipyard Division. Although we experienced a decline in backlog for our Fabrication Division during the second quarter 2019, we believe ~~that~~ we will be successful ~~in obtaining~~securing new ~~additional backlog~~project awards ~~in 2018~~ and 2019; 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. While we have been successful in obtaining newgrowing our backlog in ~~recent months, primarily~~the future. We anticipate that our Fabrication Division will be negatively impacted in the near-term by the underutilization of its facilities due to the delay in timing of new project awards, and our Shipyard Division will be negatively impacted by the underutilization of its facilities (although to a lesser extent) prior to the ramp up of construction activities for our large projects in backlog. Both divisions will also be impacted by lower margin backlog related to project awards bid at competitive pricing. In addition, our harbor tug projects within our Shipyard Division are in a loss position and ~~Services Divisions, these backlog awards were received during a period of competitive pricing~~the projects will result in future revenue with ~~lower than desired margins. Additionally, revenue from these awards will not be realized until later in 2018 and beyond.~~no gross profit.

Safety

We ~~operate in an environment that exposes our employees to risk of injury, and we~~ are committed to ~~safety.~~the safety and health of our employees and subcontractors. We believe that a strong safety culture is a ~~key metric for~~critical element of our success. ~~Poor~~We continue to improve and maintain a stringent safety ~~performance increases~~assurance program designed to ensure the safety of our ~~costs, results~~employees and allow us to remain in ~~construction delays~~compliance with all applicable federal and ~~limits~~state mandated safety regulations. We are committed to maintaining a well-trained workforce and providing timely instruction to ensure our ~~ability~~employees have the knowledge and skills to ~~compete~~perform their work safely while maintaining the highest standards of quality. We provide continuous safety education and training to employees and subcontractors to ensure they are ready for ~~project awards within~~the challenges inherent in all our ~~market. Safety performance measures are incorporated into~~projects. Our employees commence training on their first day of employment with a comprehensive orientation class that addresses Company policies and procedures and provides clear expectations for working safely. We have a zero-tolerance policy for drugs and alcohol use in the workplace. We support this policy through the use of a comprehensive drug and alcohol screening program that includes initial screenings for all employees and periodic random screenings throughout employment. Additionally, we require our ~~annual incentive compensation measures for our executives~~subcontractors to follow alcohol and ~~senior management.~~drug screening policies substantially the same as ours.

Critical Accounting Policies

Our Financial Statements are prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP") which require us to make estimates and ~~Estimates~~

judgments that affect the reported amounts of assets, liabilities, revenue and expenses and related disclosure of contingent assets and liabilities. We continually evaluate our estimates and judgments based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. We also discuss the development and selection of our critical accounting policies with the Audit Committee of our Board of Directors. 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~~“Management’s Discussion

and Analysis of Financial Condition and Results of Operations” in Item 7 included in our ~~2017~~2018 Annual Report. There have been no changes ~~in our evaluation of~~to our critical accounting policies since December 31, ~~2017.~~2018.

New Awards and Backlog

~~We believe that backlog,~~New project awards represent expected revenue values of commitments received during a ~~non-GAAP financial measure, provides useful information~~given period, including scope growth on existing commitments. A commitment represents authorization from our customer to investors. Backlog differs from the GAAP requirement to disclose future performance obligations required under fixed-price contracts as required under Topic 606 of the ASC. See Note 3 of the Notes to Consolidated Financial Statements for further discussion of Topic 606. Backlog includes futurebegin work ~~secured subsequent to the balance sheet date~~or purchase materials pursuant to ~~letters~~a written agreement, letter of intent or other ~~forms~~form of ~~authorization~~authorization. Backlog represents the unearned value of our new project awards and may differ from the value of remaining performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note 2 of our Financial Statements. In general, a performance obligation is a contractual obligation to construct and/or transfer a distinct good or service to a customer. The transaction price of a contract is allocated to each distinct performance obligation and recognized as ~~well~~revenue when, or as, the performance obligation is satisfied. Backlog includes our performance obligations at June 30, 2019, 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 ~~(the most comparable GAAP measure); however, represents~~but represent future work that ~~management believes is probable of being~~we believe will be performed.

~~Our~~ We believe that backlog, isa non-GAAP financial measure, provides useful information to investors. New project awards and backlog may vary significantly each reporting period based on ~~management’s estimate~~the timing of the direct labor hours required to complete, and the remaining revenue to be recognized with respect to those projects for which a customer has authorized us to begin work or purchase materials pursuant to written contracts, letters of intent or other forms of authorization. As engineering and design plans are finalized or changes to existing plans are made, management’s estimate of the direct labor hours required to complete a project and the price of a project at completion is likely to change.our major new contract commitments.

~~All projects currently included~~

Projects in our backlog are generally subject to delay, suspension, termination, or aan increase or 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. We exclude suspended projects from contract backlog when they are expected to be suspended more than 12 months because resumption of work and timing of revenue recognition for these projects are difficult to predict. Depending on the size of the project, the delay, suspension, termination ~~postponement,~~or increase or reduction in scope of any one ~~project~~contract could significantly ~~reduce~~impact our backlog and ~~could have a material adverse effect on future~~change the expected amount and timing of revenue ~~net income (loss) and cash flow.~~ recognized.

A reconciliation of ~~future revenue~~our remaining performance obligations under Topic 606 ~~of the ASC~~ (the most comparable GAAP measure as ~~included~~presented in Note 32 of ~~the Notes to Consolidated~~our Financial Statements) to our reported backlog is provided below (in thousands).

June 30, 2018
Fabrication Shipyard Services EPC Eliminations Consolidated
Future performance obligations required under fixed-price contracts under Topic 606 of ASC $ 1,871
$ 295,506
$ 7,607
$ 1,618
$ (193 ) $ 306,409
Contracts signed subsequent to June 30, 2018 —
—
9,788
1,200
—
10,988
Signed contracts under purported termination ⁽¹⁾
—
30,157
—
—
—
30,157
Backlog $ 1,871
$ 325,663
$ 17,394
$ 2,818
$ (193 ) $ 347,553



	June 30, 2019
	Fabrication		Shipyard		Services		Consolidated
Remaining performance obligations under Topic 606	$	53,496	$	388,239	$	12,787	$	454,522
Contracts under purported termination ⁽¹⁾	—		21,888		—		21,888
Total Backlog ⁽²⁾	$	53,496	$	410,127	$	12,787	$	476,410

Backlog by Division at June 30, 2019 and December 31, 2018, is as follows (in thousands):



	June 30, 2019			December 31, 2018
Division	Amount		Labor hours	Amount		Labor hours
Fabrication	$	53,496	308	$	63,883	369
Shipyard	410,127		2,326	281,531		1,684
Services	12,787		205	11,046		171
Total Backlog ⁽²⁾	$	476,410	2,839	$	356,460	2,224

Backlog at June 30, 2019 is expected to be recognized as revenue in the following periods (in thousands, except for percentages):



Year ⁽³⁾	Total		Percentage
Remainder of 2019	$	146,150	30.7%
2020	205,651		43.2%
2021	96,481		20.3%
Thereafter	6,240		1.2%
Future performance obligations under Topic 606	454,522		95.4%
Contracts under purported termination ⁽¹⁾	21,888		4.6%
Total Backlog	$	476,410	100.0%

___________

(1)

Includes backlog ~~for a customer for which we have received a notice of purported termination~~ within our Shipyard Division related to contracts for the construction of two ~~MPSVs.~~MPSVs that are subject to a purported notice of termination by our customer. We dispute the purported termination and disagree with the customer’s reasons for the same. We ~~cannot guarantee~~can provide no assurances that we will ~~be able to favorably negotiate~~reach a favorable resolution with the customer for completion of the ~~MPSVs with this customer.~~two MPSVs. See Note 95 of our Financial Statements for further discussion of the ~~Notes to Consolidated Financial Statements.~~dispute.

~~Our backlog at June 30, 2018, as compared to December 31, 2017, consisted of the following (in thousands, except for percentages):~~

June 30, 2018
December 31, 2017
Division $'s Labor hours $'s Labor hours
Fabrication $ 1,871
12
$ 15,771
150
Shipyard 325,663
1,784
184,035
1,104
Services 17,394
83
23,181
290
EPC 2,818
—
—
—
Intersegment eliminations (193 ) —
(370 ) —
Total backlog $ 347,553
1,879
$ 222,617
1,544

June 30, 2018
December 31, 2017
Number Percentage Number Percentage
Major customers ⁽¹⁾
four 77.8% four 73.0%

Backlog is expected to be recognized in revenue during:⁽²⁾
$'s Percentage
2018 $ 97,366
28.0%
2019 170,987
49.2%
2020 69,890
20.1%
2021 8,645
2.5%
2022 665
0.2%
Total $ 347,553
100.0%

~~___________~~


~~(1)~~(2)	At June 30, 2019, seven customers represented approximately 92% of our backlog, and at December 31, 2018, ~~projects for~~seven customers represented approximately 90% of our ~~four largest~~backlog. At June 30, 2019, backlog from the seven customers ~~in terms of revenue backlog~~ consisted of:


(i)	~~newbuild construction~~Construction of three harbor tugs within our Shipyard Division. The second of five ~~harbor tugs for one customer (to be~~vessels was completed in ~~2018 through 2020);~~the second quarter 2019. We estimate completion of the remaining vessels in 2019 and 2020;


(ii)	~~newbuild construction~~Construction of three harbor tugs within our Shipyard Division (separate from above). The second of five ~~harbor tugs for one customer (separate from above) (to be~~vessels was completed in ~~2018 through 2020);~~the second quarter 2019. We estimate completion of the remaining vessels in 2019 and 2020;


(iii)	~~newbuild construction~~Construction of ~~two offshore marine~~three regional class research vessels ~~(to be completed~~within our Shipyard Division. We estimate completion of the vessels in ~~2020~~2021 and ~~2022); and~~2022;

(iv)

~~newbuild~~Construction of three towing, salvage and rescue ships within our Shipyard Division. We estimate completion of the vessels in 2021 and 2022. Our customer has options for the construction of one T-ATS vessel (to be completed in 2021). This contract was 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 thus given a notification to proceed. We were recently notified that this unsuccessful bidder has filed a subsequent protest with the Department of Justice. We have been granted a partial stay which allows us to proceed with design development, planning, scheduling and material ordering leading up to the start of construction. five additional vessels;


~~(2)~~(v)	Expansion of a 245-guest paddle wheel riverboat within our Fabrication Division. We estimate completion of the vessel in 2020;


(vi)	Construction of two, forty-vehicle ferries within our Fabrication Division. We estimate completion of the vessels in 2020; and


(vii)	Construction of two MPSV's within our Shipyard Division. See footnote 1 above for further discussion.


(3)	The timing of recognition of the revenue ~~represented~~presented 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.

~~Certain~~Our contracts for the construction of ~~our contracts~~three towing, salvage and rescue ships contain options which grant our customer the right, ~~to our customer,~~ if exercised, for the construction of additional vessels at contracted prices. We do not include options in our ~~backlog above.~~backlog. If all options under our current contracts were exercised by our customer, our backlog would increase by ~~$562.7~~approximately $333.0 million. We have not received any additional commitments from our customer related to the exercise of these options, and we can provide no assurances that any further options will be exercised. We believe disclosing these options provides investors with useful information ~~in order~~ 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 related to the exercise of these options from our customers, and we can provide no assurance that any or all of these options will be exercised.~~

As ~~we add~~our backlog increases, we will 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~~ projects. This may negatively impact near-term results.

~~Workforce~~

As of June 30, 2018, we had 847 employees compared to 977 employees as of December 31, 2017. Labor hours worked were 947,000 during the six months ended June 30, 2018, compared to 1 million for the six months ended June 30, 2017. The decrease in our labor hours worked is primarily within our Fabrication Division due to completion of complex modules for the construction of a new petrochemical plant with no immediate replacement Fabrication backlog as well as the suspension of construction of the two MPSVs within our Shipyard Division pending resolution of our dispute over termination with our MPSV customer. This was partially offset by improved demand within our Services Division. See Note 9 of the Notes to Consolidated Financial Statements related to our MPSV contract termination dispute.

Results of Operations

Comparison of Three Months Ended June 30, 2019 and 2018 ~~Compared to Three Months Ended June 30, 2017~~ (in thousands, except for percentages):

In the comparative tables below, percentage changes that are not considered meaningful (generally when the prior period amount is immaterial or when the percentage change is significantly greater than 100%) are shown below as "nm" (not meaningful).

Consolidated

Three Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ 54,014
$ 45,868
$ 8,146
17.8%
Cost of revenue 54,713
57,488
(2,775 ) (4.8)%
Gross loss (699 ) (11,620 ) 10,921
94.0%
Gross loss percentage (1.3 )% (25.3 )%
General and administrative expenses 5,092
4,640
452
9.7%
Asset impairment 610
—
610
100.0%
Operating loss (6,401 ) (16,260 ) 9,859
60.6%
Other income (expense):
Interest expense, net (92 ) (146 ) 54
37.0%
Other income (expense), net 7,125
(266 ) 7,391
2,778.6%
Total other income (expense) 7,033
(412 ) 7,445
1,807.0%
Net income (loss) before income taxes 632
(16,672 ) 17,304
103.8%
Income tax expense (benefit) 83
(5,749 ) 5,832
101.4%
Net income (loss) $ 549
$ (10,923 ) $ 11,472
105.0%



	Three Months Ended June 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	80,456		$	54,014		$	26,442		49.0%
Cost of revenue	82,054			54,713			(27,341		)	(50.0)%
Gross loss	(1,598		)	(699		)	(899		)	(128.6)%
Gross loss percentage	(2.0		)%	(1.3		)%
General and administrative expense	3,987			5,092			1,105			21.7%
Asset impairments and (gain) loss on assets held for sale, net	—			(6,579		)	(6,579		)	(100.0)%
Other (income) expense, net	(201		)	64			265			nm
Operating income (loss)	(5,384		)	724			(6,108		)	nm
Interest income (expense), net	126			(92		)	218			nm
Net income (loss) before income taxes	(5,258		)	632			(5,890		)	nm
Income tax (expense) benefit	10			(83		)	93			nm
Net income (loss)	$	(5,248	)	$	549		$	(5,797	)	nm

Revenue - ~~Our revenue~~Revenue for ~~the three months ended June 30,~~2019 and 2018 ~~and 2017,~~ was ~~$54.0~~$80.5 million and ~~$45.9~~$54.0 million, respectively, representing an increase of ~~17.8%~~49.0%. The increase iswas primarily ~~attributable to:~~due to the net impact of:

~~An increase of $6.8 million within our Services Division from additional demand~~Increased revenue for ~~offshore oil and gas service related projects; and~~

~~An increase of $5.3 million within~~ our Shipyard Division ~~related~~of $13.9 million, primarily due to ~~the newbuild construction of ten~~progress on our first two regional class research vessel projects and our first towing, salvage and rescue ship project, offset partially by lower revenue for our harbor tug ~~vessels~~projects and the prior period including revenue on an ~~offshore marine research vessel~~OSV project that was completed during 2018;

Increased revenue for our Fabrication Division of $12.9 million, primarily due to progress on our paddle wheel riverboat project and several smaller fabrication projects, which were not under construction in the prior period, offset partially by the prior period including revenue associated with the fabrication of modules for a petrochemical facility that was completed during the second quarter 2018; and

Increased revenue for our Services Division of ~~2017 and $10.2~~$1.9 million, in contract losses recorded during the three months ended June 30, 2017, which reduced our measurement of revenue progress under percentage of completion accounting for the second quarter of 2017. Additionally, we re-commenced newbuild construction for the second of two OSV's during the fourth quarter of 2017 which was in process in the second quarter of 2018 but was suspended during the second quarter of 2017.

~~The increase in revenue was partially offset by a decrease of $5.4 million of revenue within our Fabrication Division~~ primarily ~~attributable~~due to the ~~completion~~timing of ~~four modules for a petrochemical plant in April 2018.~~new project awards.

Gross loss - ~~Our~~Gross loss for 2019 and 2018 was $1.6 million (2.0% of revenue) and $0.7 million (1.3% of revenue), respectively. The gross loss for ~~the three months ended June 30, 2018, was $0.7 million compared to a gross loss of $11.6 million for the three months ended June 30, 2017. The improvement~~2019 was primarily due ~~to increased revenue~~to:

Under recovery of overhead costs (primarily associated with the underutilization of our facilities within our Fabrication Division, and to a lesser extent within our Shipyard and Services ~~Division as discussed above~~Divisions);

Holding costs of $0.6 million related to the two MPSV vessels which remain in our possession and ~~a lower~~are subject to dispute (See Note 5 of our Financial Statements for further discussion of our MPSV dispute);

Charge of $1.4 million related to forecast cost increases on our harbor tug projects (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects); and

Charge of $0.9 million related to forecast costs increases on our ice-breaker tug project (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project).

The increase in gross loss ~~from~~for 2019 relative to the prior period was primarily due to:

The aforementioned project charges of $2.3 million for 2019; and

A lower margin project mix for our Fabrication and Services Divisions; offset partially by,

Higher revenue and increased recoveries of overhead costs due to higher activity; and

A higher margin project mix for our Shipyard Division ~~related to $10.2 million in contract losses recorded during~~(excluding the three months ended June 30, 2017, reflecting cost overruns and re-work identified on two contracts relating to the construction of two MPSVs with no comparable adjustments to contract losses in the second quarter of 2018. Additionally, we decreased expenses within our Fabrication Division.aforementioned projects).

General and administrative ~~expenses~~expense - ~~Our general~~General and administrative ~~expenses were~~expense for 2019 and 2018 was $4.0 million (5.0% of revenue) and $5.1 million ~~for the three months ended June 30, 2018, compared to $4.6 million for the three months ended June 30, 2017.~~(9.4% of revenue), respectively, representing a decrease of 21.7%. The ~~increase in general and administrative expenses for the three months ended June 30, 2018,~~decrease was primarily ~~attributable~~due to:

~~Build-up~~Lower incentive plan costs, board of ~~additional personnel for our newly created EPC Division in anticipation of the SeaOne Project;~~

~~Increased~~director compensation costs, and legal and advisory fees related to customer disputes; offset partially by,

Higher professional fees and other costs associated with the evaluation of strategic alternatives and initiatives to diversify and enhance our business.

The customer disputes ~~strategic planning~~relate primarily to the pursuit of claims against a customer for disputed change orders for a completed project, and ~~diversification of~~ our ~~business;~~MPSV projects which are subject to a purported termination and

~~Increased employee incentives accruals~~ for which construction has been suspended. Legal and advisory fees related to ~~our safety incentive program~~such disputes totaled $0.4 million and ~~higher employee profitability incentives within our Services Division.~~

~~This was partially offset by cost reductions~~$0.7 million for 2019 and ~~continued cost minimization efforts implemented by management for the second quarter of 2017.~~2018, respectively.

~~Interest expense,~~Asset impairments and (gain) loss on assets held for sale, net - ~~- Interest expense,~~Asset impairments and (gain) loss on assets held for sale, net ~~decreased~~for 2018 was a gain of $6.6 million. The gain for 2018 was primarily due to ~~fewer letters of credit issued under our Credit Agreement for~~ the three months ended June 30, 2018, compared to the three months ended June 30, 2017, as well as increased interest income from investments in cash equivalents and held-to-maturity, short-term investments during the three months ended June 30, 2018.net impact of:

~~Other income (expense)~~ ~~- Other income, net was $7.1~~A gain of $3.9 million for the three months ended June 30, 2018, compared to other expense, net of $0.3 million for the three months ended June 30, 2017. Other income, net for the three months ended June 30, 2018 is primarily due to a gain onfrom the sale of our Texas South ~~Yard~~Yard; and

A gain of ~~$3.9~~$3.6 million ~~and a gain on~~from the settlement of our insurance ~~recovery proceeds~~claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017; offset partially by,

Impairments of ~~$3.6 million.~~$0.6 million related to assets held for sale.

See Note 3 of our Financial Statements for further discussion of our assets held for sale.

Other (income) expense, net - Other (income) expense, net for 2019 and 2018 was income of $0.2 million and expense of $0.1 million, respectively. Other (income) expense, net generally represents (recoveries) provisions for bad debts, (gains) losses associated with the sale or disposition of property and equipment other than assets held for sale, and (income) expense associated with certain nonrecurring items. The income for 2019 and expense for 2018 was primarily due to net gains and net losses, respectively, on the sales of equipment.

Interest income (expense), net - Interest income (expense), net for 2019 and 2018, was income of $0.1 million and expense of $0.1 million, respectively. The net interest income for 2019 was primarily due to interest earned on our cash and short-term investment balances, offset partially by interest amortization associated with our long-term lease liability. The net interest expense for 2018 was primarily due to borrowings under our Credit Agreement during 2018.

Income tax ~~expense (benefit)~~(expense) benefit - ~~Our effective income~~Income tax ~~rate~~(expense) benefit for ~~the three months ended June 30,~~2019 and 2018 was a benefit of $10,000 and expense of ~~13.1%, compared to an effective~~$0.1 million, respectively. Income tax ~~rate~~(expense) benefit ~~of 34.5% for the comparable period during 2017. Current expense~~ represents state income taxes. No federal tax ~~within our Services Division. The decrease in the effective tax rate is the result of~~benefit was recorded for losses during 2019 or 2018 as a full valuation allowance was recorded against our deferred tax ~~assets. See Note 1 of~~assets generated during the ~~Notes to Consolidated Financial Statements regarding our NOLs and deferred tax assets.~~periods.

Operating Segments

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

Fabrication Division⁽¹⁾

Fabrication Three Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ 8,590
$ 13,990
$ (5,400 ) (38.6)%
Gross profit (loss) (1,667 ) 1,931
(3,598 ) (186.3)%
Gross profit (loss) percentage (19.4 )% 13.8 %
General and administrative expenses 951
833
118
14.2%
Asset impairment 610
—
610
100.0%
Operating income (loss) (3,227 ) 1,098
(4,325 )

~~Revenue -~~ Revenue from our Fabrication Division decreased $5.4 million for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. The decrease is attributable to the completion and delivery of four modules for a petrochemical plant during April 2018 with very little immediate replacement backlog started as a result of the temporary impacts from previously depressed oil and gas prices.

~~Gross profit (loss) -~~ Gross loss from our Fabrication Division for the three months ended June 30, 2018, was $1.7 million compared to a gross profit of $1.9 million for the three months ended June 30, 2017. The gross loss was due to decreased revenue with minimal new fabrication work started during the second quarter of 2018 as discussed above.

~~General and administrative expenses~~ - General and administrative expenses for our Fabrication Division increased $0.1 million for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. The increase is primarily due to an increase in legal expense of $0.4 million for our pursuit of claims against a customer related to disputed change orders for a large deepwater project we delivered to our customer in November 2015 partially offset by decreases in salaries and employee incentives of $0.2 million due to employee reductions and decreases in corporate allocations of $0.1 million as a portion of these are now allocated to our EPC Division.

~~Asset impairment~~ - We recorded an impairment of $0.6 million during the three months ended June 30, 2018, primarily related to a piece of equipment at our Texas North Yard. The impairment was calculated as management's estimated net proceeds from the sale less its net book value. See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding our assets held for sale. We did not record any asset impairments during the three months ended June 30, 2017, within our Fabrication Division.


Shipyard	Three Months Ended June 30,						Increase or (Decrease)
											Three Months Ended June 30,						Favorable (Unfavorable) Change
	2018			2017			Amount			Percent	2019			2018			Amount			Percent
Revenue ⁽¹⁾	$	23,620		$	18,303		$	5,317		29.0%	$	22,415		$	9,472		$	12,943		136.6%
Gross loss ⁽¹⁾	(2,776		)	(13,851		)	11,075			80.0%	(677		)	(1,124		)	447			39.8%
Gross loss percentage	(11.8		)%	(75.7		)%					(3.0		)%	(11.9		)%
General and administrative expenses	597			983			(386		)	(39.3)%
Operating loss ⁽¹⁾	(3,374		)	(14,834		)	11,460
General and administrative expense											742			1,436			694			48.3%
Asset impairments and (gain) loss on assets held for sale, net											—			(6,579		)	(6,579		)	(100.0)%
Other (income) expense, net											(208		)	(193		)	15			7.8%
Operating income (loss)											(1,211		)	4,212			(5,423		)	(128.8)%

___________

(1)

~~Revenue~~During the first quarter 2019, our former EPC Division was operationally combined with our Fabrication Division. Accordingly, results for our former EPC Division for the ~~three months ended June 30,~~ 2018 ~~and 2017, includes $0.1 million and $0.3 million of non-cash amortization of deferred revenue related~~period have been combined with the Fabrication Division to conform to the ~~values assigned to~~presentation of our reportable segments for the ~~contracts acquired in the LEEVAC transaction, respectively.~~2019 period. See Note 7 of our Financial Statements for further discussion of our realigned operating divisions and related financial information.

Revenue - Revenue ~~from~~for 2019 and 2018 was $22.4 million and $9.5 million, respectively, representing an increase of 136.6%. The increase was primarily due to:

Progress on our Shipyard Division increased $5.3 million for the three months ended June 30, 2018, compared to the three months ended June 30, 2017. During the second quarter of 2018, we were able to make progress on the construction of ten harbor tug vesselspaddle wheel riverboat project and ~~an offshore marine research vessel~~several smaller fabrication projects, which were not under construction in the prior period; offset partially by,

The prior period including revenue associated with the fabrication of modules for a petrochemical facility that was completed during the second quarter of 2017. During the three months ended June 30, 2017, we also recorded $10.2 million in contract losses which reduced our measure of revenue progress under percentage of completion accounting. Additionally, we re-commenced newbuild construction for the second of two OSV's during the fourth quarter of 2017, which was suspended during the second quarter of 2017. This was partially offset by lower revenue from construction of our two MPSV contracts that were under construction during 2017, but suspended during the first quarter of 2018. ~~See also Note 9 of the Notes to Consolidated Financial Statements for additional information relating to the suspension of construction of two MPSVs.~~

Gross loss - Gross loss ~~from our Shipyard Division~~for 2019 and 2018 was ~~$2.8~~$0.7 million ~~for the three months ended June 30, 2018, compared to a gross loss~~(3.0% of ~~$13.9~~revenue) and $1.1 million ~~for the three months ended June 30, 2017.~~(11.9% of revenue), respectively. The gross loss for 2019 was primarily due to the ~~three months ended June 30,~~under recovery of overhead costs. The decrease in gross loss for 2019 relative to the prior period was primarily due to higher revenue and increased recoveries of overhead costs due to higher activity, offset partially by a lower margin project mix.

General and administrative expense - General and administrative expense for 2019 and 2018 was $0.7 million (3.3% of revenue) and $1.4 million (15.2% of revenue), respectively, representing a decrease of 48.3%. The decrease was primarily due to lower costs associated with our former EPC Division and lower legal and advisory fees related to a customer dispute as the costs are reflected within the Corporate Division in 2019.

Asset impairments and (gain) loss on assets held for sale, net - Asset impairments and (gain) loss on assets held for sale, net for 2018 was a gain of $6.6 million. The gain for 2018 was primarily ~~attributable~~due to ~~underutilization~~the net impact of:

A gain of $3.9 million from the sale of our ~~Houma~~Texas South Yard; and ~~Lake Charles shipyards~~

A gain of $3.6 million from the settlement of our insurance claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017; offset partially by,

Impairments of $0.6 million related to assets held for sale.

Other (income) expense, net - Other (income) expense, net for the 2019 and ~~competitive pricing~~2018 was income of $0.2 million and $0.2 million, respectively, primarily due to net gains on ~~current work.~~the sales of equipment.

Shipyard



	Three Months Ended June 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	37,567		$	23,620		$	13,947		59.0%
Gross loss	(2,912		)	(2,776		)	(136		)	(4.9)%
Gross loss percentage	(7.8		)%	(11.8		)%
General and administrative expense	590			597			7			1.2%
Other (income) expense, net	62			4			(58		)	nm
Operating loss	(3,564		)	(3,377		)	(187		)	(5.5)%

Revenue - Revenue for 2019 and 2018 was $37.6 million and $23.6 million, respectively, representing an increase of 59.0%. The ~~improvement in gross loss of $11.1 million~~increase was primarily due to:

~~$10.2~~Progress on our first two regional class research vessel projects and our first towing, salvage and rescue ship project; offset partially by,

Lower revenue for our harbor tug projects and the prior period including revenue on an OSV project that was completed during 2018.

Gross loss - Gross loss for 2019 and 2018 was $2.9 million ~~in contract losses recorded during the three months ended June 30, 2017,~~(7.8% of revenue) and $2.8 million (11.8% of revenue), respectively. The gross loss for 2019 was primarily due to:

Under recovery of overhead costs;

Holding costs of $0.6 million related to ~~cost overruns and re-work identified on~~ the two ~~contracts relating~~MPSV vessels which remain in our possession and are subject to dispute (See Note 5 of our Financial Statements for further discussion of our MPSV dispute);

Charge of $1.4 million related to forecast cost increases on our harbor tug projects (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects); and

Charge of $0.9 million related to forecast costs increases on our ice-breaker tug project (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project).

The increase in gross loss for 2019 relative to the ~~construction~~prior period was primarily due to:

Higher holding costs of ~~two MPSVs;~~

~~holding and closing costs during the three months ended June 30, 2017,~~$0.2 million for 2019 related to ~~our former Prospect shipyard. We terminated~~ the ~~lease of this facility effective December 31, 2017;~~two MPSV projects; and

~~holding~~The aforementioned project charges of $2.3 million for 2019; offset partially by,

Higher revenue and increased recoveries of overhead costs ~~during~~due to higher activity; and

A higher margin project mix (excluding the three months ended June 30, 2017 related to a completed OSV that was delivered on February 6, 2017, but refused by our customer as well as the suspension of work on the second OSV vessel. We resolved our disputes with our OSV customer during the fourth quarter of 2017 and construction of the second OSV re-commenced. We subsequently delivered the second OSV on July 31, 2018.aforementioned projects).

General and administrative ~~expenses~~expense - General and administrative ~~expenses~~expense for ~~our Shipyard Division decreased $0.4 for the three months ended June 30,~~2019 and 2018 ~~compared to the three months ended June 30, 2017,~~was $0.6 million (1.6% of revenue) and $0.6 million (2.5% of revenue), respectively, representing a decrease of 1.2%. The decrease was primarily due to ~~reductions in salaries~~lower legal and ~~employee incentives of $0.4 million~~advisory fees related to ~~reductions~~a customer dispute as the costs are reflected within the Corporate Division in ~~our workforce period over period and decreases in corporate allocations of $0.1 million as a portion of these are now allocated to our EPC Division. This was partially~~2019, offset by increases in legal expense related to our customer dispute relating to the suspension of construction of two MPSVs. See also Note 9 of the Notes to Consolidated Financial Statements for additional information relating to the suspension of construction of two MPSVs.higher incentive plan costs.

Other (income) expense, net - Other (income) expense, net for 2019 was expense of $0.1 million.

Services


Services	Three Months Ended June 30,						Increase or (Decrease)
										Three Months Ended June 30,						Favorable (Unfavorable) Change
	2018			2017			Amount		Percent	2019			2018			Amount			Percent
Revenue	$	22,205		$	15,396		$	6,809	44.2%	$	24,065		$	22,205		$	1,860		8.4%
Gross profit	3,585			390			3,195		819.2%	2,137			3,585			(1,448		)	(40.4)%
Gross profit percentage	16.1		%	2.5		%				8.9		%	16.1		%
General and administrative expenses	762			647			115		17.8%
Operating income (loss)	2,823			(257		)	3,080
General and administrative expense										464			762			298			39.1%
Other (income) expense, net										(55		)	(12		)	43			nm
Operating income										1,728			2,835			(1,107		)	(39.0)%

Revenue - Revenue ~~from our Services Division increased $6.8~~for 2019 and 2018 was $24.1 million ~~for the three months ended June 30, 2018, compared~~and $22.2 million, respectively, representing an increase of 8.4%. The increase was primarily due to the ~~three months ended June 30, 2017, due to an overall increase in work resulting from increases in customer demand for offshore oil~~timing of new project awards and ~~gas related service projects.~~

~~Gross profit -~~ Gross profit from our Services Division increased $3.2 million for the three months ended June 30, 2018, compared to the three months ended June 30, 2017, due to increased revenue discussed above. Our gross profitmaterials representing a greater percentage ~~increased from 2.5% during the period for 2017 to 16.1% for 2018. The increase in gross profit percentage was due to a higher recovery~~ of ~~fixed costs with increased work.~~

~~General and administrative expenses~~ - General and administrative expenses for our Services Division increased $0.1 for the three months ended June 30, 2018, compared to the three months ended June 30, 2017, due to support of increased work as well as increases in employee incentive compensation with allocation of corporate expenses remaining comparable period over period.

EPC Three Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ 882
$ —
$ 882
100.0%
Gross profit 543
—
543
100.0%
Gross profit percentage 61.6 % n/a

General and administrative expenses 485
—
485
100.0%
Operating income 58
—
58

~~Revenue -~~ Our EPC Division did not exist at June 30, 2017. Revenue for the three months ended June 30, 2018 consists of early work and engineering studies authorized by SeaOne. See Note 8 of the Notes to Consolidated Financial Statements for further discussion of our EPC Division and the SeaOne Project.revenue.

Gross profit - Gross profit for 2019 and 2018 was $2.1 million (8.9% of revenue) and $3.6 million (16.1% of revenue), respectively. Gross profit for 2019 was impacted by the ~~three months ended June 30, 2018, consists~~under recovery of ~~early work~~overhead costs. The decrease in gross profit for 2019 relative to the prior period was primarily due to a lower margin project mix (due in part to materials representing a greater percentage of revenue) and ~~engineering studies authorized by SeaOne.~~reduced recoveries of overhead costs.

General and administrative ~~expenses~~expense - General and administrative ~~expenses~~expense for ~~our EPC Division include the addition~~2019 and 2018 was $0.5 million (1.9% of ~~personnel~~revenue) and ~~allocations~~$0.8 million (3.4% of ~~corporate expenses as we invest in this new line~~revenue), respectively, representing a decrease of ~~business.~~39.1%. The decrease was primarily due to lower incentive plan costs and other cost reductions.

Corporate


Corporate	Three Months Ended June 30,						Increase or (Decrease)
	2018			2017			Amount			Percent	Three Months Ended June 30,						Favorable (Unfavorable) Change
Revenue	$	—		$	—		$	—
											2019			2018			Amount			Percent
Revenue (eliminations)											$	(3,591	)	$	(1,283	)	$	(2,308	)	nm
Gross loss	(384		)	(90		)	(294		)	(326.7)%	(146		)	(384		)	238			62.0%
Gross loss percentage	n/a			n/a							n/a			n/a
General and administrative expenses	2,297			2,177			120			5.5%
General and administrative expense											2,191			2,297			106			4.6%
Other (income) expense, net											—			265			265			100.0%
Operating loss	(2,681		)	(2,267		)	(414		)		(2,337		)	(2,946		)	609			20.7%

Gross loss - Gross loss ~~from our Corporate Division increased~~for 2019 and 2018 was $0.1 million and $0.4 million, respectively. The decrease was primarily due to lower ~~allocation of expenses and build-up of personnel~~costs related to ~~support~~supporting our former EPC Division.

General and administrative ~~expenses~~expense - General and administrative ~~expenses~~expense for ~~our Corporate Division increased primarily due to increased legal~~2019 and ~~advisory fees related to customer disputes, strategic planning~~2018 was $2.2 million (2.7% of consolidated revenue) and ~~diversification~~$2.3 million (4.3% of ~~our business and increased employee incentive accruals.~~

~~Six Months Ended June 30, 2018, Compared to Six Months Ended June 30, 2017(in thousands, except for percentages):~~

~~Consolidated~~

Six Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ 111,304
$ 83,860
$ 27,444
32.7%
Cost of revenue 111,324
100,378
10,946
10.9%
Gross loss (20 ) (16,518 ) 16,498
99.9%
Gross profit percentage — % (19.7 )%
General and administrative expenses 9,801
8,570
1,231
14.4%
Asset impairment 1,360
389
971
249.6%
Operating loss (11,181 ) (25,477 ) 14,296
56.1%
Other income (expense):
Interest expense, net (238 ) (205 ) (33 ) (16.1)%
Other income (expense), net 6,814
(257 ) 7,071
2,751.4%
Total other income (expense) 6,576
(462 ) 7,038
1,523.4%
Net loss before income taxes (4,605 ) (25,939 ) 21,334
82.2%
Income tax expense (benefit) 142
(8,561 ) 8,703
101.7%
Net loss $ (4,747 ) $ (17,378 ) $ 12,631
72.7%

~~Revenue -~~ ~~Our revenue for the six months ended June 30, 2018 and 2017, was $111.3 million and $83.9 million,~~consolidated revenue), respectively, representing ~~an increase~~a decrease of ~~32.7%~~4.6%. The ~~increase is~~decrease was primarily ~~attributable~~due to:

~~An increase~~Lower incentive plan costs and board of ~~$1.7 million within our Fabrication Division primarily attributable to the construction and completion of four modules for a petrochemical plant;~~

An increase of $5.5 million within our Shipyard Division primarily related to construction of ten harbor tug vessels and an offshore marine research vessel which were not under construction during the first half of 2017 and $10.6 million in contract losses recorded during the six months ended June 30, 2017, which reduced our measure of revenue progress under percentage of completion accounting;

Additionally, we re-commenced newbuild construction for the second of two OSV's during the fourth quarter of 2017, which continued through the first half of 2018 but had been suspended during the second quarter of 2017; and

~~An increase of $18.0 million within our Services Division from additional demand for offshore oil and gas service related projects.~~

~~Gross loss -~~ Our gross loss for the six months ended June 30, 2018, was $20,000 compared to a gross loss of $16.5 million for the six months ended June 30, 2017. The improvement in gross loss was primarily due to increased revenue within our Services Division as discussed above and $10.6 million in contract losses related to cost overruns and re-work that was identified and recorded during the six months ended June 30, 2017 on two contracts relating to the construction of two MPSVs with no comparable adjustments to contract losses in the first half of 2018.

~~General and administrative expenses~~ - Our general and administrative expenses were $9.8 million for the six months ended June 30, 2018, compared to $8.6 million for the six months ended June 30, 2017. The increase in general and administrative expenses for the six months ended June 30, 2018, was primarily attributable to:

~~Build-up of additional personnel for our newly created EPC Division;~~director compensation costs; offset partially by,

Increased legal and advisory fees related to customer disputes as the costs were reflected within the operating divisions in 2018; and

Higher professional fees and other costs associated with the evaluation of strategic ~~planning~~alternatives and ~~diversification~~initiatives to diversify and enhance our business.

Comparison of Six Months Ended June 30, 2019 and 2018 (in thousands, except for percentages):

Consolidated



	Six Months Ended June 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	148,061		$	111,304		$	36,757		33.0%
Cost of revenue	149,106			111,324			(37,782		)	(33.9)%
Gross loss	(1,045		)	(20		)	(1,025		)	nm
Gross loss percentage	(0.7		)%	—		%
General and administrative expense	7,821			9,801			1,980			20.2%
Asset impairments and (gain) loss on assets held for sale, net	(70		)	(5,829		)	(5,759		)	(98.8)%
Other (income) expense, net	(130		)	375			505			nm
Operating loss	(8,666		)	(4,367		)	(4,299		)	(98.4)%
Interest income (expense), net	388			(238		)	626			nm
Net loss before income taxes	(8,278		)	(4,605		)	(3,673		)	(79.8)%
Income tax (expense) benefit	(12		)	(142		)	130			91.5%
Net loss	$	(8,290	)	$	(4,747	)	$	(3,543	)	(74.6)%

Revenue - Revenue for 2019 and 2018 was $148.1 million and $111.3 million, respectively, representing an increase of 33.0%. The increase was primarily due to the net impact of:

Increased revenue for our Shipyard Division of $32.0 million, primarily due to progress on our first two regional class research vessel projects and our first towing, salvage and rescue ship project, offset partially by the prior period including revenue on an OSV project that was completed during 2018 and revenue on our two MPSV contracts that were suspended during the first quarter 2018 (See Note 5 of our ~~business;~~Financial Statements for further discussion of our MPSV contracts); and

Increased ~~employee incentive accruals~~revenue for ~~all divisions related~~our Fabrication Division of $8.2 million, primarily due to progress on our ~~safety incentive program~~paddle wheel riverboat project and ~~higher employee profitability incentives within our Services Division.~~

~~This~~several smaller fabrication projects, which were not under construction in the prior period, offset partially by the prior period including revenue associated with the fabrication of modules for a petrochemical facility that was ~~partially offset by cost reductions and continued cost minimization efforts implemented by management~~completed during the second ~~half~~quarter 2018.

Gross loss - Gross loss for 2019 and 2018 was $1.0 million (0.7% of ~~2017.~~revenue) and $20,000 (0.0% of revenue), respectively. The gross loss for 2019 was primarily due to:

Under recovery of overhead costs (primarily associated with the underutilization of our facilities within our Fabrication Division, and to a lesser extent within our Shipyard and Services Divisions);

Holding costs of $0.8 million related to the two MPSV vessels which remain in our possession and are subject to dispute (See Note 5 of our Financial Statements for further discussion of our MPSV dispute);

Charge of $1.2 million related to forecast cost increases on our harbor tug projects (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects); and

Charge of $0.8 million related to forecast costs increases on our ice-breaker tug project (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project).

The increase in gross loss for 2019 relative to the prior period was primarily due to:

The aforementioned project charges of $2.0 million for 2019; and

A lower margin project mix for our Services and Fabrication Divisions; offset partially by,

Higher revenue and increased recoveries of overhead costs due to higher activity; and

A higher margin project mix for our Shipyard Division (excluding the aforementioned projects).

General and administrative expense - General and administrative expense for 2019 and 2018 was $7.8 million (5.3% of revenue) and $9.8 million (8.8% of revenue), respectively, representing a decrease of 20.2%. The decrease was primarily due to:

Lower incentive plan costs, board of director compensation costs, and legal and advisory fees related to customer disputes; offset partially by,

Higher professional fees and other costs associated with the evaluation of strategic alternatives and initiatives to diversify and enhance our business.

The customer disputes relate primarily to the pursuit of claims against a customer for disputed change orders for a completed project, and our MPSV projects which are subject to a purported termination and for which construction has been suspended. Legal and advisory fees related to such disputes totaled $0.5 million and $0.9 million for 2019 and 2018, respectively.

Asset ~~impairment~~impairments and (gain) loss on assets held for sale, net - ~~- We recorded an impairment~~Asset impairments and (gain) loss on assets held for sale, net for 2019 and 2018 was a gain of $0.1 million and $5.8 million, respectively. The gain for 2018 was primarily due to the net impact of:

A gain of $3.9 million from the sale of our Texas South Yard; and

A gain of $3.6 million from the settlement of our insurance claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017; offset partially by,

Impairments of $1.4 million ~~during the six months ended June 30, 2018, primarily~~ related to ~~two pieces of equipment at our Texas North Yard that are~~assets held for sale. ~~The impairment was calculated as management's estimated net proceeds from the sale less the equipment's net book value.~~

See Note 23 of ~~the Notes to Consolidated~~our Financial Statements for ~~additional information regarding~~further discussion of our assets held for sale. ~~During the six months ended June 30, 2017, we recorded an impairment~~

Other (income) expense, net - Other (income) expense, net for 2019 and 2018 was income of $0.1 million and expense of $0.4 million, ~~related to our Shipyard Division~~respectively. Other (income) expense, net generally represents (recoveries) provisions for bad debts, (gains) losses associated with the sale or disposition of property and equipment other than assets held for ~~sale.~~sale, and (income) expense associated with certain nonrecurring items. The income for 2019 and expense for 2018 was primarily due to net gains and net losses, respectively, on the sales of equipment.

~~Other~~Interest income (expense), net - ~~Other~~Interest income ~~net was $6.8 million for the six months ended June 30, 2018, compared to other expense, net of $0.3 million for the six months ended June 30, 2017. Other income,~~(expense), net for ~~the six months ended June 30,~~2019 and 2018, iswas income of $0.4 million and expense of $0.2 million, respectively. The net interest income for 2019 was primarily due to ~~a gain~~interest earned on ~~the sale of~~ our ~~Texas South Yard of $3.9 million~~cash and ~~a gain on settlement of insurance recovery proceeds related~~short-term investment balances, offset partially by interest amortization associated with our long-term lease liability. The net interest expense for 2018 was primarily due to ~~Hurricane Harvey of $3.6 million.~~borrowings under our Credit Agreement during 2018.

Income tax ~~expense (benefit)~~(expense) benefit - ~~Our effective income~~Income tax ~~rate~~(expense) benefit for ~~the six months ended June 30,~~2019 and 2018 was expense of ~~3.1%, compared to an effective~~$12,000 and $0.1 million, respectively. Income tax ~~rate benefit of 33.0% for the comparable period during 2017. Current~~ expense represents state income taxes. No federal tax ~~within our Services Division. The decrease in the effective tax rate is the result of~~benefit was recorded for losses during 2019 or 2018 as a full valuation allowance was recorded against our deferred tax ~~assets. See Note 1 of~~assets generated during the ~~Notes to Consolidated Financial Statements regarding our NOLs and deferred tax assets.~~periods.

Operating Segments

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

Fabrication Division⁽¹⁾

Fabrication Six Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ 25,860
$ 24,199
$ 1,661
6.9%
Gross loss (1,886 ) (1,034 ) (852 ) (82.4)%
Gross loss percentage (7.3 )% (4.3 )%
General and administrative expenses 1,575
1,654
(79 ) (4.8)%
Asset impairment 1,360
—
1,360
100.0%
Operating loss (4,821 ) (2,688 ) (2,133 )



	Six Months Ended June 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	35,046		$	26,815		$	8,231		30.7%
Gross loss	(1,449		)	(1,651		)	202			12.2%
Gross loss percentage	(4.1		)%	(6.2		)%
General and administrative expense	1,509			2,477			968			39.1%
Asset impairments and (gain) loss on assets held for sale, net	(70		)	(5,829		)	(5,759		)	(98.8)%
Other (income) expense, net	(137		)	(4		)	133			nm
Operating income (loss)	(2,751		)	1,705			(4,456		)	nm

___________

(1)

During the first quarter 2019, our former EPC Division was operationally combined with our Fabrication Division. Accordingly, results for our former EPC Division for the 2018 period have been combined with the Fabrication Division to conform to the presentation of our reportable segments for the 2019 period. See Note 7 of our Financial Statements for further discussion of our realigned operating divisions and related financial information.

Revenue - Revenue ~~from our Fabrication Division increased $1.7~~for 2019 and 2018 was $35.0 million ~~for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.~~and $26.8 million, respectively, representing an increase of 30.7%. The increase ~~is attributable to~~was primarily due to:

Progress on our paddle wheel riverboat project and several smaller fabrication projects, which were not under construction in the ~~construction and completion~~prior period; offset partially by,

The prior period including revenue associated with the fabrication of ~~four~~ modules for a petrochemical ~~plant~~facility that was completed during the ~~six months ended June 30,~~second quarter 2018. ~~This was partially offset, by decreased revenue of $2.8 million for the six months ended June 30, 2018, at our South Texas Properties as these were marketed for sale.~~

Gross loss - Gross loss ~~from our Fabrication Division~~ for ~~the six months ended June 30,~~2019 and 2018 was ~~$1.9~~$1.4 million ~~compared to a~~(4.1% of revenue) and $1.7 million (6.2% of revenue), respectively. The gross loss for 2019 was primarily due to the under recovery of ~~$1.0 million for the six months ended June 30, 2017.~~overhead costs. The ~~increase~~decrease in gross loss for 2019 relative to the prior period was primarily due to higher revenue and increased ~~material~~recoveries of overhead costs ~~incurred on the construction and completion of four modules for a petrochemical plant during the six months ended June 30, 2018 as well as current work being bid at more competitive pricing. This was~~due to higher activity, offset partially ~~offset~~ by a ~~reduction in depreciation expense of $1.9 million during the six months ended June 30, 2018 for our South Texas Properties as these assets are classified as held for sale.~~lower margin project mix.

General and administrative ~~expenses~~expense - General and administrative ~~expenses~~expense for ~~our Fabrication Division decreased $0.1~~2019 and 2018 was $1.5 million ~~for the six months ended June 30, 2018, compared to the six months ended June 30, 2017.~~(4.3% of revenue) and $2.5 million (9.2% of revenue), respectively, representing a decrease of 39.1%. The decrease iswas primarily due to ~~decreases in salaries and employee incentives of $0.3 million due to reductions in workforce, decreases in corporate allocations of $0.3 million as a portion of these are now allocated to~~lower costs associated with our former EPC Division and ~~continued cost minimization efforts implemented by management for~~lower legal and advisory fees related to a customer dispute as the ~~first half of 2018, partially offset by an increase~~costs are reflected within the Corporate Division in ~~legal expense of $0.5 million.~~2019.

Asset ~~impairment~~impairments and (gain) loss on assets held for sale, net - ~~We recorded an impairment~~Asset impairments and (gain) loss on assets held for sale, net for 2019 and 2018 was a gain of $0.1 million and $5.8 million, respectively. The gain for 2018 was primarily due to the net impact of:

A gain of $3.9 million from the sale of our Texas South Yard; and

A gain of $3.6 million from the settlement of our insurance claim related to Hurricane Harvey damage at our South Texas Properties incurred during 2017; offset partially by,

Impairments of $1.4 million ~~during the six months ended June 30, 2018, primarily~~ related to two pieces of equipment at our Texas North Yard. One piece of equipment was sold in July 2018, and we intend to sell the other piece of equipment at auction. The impairment was calculated as management's estimated net proceeds from the sale less the equipment's net book value. See Note 2 of the Notes to Consolidated Financial Statements for additional information regarding our assets held for sale. ~~We did not record any asset impairments during~~

Other (income) expense, net - Other (income) expense, net for the ~~six months ended June 30, 2017, within our Fabrication Division.~~2019 and 2018 was income of $0.1 million and $4,000, respectively. The net income for 2019 was primarily due to net gains on the sales of equipment.

Shipyard


Shipyard	Six Months Ended June 30,						Increase or (Decrease)
											Six Months Ended June 30,						Favorable (Unfavorable) Change
	2018			2017			Amount			Percent	2019			2018			Amount		Percent
Revenue ⁽¹⁾	$	42,185		$	36,724		$	5,461		14.9%	$	74,154		$	42,185		$	31,969	75.8%
Gross loss ⁽¹⁾	(3,799		)	(15,556		)	11,757			75.6%	(3,192		)	(3,799		)	607		16.0%
Gross loss percentage	(9.0		)%	(42.4		)%					(4.3		)%	(9.0		)%
General and administrative expenses	1,393			1,947			(554		)	(28.5)%
Asset impairment	—			389			(389		)	(100.0)%
General and administrative expense											1,214			1,393			179		12.8%
Other (income) expense, net											62			164			102		62.2%
Operating loss ⁽¹⁾	(5,192		)	(17,892		)	12,700				(4,468		)	(5,356		)	888		16.6%

~~___________~~


~~(1)~~	Revenue for the six months ended June 30, 2018, and 2017, includes $0.5 million and $1.9 million, respectively, of non-cash amortization of deferred revenue related to the values assigned to the contracts acquired in the LEEVAC transaction.

Revenue - Revenue ~~from~~for 2019 and 2018 was $74.2 million and $42.2 million, respectively, representing an increase of 75.8%. The increase was primarily due to:

Progress on our ~~Shipyard Division increased $5.5 million for the six months ended June 30, 2018, compared to the six months ended June 30, 2017. During the~~ first ~~half of 2018, we made progress on the construction of ten harbor tug vessels and an offshore marine~~two regional class research vessel projects and our first towing, salvage and rescue ship project; offset partially by,

The prior period including revenue on an OSV project that was completed during 2018 and revenue on our two MPSV contracts that were not under construction during the first half of 2017. The increase in revenue also resulted from re-commencing the newbuild construction for the second of two OSV's during the fourth quarter of 2017, which continued through the first half of 2018 but was suspended during the second quarter of 2017. This was partially offset by lower revenue from construction of two MPSVs that were under construction during 2017, but suspended during the first quarter 2018 (See Note 5 of ~~2018. During the six months ended June 30, 2017, we also recorded $10.2 million in contract losses which reduced~~ our ~~measure of revenue progress under percentage of completion accounting. See also Note 9 of the Notes to Consolidated~~ Financial Statements for ~~additional information relating to the suspension~~further discussion of ~~construction of two MPSVs.~~our MPSV contracts).

Gross loss - Gross loss for 2019 and 2018 was $3.2 million (4.3% of revenue) and $3.8 million (9.0% of revenue), respectively.

The gross loss for 2019 was primarily due to:

Under recovery of overhead costs;

Charge of $1.2 million related to forecast cost increases on our harbor tug projects (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects); and

Charge of $0.8 million related to forecast costs increases on our ice-breaker tug project (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project).

The decrease in gross loss for 2019 relative to the prior period was primarily due to:

Higher revenue and increased recoveries of overhead costs due to higher activity; and

A higher margin project mix (excluding the aforementioned projects); offset partially by,

Higher holding costs of $0.4 million for 2019 related to the two MPSV projects; and

The aforementioned project charges of $2.0 million for 2019.

General and administrative expense - General and administrative expense for 2019 and 2018 was $1.2 million (1.6% of revenue) and $1.4 million (3.3% of revenue), respectively, representing a decrease of 12.8%. The decrease was primarily due to lower legal and advisory fees related to a customer dispute as the costs are reflected within the Corporate Division in 2019, offset partially by higher incentive plan costs.

Other (income) expense, net - Other (income) expense, net for 2019 and 2018, was expense of $0.1 million and $0.2 million, respectively, primarily due to net losses on the sales of equipment.

Services



	Six Months Ended June 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	43,667		$	44,075		$	(408	)	(0.9)%
Gross profit	3,878			6,199			(2,321		)	(37.4)%
Gross profit percentage	8.9		%	14.1		%
General and administrative expense	916			1,496			580			38.8%
Other (income) expense, net	(55		)	(38		)	17			44.7%
Operating income	3,017			4,741			(1,724		)	(36.4)%

Revenue - Revenue for 2019 and 2018 was $43.7 million and $44.1 million, respectively, representing a decrease of 0.9%.

Gross profit - Gross profit for 2019 and 2018 was $3.9 million (8.9% of revenue) and $6.2 million (14.1% of revenue), respectively. Gross profit for 2019 was impacted by the under recovery of overhead costs. The decrease in gross profit for 2019 relative to the prior period was primarily due to a lower margin project mix and reduced recoveries of overhead costs.

General and administrative expense - General and administrative expense for 2019 and 2018 was $0.9 million (2.1% of revenue) and $1.5 million (3.4% of revenue), respectively, representing a decrease of 38.8%. The decrease was primarily due to lower incentive plan costs and other cost reductions.

Corporate



	Six Months Ended June 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue (eliminations)	$	(4,806	)	$	(1,771	)	$	(3,035	)	nm
Gross loss	(282		)	(769		)	487			63.3%
Gross loss percentage	n/a			n/a
General and administrative expense	4,182			4,435			253			5.7%
Other (income) expense, net	—			253			253			100.0%
Operating loss	(4,464		)	(5,457		)	993			18.2%

Gross loss - Gross loss for 2019 and 2018 was $0.3 million and $0.8 million, respectively. The decrease was primarily due to lower costs related to supporting our former EPC Division.

General and administrative expense - General and administrative expense for 2019 and 2018 was $4.2 million (2.8% of consolidated revenue) and $4.4 million (4.0% of consolidated revenue), respectively, representing a decrease of 5.7%. The decrease was primarily due to:

Lower incentive plan costs and board of director compensation costs; offset partially by,

Increased legal and advisory fees related to customer disputes as the costs were reflected within the operating divisions in 2018; and

Higher professional fees and other costs associated with the evaluation of strategic alternatives and initiatives to diversify and enhance our business.

Other (income) expense, net - Other (income) expense, net for 2018 was expense of $0.3 million.

Liquidity and Capital Resources

Available Liquidity

Our primary sources of liquidity are our cash and cash equivalents, scheduled maturities of our short-term investments, and availability under our Credit Agreement (discussed below). At June 30, 2019, our cash, cash equivalents and short-term investments totaled $76.0 million, and our immediately available liquidity was as follows (in thousands):



Available Liquidity	Total
Cash and cash equivalents ⁽¹⁾	$	30,192
Short-term investments ⁽²⁾	45,791
Total cash, cash equivalents and short-term investments	75,983
Credit Agreement total capacity	40,000
Outstanding letters of credit	(10,737		)
Credit Agreement available capacity	29,263
Total available liquidity	$	105,246

___________

(1) Includes U.S. Treasuries of $13.0 million with original maturities of three months or less.

(2) Includes U.S. Treasuries with original maturities of more than three months, but less than six months.

Working Capital

Our available liquidity is impacted by changes in our working capital and our capital expenditure requirements. At June 30, 2019, our working capital was $99.1 million and included $76.0 million of cash, cash equivalents and short-term investments and $18.7 million of assets held for sale. Excluding cash, cash equivalents, short-term investments and assets held for sale, our working capital at June 30, 2019 totaled $4.4 million, and consisted of net contracts assets and contract liabilities (collectively, "Contracts in Progress") of $37.5 million; contracts receivable and retainage of $23.3 million; inventory, prepaid expenses and other assets of $8.5 million; and accounts payable, accrued expenses and other liabilities of $65.0 million. The components of our working capital (excluding cash, cash equivalents, short-term investments and assets held for sale) at June 30, 2019 and December 31, 2018, and changes in such amounts during the six months ended June 30, 2019, were as follows (in thousands):



	June 30,			December 31,
	2019			2018			Change⁽³⁾
Contract assets	$	51,334		$	29,982		$	(21,352	)
Contract liabilities⁽¹⁾	(13,823		)	(16,845		)	(3,022		)
Contracts in progress, net⁽²⁾	37,511			13,137			(24,374		)
Contracts receivable and retainage, net	23,343			22,505			(838		)
Inventory, prepaid expenses and other assets	8,530			9,356			826
Accounts payable, accrued expenses and other liabilities	(64,957		)	(39,256		)	25,701
Total	$	4,427		$	5,742		$	1,315

___________


(1)	Contract liabilities at June 30, 2019 and December 31, 2018, include accrued contract losses of $2.0 million and $2.4 million, respectively.


(2)	Represents our cash position relative to revenue recognized on projects, with contract assets representing unbilled amounts that reflect future cash inflows on projects, and contract liabilities representing (i) advance payments that reflect future cash expenditures and non-cash earnings on projects and (ii) accrued contract losses that represent future cash expenditures on projects.

(3) Changes referenced in the cash flow activity section below may differ from the changes in this table due to non-cash reclassifications and due to certain changes in balance sheet accounts being reflected within other line items on the Statement of Cash Flows, including bad debt expense and (gain) loss on sale of fixed assets and other assets.

Fluctuations in our ~~Shipyard Division~~working capital, 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 project progress on backlog as we 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.

Cash Flow Activity

Operating Activities - During the six months ended June 30, 2019, net cash used in operating activities was ~~$3.8~~$2.9 million, compared to net cash used in operating activities of $26.4 million for the six months ended June 30, ~~2018, compared~~2018. Cash used in operating activities during the 2019 period was primarily due to an operating loss for the period and the net impact of the following:

Net gains from asset sales of $0.9 million, bad debt expense of $59,000, depreciation and amortization expense of $5.0 million, asset impairments of $0.3 million, and stock-based compensation expense of $1.3 million;

Increase in contract assets of $21.4 million, primarily due to an increase in unbilled positions on two projects in our Shipyard Division related to the timing of progress billings (primarily for our first two regional class research vessel projects), and certain projects in our Fabrication Division related to the timing of milestone billings. See below for discussion of increase in related accounts payable;

Decrease in contract liabilities of $3.0 million, primarily due to the unwind of advance payments on a project in our Fabrication Division, offset partially by an increase in advance payments on two projects in our Shipyard Division;

Increase in contracts receivable and retainage of $0.9 million, primarily due to the timing of billings and collections on our projects;

Decrease in prepaid expenses, inventory and other assets of $0.2 million, primarily due to a ~~gross loss~~decrease in inventory, offset partially by an increase in prepaid expenses;

Increase in accounts payable, accrued expenses and other current liabilities of ~~$15.6~~$25.2 million, primarily due to increased project activity and the timing of payments for projects in our Shipyard Division (primarily for our first two regional class research vessel projects and our first towing, salvage and rescue ship project); and

Change in noncurrent assets and liabilities, net of $0.5 million.

During the ~~six~~three months ended June 30, ~~2017. The gross loss for the six months ended June 30, 2018,~~2019, net cash provided by operating activities was primarily attributable to underutilization of our Houma and Lake Charles shipyards and competitive pricing on current work. The decrease in gross loss compared to the six months ended June 30, 2017, was due to:

~~$10.6 million in contract losses related to cost overruns and re-work that was identified and recorded during the six months ended June 30, 2017 relating to the construction of two MPSVs;~~

~~Holding and closing costs during the six months ended June 30, 2017, related to our Prospect shipyard. We terminated the lease of this facility effective December 31, 2017; and~~

Holding costs during the six months ended June 30, 2017, related to a completed OSV that was delivered on February 6, 2017, but refused by our customer as well as the suspension of work on the second OSV vessel. We resolved our disputes with our OSV customer during the fourth quarter of 2017 and construction of the second OSV re-commenced. We subsequently delivered the second OSV on July 31, 2018.$5.6 million.

~~General and administrative expenses~~ - General and administrative expenses for our Shipyard Division decreased $0.6 million for the six months ended June 30, 2018, compared to the six months ended June 30, 2017, primarily due to decreases in salaries and employee incentives of $0.5 million due to reductions in workforce and decreases in corporate allocations of $0.1 million as a portion of these are now allocated to our EPC Division.

~~Asset impairment~~Investing Activities - During the six months ended June 30, ~~2017, we recorded an impairment~~2019, net cash used in investing activities was $36.6 million, compared to net cash provided by investing activities of $0.4 million related to the Shipyard Division assets held for sale. See Note 2 of the Notes to Consolidated Financial Statements for additional information relating to our assets held for sale. We did not record any asset impairment during the six months ended June 30, 2018, in our Shipyard Division.

Services Six Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ 44,075
$ 26,107
$ 17,968
68.8%
Gross profit 6,199
423
5,776
1,365.5%
Gross profit percentage 14.1 % 1.6 %
General and administrative expenses 1,496
1,313
183
13.9%
Operating income (loss) 4,703
(890 ) 5,593

~~Revenue -~~ ~~Revenue from our Services Division increased $18.0~~$50.2 million for the six months ended June 30, ~~2018, compared~~2018. Cash used in investing activities during the 2019 period was primarily due to the purchase of short-term investments of $45.4 million and capital expenditures of $1.4 million, offset partially by maturities of short-term investments of $8.5 million and proceeds from the sale of equipment of $1.6 million.

Financing Activities - During the six months ended June 30, ~~2017, due~~2019, net cash used in financing activities was $0.8 million, compared to ~~an overall increase~~net cash used in ~~work resulting from increases in customer demand for offshore oil and gas related service projects.~~

~~Gross profit -~~ ~~Gross profit from our Services Division increased $5.8~~financing activities of $0.8 million for the six months ended June 30, 2018. Cash used in financing activities for both the 2019 and 2018 ~~compared to the six months ended June 30, 2017,~~periods was primarily due to ~~increased revenue discussed above. Our gross profit percentage increased~~tax payments made on behalf of employees from ~~1.6% during the period for 2017 to 14.1% for 2018. The increase in gross profit percentage was due to a higher recovery of fixed costs with increased work.~~vested stock withholdings.

Credit Facilities

~~General and administrative expenses~~Credit Agreement - ~~General~~We have a $40.0 million revolving credit facility with Hancock Whitney Bank ("Credit Agreement") that can be used for borrowings or letters of credit. On May 1, 2019, we amended our Credit Agreement to extend its maturity date from June 9, 2020 to June 9, 2021 and ~~administrative expenses for our Services Division increased $0.2 million~~amend certain financial covenants. Our amended quarterly financial covenants at June 30, 2019, and for the ~~six months ended June 30, 2018, compared to~~remaining term of the ~~six months ended June 30, 2017, due to support of increased work~~Credit Agreement, are as ~~well as increases in employee incentive compensation with allocation of corporate expenses remaining comparable period over period.~~follows:

EPC Six Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ 955
$ —
$ 955
100.0%
Gross profit 235
—
235
100.0%
Gross profit (loss) percentage 24.6 % n/a

General and administrative expenses 902
—
902
100.0%
Operating loss (667 ) —
(667 )

~~Revenue -~~ Our EPC Division did not exist at June 30, 2017. Revenue for the six months ended June 30, 2018, consists of early work and engineering studies authorized by SeaOne. See Note 8 of the Notes to Consolidated Financial Statements for further discussion of our EPC Division and the SeaOne Project.

~~Gross profit -~~ ~~Gross profit from our EPC Division occurred as we added personnel and overhead infrastructure related to the anticipated SeaOne project.~~

~~General and administrative expenses~~ ~~- General and administrative expenses for our EPC Division include the addition of personnel and allocations of corporate expenses as we invest in this new line of business.~~

Corporate Six Months Ended June 30, Increase or (Decrease)
2018 2017 Amount Percent
Revenue $ —
$ —
$ —

Gross loss (769 ) (351 ) (418 ) (119.1)%
Gross loss percentage n/a
n/a

General and administrative expenses 4,435
3,656
779
21.3%
Operating loss (5,204 ) (4,007 ) (1,197 )

~~Gross loss -~~ ~~Gross loss from our Corporate Division increased primarily due to lower allocation of expenses and as well as buildup of personnel to support our EPC Division.~~

~~General and administrative expenses~~ - General and administrative expenses for our Corporate Division increased primarily due to increased legal and advisory fees related to customer disputes, strategic planning and diversification of our business and increased employee incentive accruals.

~~Liquidity and Capital Resources~~

Our liquidity remains dependent on our cash on hand, scheduled maturities of our held-to-maturity, short-term investments, potential proceeds from the sales of assets, availability of future drawings from our Credit Agreement and collections of accounts receivable. A summary of our immediately available liquidity as of June 30, 2018 is as follows:

Available Liquidity
$ (in thousands)
Cash and cash equivalents on hand $ 32,004
Held-to-maturity, short-term investments ⁽¹⁾
7,481
Revolving credit agreement 40,000
Less:
Borrowings under our Credit Agreement —
Outstanding letters of credit (5,495 )
Total available liquidity $ 73,990

~~___________~~

~~(1) Our held-to-maturity, short-term investments include U.S. Treasuries and other investment-grade commercial paper and can be liquidated quickly in open markets.~~

~~Working capital was $132.7 million and our ratio~~Ratio of current assets to current liabilities ~~was 4.67 to 1~~of not less than 2.00:1.00;

Minimum tangible net worth of at ~~June 30, 2018, compared to $130.5~~least the sum of $170.0 million, and 3.68 to 1, respectively, at December 31, 2017. Working capital at June 30, 2018, includes $7.5 million of held-to-maturity, short-term investments, $7.2 million of insurance receivables and $43.8 million related to assets held for sale, primarily related to our remaining South Texas Properties. At June 30, 2018, our contracts receivable balance was $31.9 million of which we have subsequently collected $14.4 million asplus 100% of the ~~date~~net proceeds from any issuance of ~~this Report and our insurance receivable was $7.2 million of which we have received payment for the full amount as of the date of this Report.~~

~~Our primary sources/uses of cash during the six months ended June 30, 2018, are referenced in the Cash Flow Activities section below.~~

~~As discussed in our Executive Summary, we are implementing several strategies to diversify our business, increase backlog, reduce operating~~stock or other equity after deducting any fees, commissions, expenses and ~~monetize underutilized assets.~~other costs incurred in such offering; and

~~On April 20, 2018, we closed on the sale~~Ratio of ~~our Texas South Yard for a sale price~~funded debt (which includes outstanding letters of ~~$55.0 million, less selling costs~~credit) to tangible net worth of $1.5 million. We received approximately $52.7 million at closing, which was in addition to the $0.8 million of previously received earnest money. The net proceeds received rebuilt our liquidity, provided support for upcoming projects, continued investment in our EPC Division and for other general corporate purposes. See further discussion of the sale of our Texas South Yard in Note 2 of the Notes to Consolidated Financial Statements. We continue to market our Texas North Yard, and hope to have a negotiated contract for the sale of our Texas North Yard in the near future.not more than 0.50:1.00.

~~We have a $40.0 million~~Our Credit Agreement ~~maturing June 9, 2019. The Credit Agreement allows the Company to use up~~also includes restrictions regarding our ability to: (i) grant liens; (ii) make certain loans or investments; (iii) incur additional indebtedness or guarantee other indebtedness in excess of specified levels; (iv) make any material change to the ~~full amount~~nature of ~~the available borrowing base for letters~~our business or undergo a fundamental change; (v) make any material dispositions; (vi) acquire another company or all or substantially all of ~~credit~~its assets; (vii) enter into a merger, consolidation, or sale leaseback transaction; or (viii) declare and general corporate purposes. We believe that our Credit Agreement will provide us with additional working capital flexibility to expand operations as backlog improves, respond to market opportunities and support our ongoing operations. pay dividends if any potential default or event of default occurs.

Interest on ~~drawings~~borrowings under the Credit Agreement may be designated, at our option, as either ~~Base~~the Wall Street Journal published Prime Rate ~~(as defined in the credit facility)~~(5.5% at June 30, 2019) or LIBOR (2.4% at June 30, 2019) plus 2%2.0% per annum. ~~Unused commitment~~Commitment fees on the ~~undrawn~~unused portion of the Credit Agreement are 0.4% per annum, and interest on ~~undrawn stated amounts under~~outstanding letters of credit ~~issued by the lender~~ is 2%2.0% per annum. The Credit Agreement is secured by substantially all our assets ~~(other than the South Texas Properties)~~(with a negative pledge on our real property).

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


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:~~

~~$185 million, plus~~

~~An amount equal to 50% of consolidated net income for each fiscal quarter ending after~~At June 30, ~~2017, including 50%~~2019, we had no outstanding borrowings under our Credit Agreement and $10.7 million of ~~any gain attributable to the sale~~outstanding letters of ~~all or substantially all our South Texas Properties (with no deduction for a net loss in any such fiscal quarter), plus~~

~~100%~~credit, providing $29.3 million of ~~the 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.~~

~~As of~~available capacity. At June 30, ~~2018,~~2019, we were in compliance with all of our financial ~~covenants.~~covenants, with a tangible net worth of $191.3 million (as defined by the Credit Agreement), a ratio of current assets to current liabilities of 2.26 to 1.0 and a ratio of funded debt to tangible net worth of 0.06:1.0.

Surety Bonds - We issue surety bonds in the ordinary course of business to support our projects. At June 30, 2019, we had $375.9 million of outstanding surety bonds. Although we believe there is sufficient bonding capacity available to us from one or more financial institutions, such capacity is uncommitted, and accordingly, we can provide no assurances that necessary bonding capacity will be available to support our future bonding requirements.

Liquidity Outlook

As discussed in our Overview, we continue to ~~monitor~~focus on maintaining liquidity and securing meaningful new project 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 increase our backlog and improve and preserve our ~~cash. Our~~liquidity, including cost reductions (including reducing the compensation paid to our directors and executive officers) and the sale of underutilized assets. In addition,

at June 30, 2019, we continue to have $18.7 million of assets held for sale; however, we can provide no assurances that we will successfully sell these assets or that we will recover their carrying value. The primary uses of our liquidity ~~requirements for 2018 and beyond are~~ for the ~~costs associated with Fabrication~~remainder of 2019 and ~~Shipyard projects, capital expenditures related~~the foreseeable future are to ~~the expansion~~fund:

The underutilization of our ~~EPC~~facilities within our Fabrication Division, and to a lesser extent within our Shipyard Division, until we secure and/or begin to execute sufficient backlog to fully recover our overhead costs;

Capital expenditures (including potential enhancements to our Shipyard ~~facilities. Future~~Division facilities);

Accrued contract losses recorded at June 30, 2019;

Working capital requirements for our projects (including the potential additional projects for the U.S. Navy if the aforementioned options are exercised); and

Corporate administrative expenses and strategic initiatives.

We anticipate capital expenditures ~~will be highly dependent upon the amount and timing~~ of ~~future projects. Capital expenditures for the six months ended June 30, 2018, were $0.8 million. We do not anticipate significant capital expenditures~~$5.0 million to $7.0 million for the remainder of ~~2018.~~2019. Further investments in facilities may be required to win and execute potential offshore wind projects, which are not included in these estimates.

If ~~industry~~ conditions for ~~offshore~~the oil and gas industry do not improve, or we are unable to increase our backlog, we are unable to diversify our customer base, or we are unsuccessful in our strategic repositioning of the Company, we would ~~expect to~~ take additional measures to reduce costs and preserve our ~~cash~~liquidity until ~~such time~~ we are able to generate cash flows from operations. Since the beginning of 2016, we have implemented wage adjustments along with employee benefit and overall cost reductions within all of our divisions. We have reduced the level of our workforce in the past and we will continue to do so based on booked work in all of our facilities. We have reduced the cash compensation paid to our directors and the salaries of our executive officers, and we have reduced our capital expenditures and placed assets that are either underutilized, under-performing or not expected to provide sufficient long-term value for sale, which include our South Texas Properties.

We believe that our cash, ~~and~~ cash equivalents ~~on hand~~ and ~~held-to-maturity,~~ short-term investments at June 30, 2019, and ~~funds available~~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 ~~future~~ debt service ~~and~~obligations or other funding requirements, for at least twelve months from the date of this Report. Our ~~view regarding~~evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecast for ~~the remainder of 2018~~2019 and ~~early 2019,~~2020, which is impacted by our existing backlog and ~~a reasonable amount~~estimates of ~~forecast, non-contractual backlog. There is~~future new project awards. We can provide no ~~guarantee~~assurances that our financial forecast will be ~~attainable~~achieved or that we will have sufficient cash ~~including funds available~~or availability under our Credit Agreement to meet planned operating expenses and other unforeseen cash requirements. Accordingly, we may be required to ~~draw on our Credit Agreement,~~ obtain new or additional ~~bank financing,~~credit facilities, sell additional assets or conduct equity or debt offerings at a time when it is not beneficial to do so.

~~Cash Flow Activities~~

For the six months ended June 30, 2018, net cash used in operating activities was $26.4 million, compared to net cash used in operating activities of $27.9 million for the six months ended June 30, 2017. The use of cash in operations during the period was primarily due to the following:

Operating losses for the six months ended June 30, 2018, excluding gains on sales of assets and insurance recoveries as well as amounts in excess of non-cash depreciation, amortization, impairment, and stock compensation expense of approximately $3.5 million;

~~Slower collections of receivables of $6.4 million~~

~~Build-up of costs for contracts in progress of $8.1 million;~~

~~Increased retainage on projects of $1.5 million;~~

~~Increased payments of accounts payable of~~ ~~$2.4 million; and~~

~~Other general uses of working capital.~~

Net cash provided by investing activities for the six months ended June 30, 2018, was $50.2 million, compared to cash provided by investing activities of $0.3 million for the six months ended June 30, 2017. The increase in cash provided by investing activities is due primarily to the sales of assets, primarily our Texas South Yard, in the amount of $56.4 million and the insurance proceeds received for hurricane damage to assets at our South Texas Properties. This was partially offset by the purchase of held-to-maturity investments of $7.5 million.

~~Net cash used by financing activities for the six months ended June 30, 2018, and 2017, was $0.8 million compared to $1.2 million in cash used in financing activities, respectively.~~

Contractual Obligations

There have been no material changes from the information included in our ~~2017~~2018 Annual Report. For more information on our contractual obligations, refer to Part II, Item 7 of our ~~2017~~2018 Annual Report.

Off-Balance Sheet Arrangements

There have been no material changes from the information included in our ~~2017~~2018 Annual 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~~six months ended June 30, ~~2018.~~2019. For more information on market risk, refer to Part II, Item ~~7A.~~7A of our 2018 Annual ~~Report on Form 10-K for the year ended December 31, 2017.~~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. 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.

~~There have been no changes during~~During the ~~fiscal quarter~~three months ended June 30, ~~2018,~~2019, there were no changes 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 disputes and 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 St. Tammany, State of Louisiana and is styled Gulf Island Shipyards, LLC v. Hornbeck Offshore Services, LLC. The customer responded to our lawsuit by denying many of the ~~Company.~~allegations in the lawsuit and asserting a counterclaim against us. We filed a response to the counterclaim denying all the customer's claims. The customer subsequently filed a motion with the court seeking, among other things, to obtain possession of the vessels. A hearing on that motion was held on May 28, 2019, and the customer's request to obtain possession of the vessels was denied by the court. See Note 5 of our Financial Statements for further discussion of this litigation.

Item 1A. Risk Factors.

There have been no material changes from the information included in Item 1A “Risk Factors” ~~included~~ in our 2018 Annual ~~Report on Form 10-K for the year ended December 31, 2017.~~Report.

Item 6. Exhibits.



Exhibit Number	Description of Exhibit

3.1	~~Composite~~ Amended and Restated Articles of Incorporation of the Company incorporated by reference to Exhibit 3.1 of the ~~Company’s~~Company's Form ~~10-Q~~8-K filed with the SEC on ~~April 23, 2009~~May 13, 2019 (SEC File ~~no.~~No. 001-34279).
3.2	Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit 3.2 of the Company’s Form 8-K filed with the SEC on ~~November 4, 2016~~May 13, 2019 (SEC File no. 001-34279).
10.1	Consent and Fourth Amendment to Credit Agreement dated May 1, 2019, incorporated by reference to Exhibit 10.1 of the Company’s Form ~~of non-employee director award agreement.~~10-Q filed with the SEC on May 7, 2019 (SEC File No. 001-34279. * †
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.
†	~~Management Contract or Compensatory Plan.~~

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this 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 Officer)

Date: August ~~9, 2018~~6, 2019

- 3938 -




Assets	Texas North Yard			Shipyard Division Assets			Consolidated
Land	$	2,157		$	—		$	2,157
Buildings and improvements	28,368			—			28,368
Machinery and equipment	55,170			2,187			57,357
Less: accumulated depreciation	(43,787		)	(298		)	(44,085		)
Total assets held for sale	$	41,908		$	1,889		$	43,797



By Segment	Performance Obligations as of June 30, 2018
Fabrication	$	1,871
Shipyard ⁽¹⁾	295,506
Services	7,607
EPC	1,618
Intersegment eliminations	(193		)
Total	$	306,409



Year	$'s
Remainder of 2018	$	86,378
2019	140,831
2020	69,890
2021	8,645
2022	665
Total	$	306,409



	June 30, 2018
	Fabrication		Shipyard		Services		EPC		Eliminations			Consolidated
Future performance obligations required under fixed-price contracts under Topic 606 of ASC	$	1,871	$	295,506	$	7,607	$	1,618	$	(193	)	$	306,409
Contracts signed subsequent to June 30, 2018	—		—		9,788		1,200		—			10,988
Signed contracts under purported termination ⁽¹⁾	—		30,157		—		—		—			30,157
Backlog	$	1,871	$	325,663	$	17,394	$	2,818	$	(193	)	$	347,553



	June 30, 2018				December 31, 2017
Division	$'s			Labor hours	$'s			Labor hours
Fabrication	$	1,871		12	$	15,771		150
Shipyard	325,663			1,784	184,035			1,104
Services	17,394			83	23,181			290
EPC	2,818			—	—			—
Intersegment eliminations	(193		)	—	(370		)	—
Total backlog	$	347,553		1,879	$	222,617		1,544



	June 30, 2018			December 31, 2017
	Number		Percentage	Number	Percentage
Major customers ⁽¹⁾	four		77.8%	four	73.0%

Backlog is expected to be recognized in revenue during:⁽²⁾	$'s		Percentage
2018	$	97,366	28.0%
2019	170,987		49.2%
2020	69,890		20.1%
2021	8,645		2.5%
2022	665		0.2%
Total	$	347,553	100.0%



Available Liquidity	$ (in thousands)
Cash and cash equivalents on hand	$	32,004
Held-to-maturity, short-term investments ⁽¹⁾	7,481
Revolving credit agreement	40,000
Less:
Borrowings under our Credit Agreement	—
Outstanding letters of credit	(5,495		)
Total available liquidity	$	73,990