UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q



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

For the quarterly period ended September 30, ~~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, a smaller reporting company or an emerging growth company. ~~See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company.”~~ See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.



Large accelerated filer	¨	Accelerated filer	x

Non-accelerated filer	¨	Smaller reporting company	¨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 November ~~8, 2018,~~5, 2019, was ~~15,083,221~~15,263,170.

GULF ISLAND FABRICATION, INC.

I N D E X



		Page

PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets at September 30, ~~2018~~2019 (unaudited) and December 31, ~~2017~~2018	61
	Consolidated Statements of Operations for the Three and Nine Months Ended September 30, ~~2018~~2019 and ~~2017~~2018 (unaudited)	72
	Consolidated Statement of Changes in Shareholders' Equity for the Three and Nine Months Ended September 30, 2019 and 2018 (unaudited)	83
	Consolidated ~~Statement~~Statements of Cash Flows for the Nine Months Ended September 30, ~~2018~~2019 and ~~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	2119
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	3738
Item 4.	Controls and Procedures	3738
PART II	Other Information
Item 1.	Legal Proceedings	3839
Item 1A.	Risk Factors	3839
Item 6.	Exhibits	3839
Signatures		3940

- i -

GLOSSARY OF TERMS

As used in this ~~Report~~report on Form 10-Q for the quarter ended September 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,~~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 Hancock Whitney Bank maturing June 9, ~~2020,~~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		Fabricated structures that include structural steel, piping, valves, fittings, storage vessels and other equipment that are incorporated into a petrochemical or industrial system. These modules are pre-fabricated at our facilities and then transported to the customer's location for final integration.

MPSV		Multi-Purpose Service Vessel.

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

offshore		In unprotected waters outside coastlines.

onshore		Inside the coastline on land.

OSV		Offshore Support Vessel.

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

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

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

~~SeaOne~~		~~SeaOne Caribbean, LLC.~~

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

SEC		U.S. Securities and Exchange Commission.

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

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

South Texas Properties		~~Historically, our~~Our former Texas North Yard and Texas South ~~Yard properties, improvements and equipment located in Aransas Pass and Ingleside, Texas, respectively.~~Yard. The Texas South Yard property ~~together with improvements and related machinery and equipment~~ 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		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 Operations, as filed in this Report.

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

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

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

- iii -



Texas North 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		~~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. This property~~which was sold on April 20, 2018.

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

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

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)


	September 30, 2018		December 31, 2017		September 30, 2019		December 31, 2018
	(Unaudited)				(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	45,020	$	8,983	$	45,911	$	70,457
Short-term investments	9,494		—		25,457		8,720
Contracts receivable and retainage, net	28,933		28,466		30,268		22,505
Contracts in progress	40,187		28,373
Contract assets					50,855		29,982
Inventory	6,568		4,933		4,358		6,088
Prepaid expenses and other assets	3,456		3,833		3,437		3,268
Assets held for sale	42,670		104,576		18,518		18,935
Total current assets	176,328		179,164		178,804		159,955
Property, plant and equipment, net	80,707		88,899		74,770		79,930
Other noncurrent assets	5,922		2,777		23,591		18,405
Total assets	$	262,957	$	270,840	$	277,165	$	258,290
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	20,166	$	18,375	$	58,781	$	28,969
Advance billings on contracts	14,930		5,136
Deferred revenue	829		4,676
Accrued contract losses	6,033		7,618
Contract liabilities					15,682		16,845
Accrued expenses and other liabilities	10,339		12,860		10,359		10,287
Total current liabilities	52,297		48,665		84,822		56,101
Deferred revenue, noncurrent	2,489		769
Other noncurrent liabilities	3,035		1,913		5,299		1,089
Total liabilities	57,821		51,347		90,121		57,190
Shareholders’ equity:
Preferred stock, no par value, 5,000 shares authorized, no shares issued and outstanding	—		—		—		—
Common stock, no par value, 20,000 shares authorized, 15,044 shares issued and outstanding at September 30, 2018 and 14,910 at December 31, 2017	10,957		10,823
Common stock, no par value, 30,000 shares authorized, 15,263 shares issued and outstanding at September 30, 2019 and 15,090 at December 31, 2018					11,123		11,021
Additional paid-in capital	101,661		100,456		103,154		102,243
Retained earnings	92,518		108,214		72,767		87,836
Total shareholders’ equity	205,136		219,493		187,044		201,100
Total liabilities and shareholders’ equity	$	262,957	$	270,840	$	277,165	$	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 September 30,						Nine Months Ended September 30,						Three Months Ended September 30,						Nine Months Ended September 30,
	2018			2017			2018			2017			2019			2018			2019			2018
Revenue	$	49,712		$	49,884		$	161,016		$	133,745		$	75,802		$	49,712		$	223,863		$	161,016
Cost of revenue	52,924			50,378			164,248			150,755			78,487			52,924			227,593			164,248
Gross loss	(3,212		)	(494		)	(3,232		)	(17,010		)	(2,685		)	(3,212		)	(3,730		)	(3,232		)
General and administrative expenses	7,672			4,370			17,473			12,940
Asset impairments	—			—			1,360			389
General and administrative expense													3,970			4,902			11,791			14,703
Asset impairment and (gain) loss on assets held for sale, net													324			146			254			(5,683		)
Other (income) expense, net													(51		)	2,484			(181		)	2,859
Operating loss	(10,884		)	(4,864		)	(22,065		)	(30,339		)	(6,928		)	(10,744		)	(15,594		)	(15,111		)
Interest income (expense), net	72			(45		)	(166		)	(262		)
Other income (expense), net	140			38			6,954			(209		)
Interest (expense) income, net													139			72			527			(166		)
Net loss before income taxes	(10,672		)	(4,871		)	(15,277		)	(30,810		)	(6,789		)	(10,672		)	(15,067		)	(15,277		)
Income tax expense (benefit)	277			(1,761		)	419			(10,322		)
Income tax (expense) benefit													10			(277		)	(2		)	(419		)
Net loss	$	(10,949	)	$	(3,110	)	$	(15,696	)	$	(20,488	)	$	(6,779	)	$	(10,949	)	$	(15,069	)	$	(15,696	)
Per share data:
Basic and diluted loss per common share	$	(0.73	)	$	(0.21	)	$	(1.05	)	$	(1.38	)	$	(0.44	)	$	(0.73	)	$	(0.99	)	$	(1.05	)
Cash dividends per common share	$	—		$	0.01		$	—		$	0.03

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

GULF ISLAND FABRICATION, INC.

CONSOLIDATED ~~STATEMENT~~STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY

(UNAUDITED)

(in thousands)

Common Stock
Additional
Paid-In
Capital

Retained
Earnings

Total
Shareholders’
Equity

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



	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
Net loss	—	—			—			(10,949		)	(10,949		)
Vesting of restricted stock	1	—			(8		)	—			(8		)
Stock-based compensation expense	—	69			634			—			703
Balance at September 30, 2018	15,044	$	10,957		$	101,661		$	92,518		$	205,136



	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
Net loss	—	—			—			(6,779		)	(6,779		)
Vesting of restricted stock	27	(8		)	(73		)	—			(81		)
Stock-based compensation expense	—	46			416			—			462
Balance at September 30, 2019	15,263	$	11,123		$	103,154		$	72,767		$	187,044

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

GULF ISLAND FABRICATION, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)


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

	2018			2017			2019			2018
Cash flows from operating activities:
Net loss	$	(15,696	)	$	(20,488	)	$	(15,069	)	$	(15,696	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and lease asset amortization							7,264			7,788
Other amortization, net							37			(458		)
Bad debt expense	2,776			19			59			2,776
Depreciation and amortization	7,834			10,141
Amortization of deferred revenue	(504		)	(2,397		)
Asset impairments	1,360			389			622			1,360
(Gain) loss on sale of assets, net	(3,496		)	224
Gain on insurance recoveries, net	(3,342		)	—
Deferred income taxes	—			(10,235		)
Stock based compensation expense	2,134			2,636
(Gain) loss on sale of assets held for sale, net							(369		)	(3,701		)
(Gain) loss on sale of fixed assets and other assets, net							(565		)	87
(Gain) loss on insurance recoveries, net							—			(3,342		)
Stock-based compensation expense							1,808			2,134
Changes in operating assets and liabilities:
Contracts receivable and retainage, net	(6,211		)	(5,363		)	(7,822		)	(6,211		)
Contracts in progress	(11,814		)	(15,981		)
Prepaid expenses, inventory, and other assets	(2,519		)	(26		)
Contract assets							(20,873		)	(11,814		)
Prepaid expenses, inventory and other current assets							1,502			(1,722		)
Accounts payable	1,791			12,436			29,244			1,791
Advance billings on contracts	9,795			390
Deferred revenue	(1,621		)	(5,825		)
Accrued contract losses	(1,585		)	1,595
Contract liabilities							(1,164		)	6,588
Accrued expenses and other liabilities	2,432			2,926			(470		)	632
Noncurrent assets and liabilities, net (including long-term retainage)							(910		)	1,122
Net cash used in operating activities	(18,666		)	(29,559		)	(6,706		)	(18,666		)
Cash flows from investing activities:
Capital expenditures	(2,362		)	(4,515		)	(1,990		)	(2,362		)
Purchase of short-term investments	(9,174		)	—
Purchases of short-term investments							(45,366		)	(9,174		)
Maturities of short-term investments							28,761			—
Proceeds from sale of property, plant and equipment	57,716			2,120			1,598			57,716
Recoveries from insurance claims	9,362			—			—			9,362
Net cash provided by (used in) investing activities	55,542			(2,395		)	(16,997		)	55,542
Cash flows from financing activities:
Tax payments made on behalf of employees from vested stock withholdings	(795		)	(885		)
Payment of financing cost	(44		)	(88		)
Payments of dividends on common stock	—			(448		)
Proceeds from borrowings under Credit Agreement	15,000			2,000			—			15,000
Repayment of borrowings under Credit Agreement	(15,000		)	(2,000		)	—			(15,000		)
Payment of financing cost							(48		)	(44		)
Tax payments for vested stock withholdings							(795		)	(795		)
Net cash used in financing activities	(839		)	(1,421		)	(843		)	(839		)
Net change in cash and cash equivalents	36,037			(33,375		)
Net increase (decrease) in cash and cash equivalents							(24,546		)	36,037
Cash and cash equivalents, beginning of period	8,983			51,167			70,457			8,983
Cash and cash equivalents, end of period	$	45,020		$	17,792		$	45,911		$	45,020

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

GULF ISLAND FABRICATION, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

September 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 and shipping and marine transportation operations. We also provide ~~related~~ project management, ~~for EPC projects along with installation,~~ hookup, commissioning, repair, maintenance and ~~repair and maintenance~~civil construction services. ~~In addition, we perform civil, drainage and other work for state and local governments.~~ We 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. During the first quarter 2019, our former EPC Division was operationally combined with our Fabrication ~~Shipyard, Services~~Division. See Note 7 for discussion of our realigned operating divisions and ~~EPC.~~related financial information. Our corporate headquarters is located in Houston, Texas, with ~~fabrication~~operating facilities located in Houma, Jennings and Lake Charles, Louisiana.

~~We recently~~Significant projects in our backlog include the expansion of a paddle wheel riverboat, the construction of an offshore jacket and deck, five harbor tug vessels, three offshore regional class marine research vessels, three vehicle ferries, two towboats, an ice-breaker tug, and three towing, salvage and rescue ships. Projects completed in recent years include the fabrication of complex modules for ~~the construction of~~ a ~~new~~newbuild petrochemical facility and ~~the newbuild construction~~a meteorological tower and ~~delivery of a technologically-advanced OSV. Current significant projects include the~~platform for an offshore wind project, and construction of ~~ten~~two technologically advanced OSVs and five harbor tug vessels, two offshore regional class marine research vessels, an ice-breaker tug, and the expansion of a paddle wheel riverboat. We were also recently awarded a contract for the construction of a towing, salvage and rescue ship for the U.S. Navy with options for seven additional vessels. ~~Previous~~Other completed projects include the fabrication of wind turbine ~~pedestals~~foundations for the first offshore wind ~~power~~ project in the U.S., and construction of ~~one~~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 U.S. ~~Our customers include U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power, and marine operators, EPC companies and certain agencies~~

Basis of ~~the U.S. government.~~Presentation

The accompanying unaudited Consolidated Financial Statements ~~include the accounts of Gulf Island Fabrication, Inc. and its~~("Financial Statements") reflect all wholly owned subsidiaries. ~~All significant intercompany~~Intercompany balances and transactions have been eliminated in consolidation. The ~~Consolidated~~ 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 do not include all of the information and footnotes required by GAAP for complete financial statements. In our opinion, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three and nine months ended September 30, ~~2018,~~2019 are not necessarily indicative of the results that may be expected for the year ending December 31, ~~2018.~~2019.

~~The~~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 Financial Statements and related footnotes included in our 2018 Annual Report. Certain ~~balances at December 31, 2017~~amounts for the 2018 period have been reclassified within our Consolidated ~~Balance Sheet~~Statements of Operations ("Statement of Operations") and our Consolidated Statements of Cash Flows ("Statement of Cash Flows") to conform to our ~~September 30, 2018 presentation. For further information, refer to~~presentation for the ~~Consolidated Financial Statements and notes thereto included in our 2017 Annual Report.~~2019 period.

Business Outlook

We continue to strategically position the Company to participate in the fabrication of petrochemical and industrial facilities, pursue offshore wind opportunities, ~~enter the EPC industry,~~ and diversify our customer base within all ~~of our~~ operating divisions. In addition, we continue to focus on maintaining our liquidity and securing meaningful new ~~contract~~project awards and backlog in the near-term and generating operating income and cash ~~flow~~flows from operations in the longer-term. We have made significant progress in our efforts to increase our backlog and improve and preserve our liquidity, including cost reductions ~~in costs (including reducing our workforce and reducing the cash compensation paid to our directors~~ and the ~~salaries of our executive officers) and the divestiture~~sale of underutilized assets.

~~During the second quarter 2018, we completed the sale~~ We are further focused on strengthening relationships with key customers and enhancing our ~~Texas South Yard for $55.0 million, less selling costs of $1.5 million, for total net proceeds during the nine months ended September 30, 2018 of $53.5 million~~proposal, estimating and ~~a gain of approximately $3.9 million. In addition, on September 26, 2018, we entered into an agreement~~operations resources, processes and procedures to ~~sell~~improve our ~~Texas North Yard~~competitiveness and certain associated equipment for $28.0 million. We received $0.5 million during the third quarter 2018 as a deposit on the property, which is refundable under certain circumstances. The sale is anticipated to close in the fourth quarter 2018 and is subject to customary closing conditions, including the purchaser’s right to conduct inspections of the property related to confirmation of title, surveys, environmental conditions, easements and access rights, and third-party consents.overall project execution. See Note 23 for further discussion of ~~the~~our recent asset sales and assets held for sale ~~of our Texas South Yard and the anticipated sale of our Texas North Yard.~~

at September 30, 2019.

We believe that our cash, cash equivalents and short-term investments at September 30, ~~2018,~~2019, and availability under our Credit Agreement (defined in Note 4), will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the date of this Report.

~~Cash~~Operating Cycle

The 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 contract-related items are classified as current regardless of whether cash ~~equivalents~~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 ~~all highly liquid~~ investments with original maturities of three months or less when purchased to be cash equivalents.

Short-term investments

~~Short-term~~ - We consider investments with original maturities of more than three months but less than twelve months to be short-term investments. At September 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~~ 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 42 for further discussion of our ~~fair value measurements.~~allowance for doubtful accounts.

~~Income Taxes~~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.

~~At December 31, 2017,~~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 nine months ended September 30, 2019, we ~~had gross federal NOL carryforwards~~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 ~~offset future taxable income of $62.8 million, of which $4.0 million will expire on December 31, 2035. Our remaining federal NOL carryforwards will expire December 31, 2037. We have provided~~be categorized within a valuation ~~allowance against our deferred tax assets if,~~hierarchy based upon the ~~available evidence, it~~lowest level of input that is ~~more likely than not that some or all~~significant to the fair value measurement. The three levels of the ~~deferred tax assets will~~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 ~~be realized. At September 30, 2018~~observable in the market and ~~December 31, 2017, our net deferred tax assets were fully reserved with a~~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 ~~allowance.~~techniques.

~~During the fourth quarter 2018, we filed our 2017 federal tax return which did not result in any material adjustment to the provisional tax~~The carrying amounts ~~we recorded under Staff Accounting Bulletin 118 at December 31, 2017, related to our evaluation of the Tax Cuts~~reported for financial instruments, including cash and ~~Jobs Act of 2017. Our overall evaluation of the Tax Cuts~~cash equivalents, short-term investments, contracts receivable and Jobs Act of 2017 is not complete as we expect to file certain remaining state tax returns during the fourth quarter 2018; however, adjustments to our remaining state returns, if any, are not expected to be material.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 ~~under~~using the percentage-of-completion method ~~computed by the significant inputs method, which measures the percentage of labor hours~~(an input method), based on contract costs incurred to date as 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 ~~labor hours for each contract.~~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 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. ~~See Note 3~~Our T&M contracts provide for ~~further discussion~~labor and materials to be billed at rates specified within the contract. The consideration from the customer directly corresponds to the value of our ~~revenue recognition policy and related accounting for our contracts.~~performance completed at the time of invoicing.

OnVariable 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 ~~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~~606. Prior 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. Ourour adoption of Topic 606, ~~included a detailed review~~our determination of ~~our significant contracts that were not substantially complete as of January 1, 2018. Based on our review, we concluded that revenue recognition~~percentage-of-completion for our fixed-price and unit-rate contracts ~~using the percentage-of-completion method, computed by measuring~~was based on the percentage of direct labor hours incurred to date as compared to total estimated ~~total~~direct labor hours, and revenue for ~~each contract, is still appropriate. Our review also determined that~~materials was recognized only to the extent of costs incurred. However, in our adoption of Topic 606, ~~did not impact~~we adjusted our measure of progress for the ~~timing~~determination of ~~revenue recognition~~percentage-of-completion to include subcontract labor hours in addition to direct labor hours. Accordingly, our determination of percentage-of-completion for ~~our T&M contracts. Based~~the three and nine months ended September 30, 2018, was based on this method.

During the ~~aforementioned,~~fourth quarter 2018, we concluded that the ~~impact~~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 the three and nine months ended September 30, 2019, was ~~immaterial~~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 ~~Consolidated~~ Financial ~~Statements~~Statements. Accordingly, no cumulative adjustment to retained earnings as of January 1, 2018 was recorded.

Income Taxes

Income taxes have been provided using the liability method. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and ~~no adjustment was required. See Note 3~~liabilities for ~~further discussion~~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 expected to reverse.

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 DTAs will not be realized. The realization of our ~~adoption~~DTAs depends on our ability to generate sufficient taxable income of ~~Topic 606.~~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 September 30, 2019 and December 31, 2018, we had no deferred pre-contract costs.

Other (Income) Expense, Net

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.

New Accounting Standards

Leases -In ~~February 2016,~~ the ~~FASB issued~~first quarter 2019, we adopted 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 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 effect during such periods. We also elected certain practical expedients provided by ASU 2016-02, including not recording an asset or liability for 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 ~~their balance sheet but~~our Balance Sheet. At September 30, 2019, our lease asset, current lease liability and long-term lease liability were $6.8 million, $0.3 million and $4.7 million, respectively. For leases with escalations over the life of the lease, we recognize expense inon a ~~manner similar to current guidance. ASU 2016-02 will be effective~~straight-line basis. See Note 5 for ~~us in~~further discussion of our lease liabilities.

Stock-based grants - In the first quarter ~~2019.~~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 now aligned with the requirements for share-based payments to employees. The adoption of the new standard ~~is required to be applied using~~did not have a ~~modified retrospective approach. Upon adoption, we will record a right of use asset and corresponding liability for our operating leases.We continue to evaluate the effect that ASU 2016-02 will have~~material impact on our financial position, results of operations ~~and~~or related disclosures. ~~We are currently designing and implementing process changes and evaluating the information requirements necessary to properly account for ASU 2016-02.~~

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, 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 us in the first quarter 2020. Early adoption of the new standard is permitted; however, we have not elected to early adopt the standard. The 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 ~~HELD FOR SALE~~

~~A summary of assets included in assets held for sale at September 30, 2018, is as follows (in thousands):~~

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

~~South Texas Properties~~

~~Texas South Yard~~ - During the second quarter 2018, we completed the sale of our Texas South Yard for $55.0 million, less selling costs of $1.5 million, for total net proceeds during the nine-months ended September 30, 2018 of approximately $53.5 million and a gain of approximately $3.9 million, which is included within other income (expense), net on our Consolidated Statements of Operations.

~~Texas North Yard -~~ On September 26, 2018, we entered into an agreement to sell our Texas North Yard and certain associated equipment for $28.0 million.We received $0.5 million during the third quarter 2018 as a deposit on the property, which is refundable under certain circumstances, and has been recorded as a liability within accrued expenses and other liabilities on our Consolidated Balance Sheet at September 30, 2018. The sale is anticipated to close in the fourth quarter 2018 and is subject to customary closing conditions, including the purchaser’s right to conduct inspections of the property related to confirmation of title, surveys, environmental conditions, easements and access rights, and third-party consents. Based on the sales price and estimated closing and other costs, we expect to realize a gain on the transaction upon closing. We can provide no assurances that we will successfully close the transaction, that closing will occur under our expected timeline or that we will achieve our estimated net proceeds or a gain on the sale. We continue to actively market the remaining Texas North Yard assets held for sale, which primarily consist of three 660-ton crawler cranes, a barge, a plate bending roll machine, and panel line equipment.

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

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

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

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

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

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

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

~~Shipyard Division Assets~~

Our Shipyard Division assets held for sale primarily consist of a 2,500-ton drydock located at our Houma Shipyard. During the nine months ended September 30, 2017, we recorded impairments of $0.4 million for these assets based upon their estimated sales price. During the nine months ended September 30, 2017, we sold two drydocks for proceeds of $2.0 million and recorded a loss of $0.3 million. Our assets held for sale for the Shipyard Division do not qualify for discontinued operations presentation.

~~NOTE 3 – REVENUE RECOGNITION~~

Revenue for our fixed-price and unit-rate contracts is recognized using 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. Direct materials and subcontract materials and services that represent an insignificant portion of the work to complete a contract or do not reflect an accurate measure of project completion are considered "pass-through costs." Revenue recognized in a period for a contract is the pro rata portion of the contract value (excluding pass-through costs), based upon the labor hour measure of progress, plus pass-through costs incurred during the period. Accordingly, pass-through costs are included in revenue and direct costs of revenue with no impact on gross profit recognized during the period.

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 of our performance completed at the time of invoicing. Accordingly, we have elected the “right to invoice” practical expedient under Topic 606 for the recognition of revenue for our T&M contracts. The practical expedient allows us to recognize revenue in the amount we have the right to invoice (at contracted rates when the work is performed and costs are incurred).

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, penalties, 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 most likely amount to which we expect to be entitled and include estimated amounts in the transaction price to the extent it is probable that a significant future reversal of cumulative revenue recognized will not occur or when we conclude that any significant uncertainty associated with the variable consideration is resolved. For the three and nine months ended September 30, 2018 and 2017, we had no material amounts in revenue related to unapproved change orders, claims, or incentives. However certain projects in our Shipyard Division reflect a reduction to our estimated contract price of $11.7 million for variable consideration related to liquidated damages. The reductions in contract price were recorded during the fourth quarter 2017.

Revenue and gross profit for contracts accounted for using the percentage-of-completion method can also be significantly affected by changes in estimated cost to complete such contracts. The cumulative impact of revisions in total cost estimates during the progress of work is reflected in the period in which these changes become known, including, to the extent required, the reversal of profit recognized in prior periods and the recognition of losses expected to be incurred on 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 Consolidated Financial Statements and related disclosures.

~~Adoption of Topic 606~~

AND LIABILITIES AND OTHER CONTRACT MATTERS

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

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

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

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

Disaggregation of Revenue -

The following tables summarize revenue for each of our operating segments, disaggregated by contract type, ~~and timing of revenue recognition,~~ for the three and nine months ended September 30, ~~2018~~2019 and ~~2017~~2018 (in thousands):

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


		Three Months Ended September 30, 2017														Three Months Ended September 30, 2019
		Fabrication		Shipyard		Services		EPC		Eliminations			Total			Fabrication		Shipyard		Services		Eliminations			Total
Contract Type	Contract Type														Contract Type
Fixed-price and unit-rate ⁽¹⁾	Fixed-price and unit-rate ⁽¹⁾	$	18,318	$	13,906	$	6,147	$	—	$	(1,159	)	$	37,212	Fixed-price and unit-rate ⁽¹⁾	$	19,474	$	38,128	$	6,770	$	(65	)	$	64,307
T&M ⁽²⁾	T&M ⁽²⁾	—		1,168		11,504		—		—			12,672		T&M ⁽²⁾	—		1,308		9,442		—			10,750
Other	Other	—		—		—		—		—			—		Other	—		—		1,295		(550		)	745
	Total	$	18,318	$	15,074	$	17,651	$	—	$	(1,159	)	$	49,884	Total	$	19,474	$	39,436	$	17,507	$	(615	)	$	75,802


		Nine Months Ended September 30, 2018														Three Months Ended September 30, 2018
		Fabrication		Shipyard		Services		EPC		Eliminations			Total			Fabrication		Shipyard		Services		Eliminations			Total
Contract Type	Contract Type														Contract Type
Fixed-price and unit-rate ⁽¹⁾	Fixed-price and unit-rate ⁽¹⁾	$	28,171	$	62,116	$	35,197	$	—	$	(2,550	)	$	122,934	Fixed-price and unit-rate ⁽¹⁾	$	3,382	$	23,635	$	10,422	$	(494	)	$	36,945
T&M ⁽²⁾	T&M ⁽²⁾	—		4,561		31,495		—		—			36,056		T&M ⁽²⁾	—		857		10,424		—			11,281
Other ⁽³⁾	Other ⁽³⁾	—		—		—		2,026		—			2,026		Other ⁽³⁾	—		—		1,771		(285		)	1,486
	Total	$	28,171	$	66,677	$	66,692	$	2,026	$	(2,550	)	$	161,016	Total	$	3,382	$	24,492	$	22,617	$	(779	)	$	49,712


		Nine Months Ended September 30, 2017														Nine Months Ended September 30, 2019
		Fabrication		Shipyard		Services		EPC		Eliminations			Total			Fabrication		Shipyard		Services		Eliminations			Total
Contract Type	Contract Type														Contract Type
Fixed-price and unit-rate ⁽¹⁾	Fixed-price and unit-rate ⁽¹⁾	$	42,517	$	47,632	$	20,969	$	—	$	(4,328	)	$	106,790	Fixed-price and unit-rate ⁽¹⁾	$	54,520	$	108,361	$	23,517	$	(4,311	)	$	182,087
T&M ⁽²⁾	T&M ⁽²⁾	—		4,166		22,789		—		—			26,955		T&M ⁽²⁾	—		5,229		30,403		—			35,632
Other	Other	—		—		—		—		—			—		Other	—		—		7,254		(1,110		)	6,144
	Total	$	42,517	$	51,798	$	43,758	$	—	$	(4,328	)	$	133,745	Total	$	54,520	$	113,590	$	61,174	$	(5,421	)	$	223,863



		Nine Months Ended September 30, 2018
		Fabrication		Shipyard		Services		Eliminations			Total
Contract Type
Fixed-price and unit-rate ⁽¹⁾		$	30,197	$	62,116	$	31,288	$	(1,989	)	$	121,612
T&M ⁽²⁾		—		4,561		31,495		—			36,056
Other		—		—		3,909		(561		)	3,348
	Total	$	30,197	$	66,677	$	66,692	$	(2,550	)	$	161,016

____________

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

(2) Revenue is recognized at contracted rates when the work is performed and costs are incurred.

~~(3) Revenue primarily represents early work authorized by SeaOne and is recognized as the contract is progressed over time.~~

Future Performance Obligations Required Under Contracts - ~~The following tables summarize the~~

A summary of our remaining ~~revenue to be earned under~~ performance obligations ~~for the portion of contracts not yet completed as of~~by operating segment at September 30, ~~2018~~2019, is as follows (in thousands).


Segment	Performance Obligations at September 30, 2018		Performance Obligations
Fabrication	$	44,746	$	39,894
Shipyard ⁽¹⁾	282,912		384,852
Services	11,699		15,189
EPC	836
Intersegment eliminations	—
Total	$	340,193	$	439,935

_____________

(1) Amount excludes approximately $30.1 million in the aggregate of remaining performance obligations under dispute pursuant to a termination notice from our customer related to contracts for the construction of two MPSVs. See Note 8 for further discussion of these contracts.


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

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


Year	Total		Performance Obligations
Remainder of 2018	$	56,243
2019	199,922
Remainder of 2019			$	79,028
2020	74,976		230,699
2021	8,405		122,068
2022	647
Thereafter			8,140
Total	$	340,193	$	439,935

Contracts ~~Receivable~~Assets and ~~Retainage~~

Our customers include U.S. and, to a lesser extent, international energy producers, petrochemical, industrial, power, and marine operators, EPC companies and certain agencies of the U.S. government. Of our contracts receivable balance at September 30, 2018, $18.4 million was with two customers.

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

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

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 ~~above;~~in Note 1; however, customer invoicing ~~will~~is generally ~~depend~~dependent upon predetermined billing terms, which could provide for customer payments in advance ~~payments or invoicing~~of performing the work, milestone billings based ~~upon achievement~~on the completion of certain ~~milestones~~phases of the work, or ~~project progress.~~billings when services are provided. Revenue recognized in excess of amounts billed is reflected as ~~contracts in progress~~contract assets on our ~~Consolidated~~ Balance ~~Sheets.~~Sheet. Amounts billed in excess of revenue recognized, isand accrued contract losses, are reflected as ~~advance billings on contracts~~contract liabilities on our ~~Consolidated~~ Balance ~~Sheets. Contracts~~Sheet. Contract assets and contract liabilities included in ~~progress totaled $40.2 million~~our Balance Sheet at September 30, 2019 and December 31, 2018, ~~with $37.1~~are as follows (in thousands):



	September 30,			December 31,
	2019			2018
Contract assets	$	50,855		$	29,982
Contract liabilities ^{(1), (2), (3)}	(15,682		)	(16,845		)
Contracts in progress, net	$	35,173		$	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 by an increase in billings on a project in our Fabrication Division and advance payments on a project in our Shipyard Division.

(2)

Revenue recognized during the three months ended September 30, 2019 and 2018, which related to amounts included in our contract liabilities balance at June 30, 2019 and 2018, was $8.5 million and $2.6 million respectively. Revenue recognized during the nine months ended September 30, 2019 and 2018, which related to amounts included in our contract liabilities balance at December 31, 2018 and 2017, was $14.3 million and $5.1 million, respectively.


(3)	Contract liabilities at September 30, 2019 and December 31, 2018, includes accrued contract losses of $3.0 million and $2.4 million, respectively. See "Project Changes in Estimates" below for further discussion of our accrued contract losses.

Allowance for Doubtful Accounts

For the three months ended September 30, 2019, we had no provision for bad debts, and for the three months ended September 30, 2018, our provision for bad debts was $2.8 million. For the nine months ended September 30, 2019 and 2018, our provision for bad debts was $0.1 million ~~relating to three customers. Advance billings~~and $2.8 million, respectively. Our provision for bad debts is included in other (income) expense, net on ~~contracts totaled $14.9 million~~our Statement of Operations. Our allowance for doubtful accounts at September 30, 2019 and December 31, 2018 ~~with $11.2 million relating to one customer. Accrued contract losses totaled $6.0~~was $0.1 million and ~~$7.6~~$0.4 million, respectively.

Variable Consideration

For the three and nine months ended September 30, 2019 and 2018, we had no material amounts in revenue related to unapproved change orders, claims, or incentives. However, at September 30, ~~2018~~2019 and December 31, ~~2017, respectively.~~

~~NOTE 4 – FAIR VALUE MEASUREMENTS~~

~~We make fair value determinations by applying the following hierarchy,~~2018, certain projects in our Shipyard and Services divisions reflected a reduction to our estimated contract price for liquidated damages of $11.8 million and $11.2 million, respectively, of 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:$11.2 million was recorded during 2017.

~~Level 1 - inputs are based upon quoted prices~~Changes in Project Estimates

For the three and nine months ended September 30, 2019, significant changes in estimated margins on projects resulted in an increase in our operating loss of $3.9 million and $5.8 million, respectively. The changes in estimates were associated with our harbor tug projects and ice-breaker tug project in our Shipyard Division and a project in our Services Division.

The changes in estimates for ~~identical instruments traded~~the harbor tug projects totaled $1.9 million and $3.1 million for the three and nine months ended September 30, 2019, respectively. The changes in ~~active markets;~~

~~Level 2 - inputs are based upon quoted prices~~estimates for ~~similar instruments~~the third quarter 2019 were the result of increased forecast costs and liquidated damages, primarily associated with the need to supplement and re-perform work for an under-performing paint subcontractor, higher cost estimates from our electrical and instrumentation subcontractor, and our inability to achieve previously anticipated labor productivity improvements on our uncompleted vessels, resulting in ~~active markets~~increased craft labor and ~~model-based valuation techniques~~subcontracted services and extensions of schedule for ~~which all significant assumptions are observable~~the projects. The changes in estimates for the first half of 2019 were the result of increased forecast costs, primarily associated with 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 completion of the fifth vessel in the ~~market;~~third quarter 2019 and progress achieved on the remaining five vessels. At September 30, 2019, the uncompleted vessels were at various stages of completion ranging from approximately 13% to 88% and are forecast to be completed at various dates ranging from the fourth quarter 2019 through the third quarter 2020. The projects were in a loss position at September 30, 2019 and our reserve for estimated losses was $1.9 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 additional schedule liquidated damages, the projects would experience further losses.

~~Level 3 - inputs~~

The changes in estimates for the ice-breaker tug project totaled $0.5 million and $1.3 million for the three and nine months ended September 30, 2019, respectively. The changes in estimates for the third quarter 2019 were the result of increased forecast costs, primarily associated with difficulties encountered to launch the vessel and anticipated delays and costs to deliver the vessel, resulting in additional craft labor, subcontracted services and support, and an extension of schedule for the project. The changes in estimates for the first half of 2019 were the result of increased forecast costs, primarily associated with 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. At September 30, 2019, the vessel was approximately 85% complete and is forecast to be completed in the fourth quarter 2019 and delivered in the first quarter 2020. The project was in a loss position at September 30, 2019 and our reserve for estimated losses was $0.1 million. If future craft labor productivity differs from our current estimates, we are ~~generally unobservable~~unable to achieve our progress estimates, our schedule is further extended, or we experience further delays or additional costs to deliver the vessel, the project would experience further losses.

The changes in estimates for our Services project totaled $1.5 million and ~~typically reflect management’s~~$1.4 million for the three and nine months ended September 30, 2019, respectively. The changes in estimates were the result of ~~assumptions that market participants~~increased forecast costs and liquidated damages, primarily associated with stringent welding procedure requirements and customer specifications for subsea components, resulting in additional materials, craft labor and subcontracted services and support, and an extension of schedule for the project. At September 30, 2019, the project was approximately 56% complete and is forecast to be completed in the first quarter 2020. The project was in a loss position at September 30, 2019 and our reserve for estimated losses was $0.6 million. If we continue to experience difficulties with the procedure requirements and specifications for the project or the schedule is further extended, the project would ~~use~~experience further losses.

For the three and nine months ended September 30, 2018, individual projects with significant changes in ~~pricing the asset or liability. These include discounted cash flow models and similar valuation techniques.~~estimated margins did not have a material net impact on our loss from operations.

Other Project Matters

~~Recurring fair value measurements and financial instruments~~Project Tariffs -~~The carrying~~ 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, ~~reported for financial instruments, including cash and cash equivalents, short-term investments, contracts receivable and accounts payable, approximate their fair values.~~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.

~~Assets held~~Other - At September 30, 2019 and December 31, 2018, other noncurrent assets on our Balance Sheet included $3.0 million of retention for ~~sale~~ ~~- We measure~~a previously completed project in our Fabrication Division for the fabrication of modules for a petrochemical facility. This retention is billable to the customer upon expiration of the contractual warranty period, which is expected to occur in the second quarter 2020; however, the customer has recently announced it is pursuing strategic alternatives and ~~record assets held for sale at~~has executed amendments to its financing arrangements that could delay the ~~lower~~timing of ~~their carrying amount or fair value less costs to sell. The determination~~collection of ~~fair value generally requires~~ the ~~use of significant judgments. See Note 2 for further discussion~~retention.

3. ASSETS HELD FOR SALE

A summary of our assets held for sale at September 30, 2019, is as follows (in thousands):




Assets	Fabrication Division			Shipyard Division			Consolidated
Machinery and equipment	$	25,789		$	898		$	26,687
Accumulated depreciation	(7,871		)	(298		)	(8,169		)
Total	$	17,918		$	600		$	18,518

Fabrication Division Assets Held for Sale

South Texas Properties - During the first quarter 2017, we classified our fabrication yards and ~~their~~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 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, during the nine months ended September 30, 2018, we received net proceeds of $53.8 million and recognized a gain of $3.9 million, which is included within asset impairments and (gain) loss on assets held for sale, net on our Statement of Operations.

At September 30, 2019, our Fabrication Division continued to have $17.9 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 and $9.4 million of payments received during the nine months ended September 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 ~~measurements.~~of the asset group as a result of Hurricane Harvey; and

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

Other - During the nine months ended September 30, 2019 and 2018, we received proceeds of $0.4 million and $1.2 million, respectively, related to the sale of assets that were held for sale, which resulted in a gain of $0.3 million and loss of $0.4 million for the nine months ended September 30, 2019 and 2018, respectively. During the nine months ended September 30, 2019 and 2018, we recorded expense of $0.3 million and $1.4 million related to the impairment of other assets that were held for sale. The net expense of $1.8 million for the nine months ended September 30, 2018 is included within asset impairments and (gain) loss on assets held for sale, net on our Statement of Operations.

The sale of our South Texas Properties did not impact our ability to operate our Fabrication Division. Further, the sale of our South Texas Properties, and the Fabrication AHFS, did not qualify for discontinued operations presentation as we continue to operate our Fabrication Division at our fabrication yard in Houma, Louisiana.

~~NOTE 5 – LOSS PER COMMON SHARE~~Shipyard Division Assets Held for Sale

At September 30, 2019, our Shipyard Division had $0.6 million of assets held for sale ("Shipyard AHFS"), which consists of a 2,500-ton drydock located at our shipyard in Houma, Louisiana. The ~~following table presents~~carrying value reflects an impairment of $0.3 million recorded during the ~~computation~~three and nine months ended September 30, 2019, as we sold the drydock in October 2019 for net proceeds of ~~basic and diluted loss per share (in thousands, except~~$0.6 million, which was $0.3 million less than its carrying value. The Shipyard AHFS did not qualify for ~~per share amounts):~~

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

~~______________~~

~~(1) We have no dilutive securities.~~discontinued operations presentation.

~~NOTE 6 – LINE OF~~4. CREDIT FACILITIES

Credit Agreement

We have a $40.0 million ~~Credit Agreement~~revolving credit facility with Hancock Whitney Bank ("Credit Agreement") that can be used for borrowings or letters of credit. On ~~August 27, 2018,~~May 1, 2019, we ~~entered into a third amendment to~~amended our Credit Agreement ~~which extended~~to extend its maturity date ~~from June 9, 2019~~ to June 9, ~~2020,~~2021 and reduced the base tangible net worth requirement from $185.0 million to $180.0 million. The third amendment also removed the inclusion of 50% of Consolidated Net Income (as defined in the Credit Agreement) for each fiscal quarter and the inclusion of 50% of the gain on the sale of our South Texas Properties from our minimum tangible net worth covenant. Accordingly, ouramend certain financial covenants. Our amended quarterly financial covenants ~~during~~for the remaining term of the Credit Agreement are as follows:

Ratio of current assets to current liabilities of not less than ~~1.25:~~2.00:1.00;

Minimum tangible net worth of at least the sum of ~~$180.0~~$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 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 either the Wall Street Journal published Prime Rate (5.0% at September 30, 2019) or LIBOR (2.0% at September 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 assets ~~(other than the assets held for sale at~~(with a negative pledge on our ~~Texas North Yard)~~real property).

At September 30, ~~2018,~~2019, we had no outstanding borrowings under our Credit Agreement and ~~$2.5~~$10.4 million of outstanding letters of credit, providing ~~$37.5~~$29.6 million of available capacity. At September 30, ~~2018,~~2019, we were in compliance with all of our financial ~~covenants.~~covenants, with a tangible net worth of $185.2 million (as defined by the Credit Agreement), a ratio of current assets to current liabilities of 2.11:1.00, and a ratio of funded debt to tangible net worth of 0.06:1.00.

~~NOTE 7 - SEGMENT DISCLOSURES~~Surety Bonds

We ~~have structured~~issue surety bonds in the ordinary course of business to support our operations with four operating divisions, and one corporate non-operating division, which represent our reportable segments. As part of our efforts to strategically reposition the Company as discussed in Note 1, we may change how we manage the business which could result in changes to our reportable segments in future periods. Our reportable segments atprojects. At September 30, ~~2018 are discussed below.~~2019, we had $409.3 million of outstanding surety bonds.

~~Fabrication Division~~ -Our Fabrication Division fabricates offshore drilling and production platforms and other steel 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), piles, wellhead protectors, subsea templates, and various production, compressor, and utility modules along with pressure vessels. Our Fabrication Division also fabricates structures for alternative energy customers (such as the five jackets and piles we constructed for the first offshore wind power project in the U.S.) as well as modules for petrochemical and industrial facilities. We perform these activities at our fabrication yard in Houma, Louisiana. As of September 30, 2018, our Texas North Yard is held for sale and our Texas South Yard had been sold. See Note 2 for further discussion of our South Texas Properties.

~~Shipyard Division -~~ Our Shipyard Division fabricates newbuild vessels and repairs various steel marine vessels including offshore supply vessels, anchor handling vessels and liftboats to support the construction and ongoing operation of offshore oil and gas production platforms, tug boats, towboats, barges, drydocks and other marine vessels. Our marine repair activities include steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft, and rudder reconditioning. In addition, we perform 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 activities at our shipyards in Houma, Jennings and Lake Charles, Louisiana.

~~Services Division~~- Our Services Division provides interconnect piping and related services for offshore platforms and inland structures, which includes sending 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. We also contract with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the southeastern U.S. for various on-site construction and maintenance activities. In addition, our Services Division fabricates packaged skid units and performs various civil and drainage projects, such as pump stations, levee reinforcement, bulkheads and other work for state and local governments. We perform these services at customer facilities or at our services yard in Houma, Louisiana.

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

~~Corporate Division~~ - Our Corporate Division represents expenses that do not directly relate to our four operating divisions and are not allocated to our operating divisions. Such expenses include, but are not limited to, costs related to executive management and directors' fees, clerical and administrative salaries, costs of maintaining our corporate office and costs associated with overall governance and being a publicly traded company.

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 and overhead expenses directly related to our operating divisions, or costs related to shared services incurred by our Corporate Division on behalf of our operating divisions, are allocated to the four operating divisions. Shared services include human resources, insurance, business development, information technology and accounting. Intersegment revenue is priced at the estimated fair value of work performed.

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

Three Months Ended September 30, 2018
Fabrication Shipyard Services EPC Corporate Eliminations Consolidated
Revenue $ 2,311
$ 24,492
$ 22,617
$ 1,071
$ —
$ (779 ) $ 49,712
Gross profit (loss) (4,032 ) (1,764 ) 3,191
(205 ) (402 ) —
(3,212 )
Operating income (loss) (7,708 ) (2,460 ) 2,486
(708 ) (2,494 ) —
(10,884 )
Total assets ⁽¹⁾
100,115
92,839
37,201
2,217
30,585
—
262,957
Depreciation and amortization expense 1,023
1,050
365
—
36
—
2,474
Capital expenditures —
783
545
142
1
—
1,471

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

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

Nine Months Ended September 30, 2017
Fabrication Shipyard Services EPC Corporate Eliminations Consolidated
Revenue $ 42,517
$ 51,798
$ 43,758
$ —
$ —
$ (4,328 ) $ 133,745
Gross profit (loss) 216
(19,061 ) 2,335
—
(500 ) —
(17,010 )
Operating income (loss) (2,216 ) (22,285 ) 327
—
(6,165 ) —
(30,339 )
Total assets ⁽¹⁾
164,677
96,614
33,024
—
9,065
—
303,380
Depreciation and amortization expense 5,420
3,034
1,266
—
421
—
10,141
Capital expenditures 2,327
1,872
199
—
117
—
4,515

~~_______________~~

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

~~NOTE 8 –~~5. COMMITMENTS AND CONTINGENCIES

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

MPSV Termination Letter

WeDuring 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 ~~MPSVs~~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 ~~two MPSVs.~~vessels. We have ~~notified and met~~discussed with ~~our~~the Surety ~~regarding~~ our disagreement with ~~and objection to,~~ the ~~customer's~~customer’s purported ~~termination~~terminations and its ~~claims. Discussions~~claims and continue to confer with the Surety ~~are ongoing.~~ regarding the dispute with the customer.

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. The customer recently filed an amendment to its counterclaim to add claims by the customer against the Surety. The customer also recently filed a second motion for summary judgment re-urging its previously denied request to obtain possession of the vessels. A hearing on the second motion is currently scheduled for November 5, 2019. Discovery in connection with the lawsuit is underway.

We are unable to ~~estimate~~determine the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the ~~contracts.~~contracts and defend against the customer's claims. At September 30, 2019 and December 31, 2018, other noncurrent assets on our Balance Sheet included a net ~~balance sheet position for~~contract asset of $12.5 million, which consisted of our contract asset, accrued contract losses, and deferred revenue balances at the ~~contracts was $12.5 million.~~time of the customer's purported termination of the contracts.

~~Project Award Protest~~Insurance

~~During~~We may be exposed to 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 ~~first quarter 2018,~~extent we ~~executed~~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 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. With respect to a letter of credit under our Credit Agreement, any advance payment in the event of non-performance under a contract ~~for~~would become a borrowing under our Credit Agreement and thus a direct obligation. With respect to a surety bond, any advance payment in the ~~construction and delivery~~event of ~~one towing, salvage and rescue ship vessel with the U.S. Navy for $63.6 million, with an option for seven additional vessels, which was subsequently protested by one~~non-performance is subject to indemnification of the ~~unsuccessful bidders. On July 16, 2018, we were notified that the award was upheld~~Surety by the U.S. Government Accountability Office and we were given a notification to proceed. On August 6, 2018, we were notified that the unsuccessful bidder had filed a subsequent protest with the Department of Justice. On August 9, 2018, we were granted a partial stay,us, which ~~allows~~may require us to ~~proceed with pre-construction design development, planning, scheduling~~borrow under our Credit Agreement. When a contract is complete, the contingent obligation terminates, and ~~material ordering. Construction~~letters of ~~the vessel cannot begin until a final ruling is issued by the U.S. Court of Federal Claims. We~~credit or surety bonds are ~~working with the U.S. Navy to re-establish a timeline for construction under this contract.~~

~~NOTE 9 – SUBSEQUENT EVENTS~~

~~On October 2, 2018, we filed a lawsuit against a customer to enforce our rights and remedies under the applicable construction contracts for the construction of two MPSVs.~~returned. See Note 84 for further discussion of our ~~dispute~~Credit Agreement and ~~lawsuit.~~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 lease terms through 2038 and 2045, respectively. We 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	$	163
2020	659
2021	668
2022	677
2023	676
Thereafter	6,173
Total lease payments	9,016
Less interest	(3,989		)
Present value of lease liabilities	$	5,027

The discount rate used to determine the present value of our lease liabilities was based on the interest rate on our Credit Agreement adjusted for terms similar to that of our leased properties. At September 30, 2019, our weighted-average remaining lease term was approximately 15.8 years and the weighted-average discount rate used to derive our lease liability was 7.5%. Cash paid for lease liabilities for the three and nine months ended September 30, 2019 was $0.2 million and $0.5 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 laws of other countries, that establish health and environmental quality standards. These standards, among others, relate to air and water pollutants and the management and disposal of 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.

6. INCOME (LOSS) PER COMMON SHARE

The following table presents the computation of basic and diluted income (loss) per share for the three and nine months ended September 30, 2019 and 2018 (in thousands, except for per share amounts):



	Three Months Ended September 30,						Nine Months Ended September 30,
	2019			2018			2019			2018
Net loss attributable to common shareholders	$	(6,779	)	$	(10,949	)	$	(15,069	)	$	(15,696	)
Weighted-average shares⁽¹⁾	15,254			15,044			15,214			15,017
Basic and diluted loss per common share	$	(0.44	)	$	(0.73	)	$	(0.99	)	$	(1.05	)

______________

(1) We have no dilutive securities.

7. SEGMENT DISCLOSURES

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 modular fabrication and offshore wind 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 nine months ended September 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 meet the criteria of reportable segments under GAAP. Our three operating divisions and Corporate Division are discussed below:

Fabrication Division -Our Fabrication Division fabricates 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 offshore structures for customers in the oil and gas industry, including jackets and deck sections of fixed production platforms, hull and/or deck sections of floating production platforms (such as TLPs, SPARs, FPSOs), piles, wellhead protectors, subsea templates, and various production, compressor, and utility modules along with pressure vessels. In addition, our Fabrication Division supports our efforts to pursue offshore wind opportunities and other projects that require project management of EPC activities. These activities are performed at our fabrication yard in Houma, Louisiana.

Shipyard Division - Our Shipyard Division fabricates newbuild vessels, including OSVs, MPSVs, research vessels, tugboats, salvage vessels, towboats, barges, drydocks, anchor handling vessels, lift boats and other marine vessels. Our Shipyard Division also performs marine repair activities, including steel repair, blasting and painting services, electrical systems repair, machinery and piping system repairs, and propeller, shaft, and rudder reconditioning. In addition, 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. These activities are performed at our shipyards in Houma, Jennings and Lake Charles, Louisiana.

Services Division- Our Services Division provides interconnect piping and related services on offshore platforms and 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. Our Services Division also contracts with oil and gas companies that have platforms and other structures located in the inland lakes and bays throughout the southeastern 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. These services are performed at customer facilities or at our services yard in Houma, Louisiana.

Corporate Division - Our Corporate Division represents costs that do not directly relate to our three operating divisions. Such costs include, but are not limited to, executive management and directors' fees, clerical and administrative salaries, costs of maintaining 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. Intersegment revenues are priced at the estimated fair value of work performed. Summarized financial information for our segments as of and for the three and nine months ended September 30, 2019 and 2018, is as follows (in thousands):



	Three Months Ended September 30, 2019
	Fabrication			Shipyard			Services			Corporate			Consolidated
Revenue	$	19,474		$	39,436		$	17,507		$	(615	)	$	75,802
Gross profit (loss)	(428		)	(2,402		)	210			(65		)	(2,685		)
Operating loss	(848		)	(3,349		)	(407		)	(2,324		)	(6,928		)
Depreciation and amortization expense	840			992			362			96			2,290
Capital expenditures	137			326			168			—			631
Total assets ⁽¹⁾	63,098			109,129			28,604			76,334			277,165



	Three Months Ended September 30, 2018
	Fabrication			Shipyard			Services		Corporate			Consolidated
Revenue	$	3,382		$	24,492		$	22,617	$	(779	)	$	49,712
Gross profit (loss)	(4,237		)	(1,764		)	3,191		(402		)	(3,212		)
Operating income (loss)	(8,277		)	(2,454		)	2,482		(2,495		)	(10,744		)
Depreciation and amortization expense	1,023			1,050			365		42			2,480
Capital expenditures	142			783			545		1			1,471
Total assets ⁽¹⁾	85,780			86,162			32,427		58,595			262,964



	Nine Months Ended September 30, 2019
	Fabrication			Shipyard			Services		Corporate			Consolidated
Revenue	$	54,520		$	113,590		$	61,174	$	(5,421	)	$	223,863
Gross profit (loss)	(1,877		)	(5,594		)	4,088		(347		)	(3,730		)
Operating income (loss)	(3,599		)	(7,817		)	2,610		(6,788		)	(15,594		)
Depreciation and amortization expense	2,698			3,148			1,099		319			7,264
Capital expenditures	282			1,060			648		—			1,990
Total assets ⁽¹⁾	63,098			109,129			28,604		76,334			277,165



	Nine Months Ended September 30, 2018
	Fabrication			Shipyard			Services		Corporate			Consolidated
Revenue	$	30,197		$	66,677		$	66,692	$	(2,550	)	$	161,016
Gross profit (loss)	(5,888		)	(5,563		)	9,390		(1,171		)	(3,232		)
Operating income (loss)	(6,572		)	(7,810		)	7,223		(7,952		)	(15,111		)
Depreciation and amortization expense	3,219			3,170			1,141		258			7,788
Capital expenditures	142			1,442			708		70			2,362
Total assets ⁽¹⁾	85,780			86,162			32,427		58,595			262,964

____________


(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 ~~Consolidated~~ 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 or loss 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 ~~sub-contractors,~~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.

Overview

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

We operate and manage our business through ~~four~~three operating divisions ("Fabrication", "Shipyard" and "Services") and one non-operating division ("Corporate"), which represent our reportable segments. ~~Our~~During the first quarter 2019, our former EPC Division was operationally combined with our Fabrication Division, and accordingly, the segment results for the EPC Division for the three and nine months ended September 30, 2018 were 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 include: Fabrication, Shipyard, Services and EPC.~~divisions. Our corporate headquarters is located in Houston, Texas, with ~~fabrication~~operating facilities located in Houma, Jennings and Lake Charles, Louisiana. ~~At September 30, 2018,~~

Beginning in 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 ~~Texas North Yard is held for~~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, we incurred losses on certain projects in our Shipyard and Fabrication Divisions. 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 sale of underutilized assets. Further, to reduce our Fabrication Division's reliance on offshore oil and gas construction and our ~~Texas South Yard had been sold.~~

~~We continue~~Shipyard Division's reliance on marine vessel work related to the oil and gas sector, we began to strategically ~~position~~reposition the Company to participate in the fabrication of petrochemical and industrial facilities, pursue offshore wind opportunities ~~enter the EPC industry~~ and diversify our customer base within all of our operating divisions. In addition, we continue to focus on maintaining liquidity and securing meaningful new contract awards and backlog in the near-term, and generating operating income and cash flow from operations in the longer-term. We have made significant progress in our efforts to reposition the Company, increase our backlog and improve and preserve our liquidity, including cost reductions ~~in costs~~ (including reducing ~~our workforce and reducing~~ the ~~cash~~ compensation paid to our directors and ~~the salaries of our~~ executive officers) and the ~~divestiture~~sale of underutilized assets. We are further focused on strengthening relationships with key customers and enhancing our proposal, estimating and operations resources, processes and procedures to improve our competitiveness and overall project execution.

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

~~Texas South Yard~~ Fabrication Assets Held for Sale -~~- During the second quarter 2018, we completed the sale of our Texas South Yard for $55.0 million, less selling costs of $1.5 million, for total net proceeds during the nine-months ended~~ At September 30, ~~2018~~2019, our Fabrication Division had $17.9 million of ~~approximately $53.5 million and a gain of approximately $3.9 million.~~

~~Texas North Yard -~~ On September 26, 2018, we entered into an agreement to sell our Texas North Yard and certain associated equipment for $28.0 million. We received $0.5 million during the third quarter 2018 as a deposit on the property, which is refundable under certain circumstances. The sale is anticipated to close during the fourth quarter 2018 and is subject to customary closing conditions, including the purchaser’s right to conduct inspections of the property related to confirmation of title, surveys, environmental conditions, easements and access rights and third-party consents. Based on the sales price and estimated closing and other costs, we expect to realize a gain on the transaction upon closing. We can provide no assurances that we will successfully close the transaction, that closing will occur under our expected timeline or that we will achieve our estimated net proceeds or a gain on the sale. We continue to actively market the remaining Texas North Yard assets held for sale ("Fabrication AHFS") which were initially expected to be sold with the South Texas Properties. These assets consist primarily ~~consist~~ of three 660-ton crawler cranes, a deck barge, atwo plate bending roll ~~machine~~machines and panel line equipment. The Fabrication AHFS were relocated to our fabrication yard in Houma, Louisiana. See Note 3 of our Financial Statements for further discussion of our assets held for sale, including recent sales of underutilized assets.

~~Hurricane Harvey Insurance Recoveries~~Shipyard Assets Held for Sale - During the third quarter 2017, buildings and equipment located at our South Texas Properties were damaged by Hurricane Harvey. During the second quarter 2018, we agreed to a global settlement with our insurance carriers for total insurance recoveries of $15.4 million, resulting in a net gain on insurance recoveries of $3.6 million during the nine months endedAt September 30, ~~2018. As~~2019, our Shipyard Division had $0.6 million of ~~September 30, 2018, all insurance~~assets held for sale, which consists of a 2,500-ton drydock. We sold the drydock in October 2019 for net proceeds ~~had been received, including $7.2 million received during the third quarter 2018.~~of $0.6 million.

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

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 our pursuit of certain large project opportunities has been negatively affected by the timing and delay of such opportunities and the competitive market environment, we have experienced success with several smaller project opportunities, and our volume of bidding activity for onshore modules and structures continues to be at its highest level since we commenced our initiative. In addition, during 2018 we completed the fabrication and timely delivery of four large modules for a new petrochemical ~~facility. We currently have several bids outstanding for the fabrication of modules and continue to pursue additional fabrication work~~facility in the ~~petrochemical~~U.S., providing increased confidence to our customers that we can successfully compete and ~~industrial industries.~~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 U.S. ~~in 2015,~~, and ~~we believe that we possess the expertise to obtain future work in this sector. During the first quarter~~during 2018, we ~~signed~~fabricated a ~~contract for the fabrication of one~~ meteorological tower and platform for an offshore wind project located off the U.S.

coast of Maryland. ~~The fabrication work was completed in the second quarter 2018 and represents~~These projects demonstrate 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~~support potential offshore wind projects and, ~~have~~during the first quarter 2019, executed a ~~teaming~~cooperation agreement with ~~the EEW Group~~Smulders to jointly pursue ~~future~~ U.S. offshore wind ~~projects. We~~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 assurances that we will ~~be successful obtaining~~successfully obtain future ~~wind~~ project awards ~~from~~as a result of this arrangement.

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

~~During the first quarter 2018,~~Shipyard Division - Within our Shipyard Division we ~~executed a contract for the construction and delivery of one towing, salvage and rescue ship vessel~~have increased our backlog with ~~the U.S. Navy for $63.6 million, with an option for seven additional vessels, which was subsequently protested by one~~customers outside of the ~~unsuccessful bidders. On July 16, 2018,~~oil and gas sector. At September 30, 2019, projects in our backlog include:


–	The construction of three towing, salvage and rescue ships (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);


–	The construction of a seventy-vehicle ferry; and


–	The construction of five harbor tug vessels.

Fabrication Division - Within our Fabrication Division we ~~were notified~~have increased our backlog with traditional and non-traditional fabrication work as we continue to pursue petrochemical and industrial fabrication opportunities for modules and structures. At September 30, 2019, projects in our 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 ~~the award was upheld~~are well suited for our fabrication yard in Houma, Louisiana.

Services Division - Within our Services Division our activity has been impacted by the ~~U.S. Government Accountability Office,~~timing of new project awards and fluctuations in the demand for our products and services. Further, in recent periods we ~~were given a notification to proceed. On August 6, 2018, we were notified that the unsuccessful bidder had filed a subsequent protest with the Department~~have experienced an increasing amount of ~~Justice. On August 9, 2018, we were granted a partial stay, which allows us to proceed with pre-construction design development, planning, scheduling~~lower margin maintenance work and material ~~ordering. Construction of the vessel cannot begin until a final ruling is issued by the U.S. Court of Federal Claims. We are working with the U.S. Navy~~sales compared to ~~re-establish a timeline for construction under this contract.~~

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

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

~~Continued growth of our services related work~~ ~~- Demand for~~ services associated with offshore tie-backs ~~upgrades~~ and ~~maintenance remains strong, and we~~fabricated products, which have historically provided higher margin opportunities. We anticipate itthis recent mix of work will continue for the remainder of ~~2018~~2019. Although visibility beyond 2019 is uncertain, and ~~into 2019.~~fluctuations in the timing and mix of work are normal, we believe that the overall market demand for the products and services offered by this Division is strong. We ~~will continue~~are continuing to pursue opportunities for offshore and onshore plant expansion and maintenance work, and ~~have targeted service opportunities within~~we are receiving indications from our customers that the ~~shale basins in West Texas.~~need for offshore tie-backs and fabricated products is increasing.

~~Pursuit of EPC work~~MPSV Contracts Dispute - During the ~~fourth~~first quarter 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. Our current activities include pricing, planning and scheduling for the project. SeaOne’s selection of the Company is non-binding and commencement of the project remains subject to a number of conditions, including agreement on terms of the engagement with SeaOne. We understand that SeaOne is in the process of securing financing for the project. We continue to enhance our internal project management capabilities through the hiring of additional personnel to service this potential project.

~~MPSV contract dispute~~ ~~- As discussed in Note 8 to our Consolidated Financial Statements,~~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 ~~MPSVs~~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 ~~two MPSVs.~~vessels. We have ~~notified and met~~discussed with ~~our~~the Surety ~~regarding~~ our disagreement with ~~and objection to,~~ the ~~customer's~~customer’s purported ~~termination~~terminations and its ~~claims. Discussions~~claims and continue to confer with the Surety ~~are ongoing.~~ regarding the dispute with the customer.

On October 2, 2018, we filed a lawsuit against the customer to enforce our rights and remedies under the applicable construction contracts. Our lawsuit disputes the propriety of the customer’s purported ~~termination~~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. The customer recently filed an amendment to its counterclaim to add claims by the customer against the Surety. The customer also recently filed a second motion for summary judgment re-urging its previously denied request to obtain possession of the

vessels. A hearing on the second motion is currently scheduled for November 5, 2019. Discovery in connection with the lawsuit is underway.

We are unable to ~~estimate~~determine the probability of a favorable or unfavorable outcome with respect to the dispute or estimate the amount of potential loss, if any, related to this matter. We can provide no assurances that we will not incur additional costs as we pursue our rights and remedies under the ~~contracts.~~contracts and defend against the customer’s claims. At September 30, 2019, other noncurrent assets on our Balance Sheet included a net contract asset of $12.5 million related to these projects. See "Legal Proceedings" in Part II, Item 1 of this Report and Note 5 of our Financial Statements for further discussion of our dispute.

Review of Alternative Strategies

On November 4, 2019, we announced the completion of our previously announced review of alternative strategies that began in early May 2019.

Operating Outlook

~~Looking forward, our~~Our results of operations will be affected ~~primarily~~prospectively by the overall demand and market for our services. ~~In recent years, a significant portion of~~Further, our ~~historical customer base has been negatively affected by a decline~~success in ~~offshore oil and gas exploration and development activity as companies focus on onshore development opportunities. As a result, and as discussed above, we have implemented a number of initiatives to~~ strategically ~~reposition~~repositioning the Company to participate in the fabrication of petrochemical and industrial facilities, pursue offshore wind opportunities ~~enter the EPC industry,~~ and diversify our ~~customers~~customer base within all of our operating ~~divisions. The success of these initiatives and our future operations~~divisions, will be determined 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;~~

~~The ability of SeaOne to obtain financing~~wind developments, and our ~~successful execution of an agreement with SeaOne for the SeaOne Project;~~ability to secure new project awards;

Continued growth within our Shipyard and Services Divisions;

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

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

Our ability to resolve our dispute with aour customer related to the construction of two MPSVs.

We continue to respond to the competitive environment within our industry and actively compete for additional opportunities. ~~We have increased~~Our focus remains on maintaining our liquidity and securing meaningful new project awards and backlog ~~within~~in the near-term and generating operating income and cash flows from operations in the longer-term. Although we experienced a decline in backlog for our ~~Shipyard,~~ Fabrication and ~~Services~~Shipyard Divisions ~~and~~during the third quarter 2019, we believe we will be successful securing new project awards and growing our ~~backlog. However,~~backlog in the future. Further, we are experiencing significantly improved utilization of our ~~operations~~Shipyard facilities as we ramp up construction activities for our large projects in backlog; however, we anticipate that our Fabrication Division will be negatively impacted in the ~~near term~~near-term by the underutilization of its facilities due to ~~an anticipated lag~~the delay in ~~the commencement~~timing of ~~fabrication activities for our recent and anticipated~~ new project awards. ~~Further, our~~Both divisions will also be impacted by lower margin backlog related to previous project awards ~~were sold during~~bid at competitive pricing. In addition, certain projects within our backlog are in a ~~period of competitive pricing~~loss position, and the projects will result in future revenue with ~~lower than desired margins.~~no gross profit.

Safety

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

Critical Accounting Policies ~~and Estimates~~

For a discussion of critical accounting policies and estimates 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 to our critical accounting policies since December 31, ~~2017.~~2018.

New Project Awards and Backlog

New project awards represent ~~the~~ expected revenue ~~value~~values of ~~new contract~~ commitments received during a given period, ~~as well as~~including scope growth on existing commitments. ~~New contract commitments represent contracts for which a~~A commitment represents authorization from our customer ~~has authorized us~~ to begin work or purchase materials pursuant to a written agreement, ~~letters~~letter of intent or other ~~forms~~form of authorization. Backlog represents the unearned value of our new project awards and may differ from the value of ~~future~~remaining performance obligations for our contracts required to be disclosed under Topic 606 and presented in Note ~~3 to~~2 of our ~~Consolidated~~ Financial Statements. ~~We believe that backlog,~~In general, a ~~non-GAAP financial measure, provides useful information~~performance obligation is a contractual obligation to ~~investors.~~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 revenue when, or as, the performance obligation is satisfied. Backlog includes our performance obligations at September 30, ~~2018,~~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 but represent future work that we believe will be performed. We believe that backlog, a non-GAAP financial measure, provides useful information to investors. New project awards and backlog may vary significantly each reporting period based on the timing of our major new contract ~~commitments.~~commitments.

~~Our projects~~

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 generally exclude suspended projects from backlog when they are expected to be suspended more than twelve 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 contract could significantly ~~reduce~~impact our backlog and ~~could have a material adverse effect on future~~change the expected amount and timing of revenue ~~operating results and cash flows.~~ recognized.

A reconciliation of our ~~future~~remaining performance obligations under Topic 606 (the most comparable GAAP measure as presented in Note ~~3 to~~2 of our ~~Consolidated~~ Financial Statements) to our reported backlog at September 30, 2019, is provided below (in thousands).



	September 30, 2019
	Fabrication		Shipyard		Services		Consolidated
Remaining performance obligations under Topic 606	$	39,894	$	384,852	$	15,189	$	439,935
Contracts under purported termination ⁽¹⁾	—		21,888		—		21,888
Total Backlog ⁽²⁾	$	39,894	$	406,740	$	15,189	$	461,823

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

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



	September 30, 2019			December 31, 2018
Division	Amount		Labor hours	Amount		Labor hours
Fabrication	$	39,894	253	$	63,883	369
Shipyard	406,740		2,364	281,531		1,684
Services	15,189		283	11,046		171
Total Backlog ⁽²⁾	$	461,823	2,900	$	356,460	2,224

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



Year ⁽³⁾	Total
Remainder of 2019	$	79,028
2020	230,699
2021	122,068
Thereafter	8,140
Future performance obligations under Topic 606	439,935
Contracts under purported termination ⁽¹⁾	21,888
Backlog ⁽²⁾	$	461,823

___________

(1)

~~Includes~~Represents backlog within our Shipyard Division ~~pursuant to a purported notice of termination from our customer~~ 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 can provide no assurances that we will reach a favorable resolution with the customer for completion of the two MPSVs. See Note ~~8 to~~5 of our ~~Consolidated~~ Financial Statements for further discussion of the dispute.

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

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

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

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

~~___________~~


~~(1)~~(2)	At September 30, ~~2018, six~~2019, nine customers represented approximately ~~89%~~95% of our backlog, and at December 31, ~~2017, four~~2018, seven customers represented approximately ~~73%~~90% of our backlog. At September 30, ~~2018,~~2019, backlog from the ~~six~~nine customers consisted of:


(i)	~~Newbuild construction~~Construction of two harbor tugs within our Shipyard Division. The third of five ~~harbor tugs (to be~~vessels was completed in ~~2018 through 2020);~~the third quarter 2019. We estimate completion of the remaining vessels in 2020;


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


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

(iv)

~~Newbuild construction~~Construction of ~~one~~three towing, salvage and rescue ship vessel (to be completed in 2021). During the first quarter 2018, we executed a contract with the U.S. Navy for $63.6 million, with an option for seven additional vessels, which was subsequently protested by oneships within our Shipyard Division. We estimate completion of the ~~unsuccessful bidders. Construction~~vessels in 2021 and 2022. Our customer has options for the construction of the vessel cannot begin until a final ruling is issued by the U.S. Court of Federal Claims. See Note 8 to our Consolidated Financial Statements for further discussion. We are working with the U.S. Navy to re-establish a timeline for construction under this contract;five additional vessels;


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

(vi)

~~Newbuild construction~~Construction of two, ~~MPSV's.~~forty-vehicle ferries within our Fabrication Division. We are currently in dispute with our customer pursuant to a purported notice of termination related to these contracts. We dispute the purported termination and disagree with the customer’s reasons for the same. We can provide no assurances that we will reach a favorable resolution with the customer forestimate completion of the ~~MPSVs. See Note 8 to our Consolidated Financial Statements for further discussion of the dispute.~~vessels in 2020;


~~(2)~~(vii)	Fabrication of an offshore jacket and deck (destined for Trinidad) within our Fabrication Division. We estimate completion of the project in 2020;


(viii)	Construction of a seventy-vehicle ferry within our Shipyard Division. We estimate completion of the vessel in 2020; and


(ix)	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 our current estimates to complete the projects. Certain factors and circumstances could cause changes in the amounts ultimately recognized and the timing of 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 U.S. Navy) the right, ~~to our customer,~~ if exercised, for the construction of additional vessels at contracted prices. We do not include options in our backlog. If all options under our current contracts were exercised by our ~~customers,~~customer, our backlog would increase by approximately ~~$534.0~~$333.0 million. We have not received any commitments from our customer related to the exercise of these options, and we can provide no assurances that any options will be exercised. We believe disclosing these options provides investors with useful information to evaluate additional potential work that we would be contractually obligated to perform under our current contracts as well as the potential significance of these options, if ~~exercised. We have not received any commitments from our customers related to the exercise of these options, and we can provide no assurances that any of these options will be~~ exercised.

As 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 and support our project risk mitigation discipline for all projects. This may negatively impact near-term results.

~~Workforce~~

At September 30, 2018, we had 816 employees compared to 977 employees at December 31, 2017. Labor hours worked were 1.4 million during the nine months ended September 30, 2018, compared to 1.5 million for the nine months ended September 30, 2017. The decrease in labor hours worked is primarily within our Fabrication Division due to completion of complex modules for a new petrochemical facility with no immediate replacement backlog for our Fabrication Division during the 2018 period, as well as the suspension of construction of two MPSVs within our Shipyard Division pending resolution of the dispute with our customer. See Note 8 to our Consolidated Financial Statements for further discussion of the dispute.This decrease was partially offset by improved demand within our Services Division.

Results of Operations

Comparison of Three Months Ended September 30, 2019 and 2018 ~~Compared to Three Months Ended September 30, 2017~~ (in thousands in each table, 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 September 30,						Increase (Decrease)				Three Months Ended September 30,						Favorable (Unfavorable) Change
	2018			2017			Amount			Percent	2019			2018			Amount			Percent
Revenue	$	49,712		$	49,884		$	(172	)	(0.3)%	$	75,802		$	49,712		$	26,090		52.5%
Cost of revenue	52,924			50,378			2,546			5.1%	78,487			52,924			(25,563		)	(48.3)%
Gross loss	(3,212		)	(494		)	(2,718		)	(550.2)%	(2,685		)	(3,212		)	527			16.4%
Gross loss percentage	(6.5		)%	(1.0		)%					(3.5		)%	(6.5		)%
General and administrative expenses	7,672			4,370			3,302			75.6%
General and administrative expense											3,970			4,902			932			19.0%
Asset impairments and (gain) loss on assets held for sale, net											324			146			(178		)	(121.9)%
Other (income) expense, net											(51		)	2,484			2,535			nm
Operating loss	(10,884		)	(4,864		)	(6,020		)	(123.8)%	(6,928		)	(10,744		)	3,816			35.5%
Interest income (expense), net	72			(45		)	117			260.0%
Other income, net	140			38			102			268.4%
Interest (expense) income, net											139			72			67			93.1%
Net loss before income taxes	(10,672		)	(4,871		)	(5,801		)	(119.1)%	(6,789		)	(10,672		)	3,883			36.4%
Income tax expense (benefit)	277			(1,761		)	2,038			115.7%
Income tax (expense) benefit											10			(277		)	287			nm
Net loss	$	(10,949	)	$	(3,110	)	$	(7,839	)	(252.1)%	$	(6,779	)	$	(10,949	)	$	4,170		38.1%

Revenue - Revenue for ~~the three months ended September 30,~~2019 and 2018 ~~and 2017,~~ was ~~$49.7~~$75.8 million and ~~$49.9~~$49.7 million, respectively, representing ~~a decrease~~an increase of ~~0.3%~~52.5%. ~~Revenue for the 2018 period approximated~~The increase was primarily due to:

Increased revenue for ~~the 2017 period~~our Shipyard Division of $14.9 million, primarily due to progress on our regional class research vessel projects and towing, salvage and rescue ship projects, offset partially by lower revenue for our harbor tug projects and ice-breaker tug project; and

Increased revenue for our Fabrication Division of ~~$16.0~~$16.1 million, ~~attributable~~primarily due to ~~the completion~~progress on our paddle wheel riverboat project, vehicle ferry projects and ~~delivery of four modules for a petrochemical facility~~offshore jacket and deck project, which were not under construction in the ~~second quarter 2018, which was substantially~~prior period; offset ~~by:~~partially by,

~~A $5.0 million increase in~~Decreased revenue ~~within~~for our Services Division of $5.1 million, primarily due to ~~additional demand for onshore~~the timing of new project awards and ~~offshore oil and gas service related projects; and~~

~~A $9.4 million net increase in revenue within our Shipyard Division due to additional progress on the construction~~materials representing a lower percentage of ten harbor tug vessels and an ice-breaker tug that was not under construction during the third quarter 2017, offset partially by lower revenue from our two MPSV contracts that were suspended during the first quarter 2018. See Note 8 to our Consolidated Financial Statements for further discussion of the MPSV contracts.revenue.

Gross loss - Gross loss for ~~the three months ended September 30,~~2019 and 2018 was $2.7 million (3.5% of revenue) and ~~2017, was~~ $3.2 million (6.5% ~~of revenue) and $0.5 million (1.0%~~ of revenue), respectively. The gross loss ~~during the 2018 period~~for 2019 was primarily due ~~to under~~to:

Under recovery of ~~our~~ overhead costs ~~(including holding costs for~~(primarily associated with the underutilization of our ~~Texas North Yard of $0.7 million)~~facilities within our Fabrication Division, and ~~the impact of lower margin backlog~~to a lesser extent within our Shipyard ~~Division~~Division), including a $0.4 million impact due to Hurricane Barry associated with the costs of hurricane preparation and its impact on the utilization of our facilities and personnel;

Charge of $1.9 million related to ~~previous~~forecast cost increases and liquidated damages on our harbor tug projects in our Shipyard Division (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects);

Charge of $1.5 million related to forecast cost increases and liquidated damages on a subsea components fabrication project ~~awards sold during a period~~in our Services Division (see Note 2 of ~~competitive pricing.~~ our Financial Statements for further discussion of the changes in estimates on this project); and

Charge of $0.5 million related to forecast cost increases on our ice-breaker tug project in our Shipyard Division (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project).

The ~~increase~~decrease in gross loss for 2019 relative to the prior period was primarily due ~~to a higher gross loss for our Fabrication Division of $5.3 million related to decreased fabrication revenue, offset partially by:~~to:

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

A ~~decrease in gross loss within~~higher margin project mix for our Shipyard Division (excluding the aforementioned project charges); offset partially by,

The aforementioned project charges of ~~$1.7~~$3.9 million ~~due to increased revenue, a reduction in overhead costs, and the prior period including $2.1 million in contract losses related to cost increases on the construction of two MPSVs;~~for 2019; and

~~Increased gross profit within~~A lower margin project mix for our Services Division ~~of $1.3 million due to increased revenue and higher recovery of our overhead costs.~~(excluding the aforementioned project charge).

General and administrative ~~expenses~~expense - General and administrative ~~expenses~~expense for ~~the three months ended September 30,~~2019 and 2018 ~~and 2017, were $7.7~~was $4.0 million ~~(15.4%~~(5.2% of revenue) and ~~$4.4~~$4.9 million ~~(8.8%~~(9.9% of revenue), respectively, representing ~~an increase~~a decrease of ~~75.6%~~19.0%. The ~~increase~~decrease was primarily due to:

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

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

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

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

~~These increases were offset partially by headcount reductions.~~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 $0.3 million and $0.6 million for 2019 and 2018, respectively.

~~Interest income (expense),~~Asset impairments and (gain) loss on assets held for sale, net - ~~- Interest income (expense),~~Asset impairments and (gain) loss on assets held for sale, net for ~~the three months ended September 30,~~2019 and 2018 was a loss of $0.3 million and ~~2017, was income of $72,000 and expense of $45,000,~~$0.1 million, respectively. The ~~net interest income~~loss for ~~the 2018 period~~2019 was primarily due to ~~interest earned from cash equivalents and short-term investments.~~

~~Other income,~~the impairment of a drydock held for sale in our Shipyard Division as we sold the drydock for net - ~~Other income, net for the three months ended September 30, 2018 and 2017,~~proceeds of $0.6 million in October 2019, which was ~~income of $0.1~~$0.3 million ~~and $38,000, respectively. Other income, net for the period was primarily due to net gains on the sales of assets.~~

~~Income tax expense (benefit) -~~ ~~Income tax expense (benefit) for the three months ended September 30, 2018 and 2017, was expense of~~$0.3 million and benefit of $1.8 million, respectively. Current expense represents state income taxes. No federal tax benefit was recorded during the 2018 period as a full valuation allowance was recorded against our net NOL deferred tax assets generated during the period.less than its carrying value. See Note ~~1 to~~3 of our ~~Consolidated~~ Financial Statements for further discussion of our ~~NOLs and deferred tax assets.~~

~~Operating Segments~~

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

Fabrication Three Months Ended September 30, Increase (Decrease)
2018 2017 Amount Percent
Revenue $ 2,311
$ 18,318
$ (16,007 ) (87.4)%
Gross profit (loss) (4,032 ) 1,250
(5,282 ) (422.6)%
Gross profit (loss) percentage (174.5 )% 6.8 %
General and administrative expenses 3,676
778
2,898
372.5%
Operating income (loss) (7,708 ) 472
(8,180 )

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

~~Gross profit (loss)~~Other (income) expense, net - ~~Gross profit (loss)~~Other (income) expense, net for 2019 and 2018 was income of $0.1 million and expense of $2.5 million, respectively. Other (income) expense, net generally represents (recoveries) provisions for bad debts, (gains) losses associated with the ~~three months ended September 30, 2018~~sale or disposition of property and ~~2017, was a gross loss of $4.0 million (174.5% of revenue)~~equipment other than assets held for sale, and ~~a gross profit of $1.3 million (6.8% of revenue), respectively.~~(income) expense associated with certain nonrecurring items. The ~~gross loss during the 2018 period was primarily due to under recovery of our overhead costs (including holding costs for our Texas North Yard of $0.7 million). The gross loss~~expense for 2018 ~~relative to the prior period gross profit was primarily due to decreased revenue, offset partially by a reduction in overhead costs.~~

~~General and administrative expenses~~ - General and administrative expenses for the three months ended September 30, 2018 and 2017, were $3.7 million (159.1% of revenue) and $0.8 million (4.2% of revenue), respectively, representing an increase of 372.5%. The increase was primarily due to bad debt expense of $2.8 million related to a contracts receivable reserve recorded during the ~~third~~ quarter ~~2018~~within our Fabrication Division as we received indications that ~~collectability~~collectibility of the receivable was no longer probable, offset partially by net gains on the sales of equipment. The reserved receivable was ultimately collected in the fourth quarter 2018.

Interest (expense) income, net - Interest (expense) income, net for 2019 and 2018, was income of $0.1 million and $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 income for 2018 was primarily due to interest earned on our cash and short-term investment balances.

Income tax (expense) benefit - Income tax (expense) benefit for 2019 and 2018 was a benefit of $10,000 and expense of $0.3 million, respectively. Income tax (expense) benefit represents state income taxes. No federal tax benefit was recorded for losses during 2019 or 2018 as a full valuation allowance was recorded against our deferred tax assets generated during the periods.

Operating Segments

Fabrication Division⁽¹⁾



	Three Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount		Percent
Revenue	$	19,474		$	3,382		$	16,092	475.8%
Gross loss	(428		)	(4,237		)	3,809		89.9%
Gross loss percentage	(2.2		)%	(125.3		)%
General and administrative expense	440			1,409			969		68.8%
Asset impairments and (gain) loss on assets held for sale, net	—			146			146		100.0%
Other (income) expense, net	(20		)	2,485			2,505		100.8%
Operating loss	(848		)	(8,277		)	7,429		89.8%

___________

(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 for 2019 and 2018 was $19.5 million and $3.4 million, respectively, representing an increase of 475.8%. The increase was primarily due to progress on our paddle wheel riverboat project, vehicle ferry projects and jacket and deck project, which were not under construction in the prior period.

Gross loss - Gross loss for 2019 and 2018 was $0.4 million (2.2% of revenue) and $4.2 million (125.3% of revenue), respectively. The gross loss for 2019 was primarily due to the 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.

General and administrative expense - General and administrative expense for 2019 and 2018 was $0.4 million (2.3% of revenue) and $1.4 million (41.7% of revenue), respectively, representing a decrease of 68.8%. 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 loss of $0.1 million.

Other (income) expense, net - Other (income) expense, net for 2019 and 2018 was income of $20,000 and expense of $2.5 million, respectively. The expense for 2018 was primarily due to bad debt expense of $2.8 million related to a contracts receivable reserve recorded during the quarter as we received indications that collectibility of the receivable was no longer probable, offset partially by net gains on the sales of equipment. The reserved receivable was ultimately collected in the fourth quarter 2018.

Shipyard



	Three Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	39,436		$	24,492		$	14,944		61.0%
Gross loss	(2,402		)	(1,764		)	(638		)	(36.2)%
Gross loss percentage	(6.1		)%	(7.2		)%
General and administrative expense	657			696			39			5.6%
Asset impairments and (gain) loss on assets held for sale, net	324			—			(324		)	nm
Other (income) expense, net	(34		)	(6		)	28			nm
Operating loss	(3,349		)	(2,454		)	(895		)	(36.5)%

Revenue - Revenue for 2019 and 2018 was $39.4 million and $24.5 million, respectively, representing an increase of 61.0%. The increase was primarily due to:

Progress on our regional class research vessel projects and towing, salvage and rescue ship projects; offset partially by,

Lower revenue for our harbor tug projects and ice-breaker tug project.

Gross loss - Gross loss for 2019 and 2018 was $2.4 million (6.1% of revenue) and $1.8 million (7.2% of revenue), respectively. The gross loss for 2019 was primarily due to:

Charge of $1.9 million related to forecast cost increases and liquidated damages on our harbor tug projects (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects);

Charge of $0.5 million related to forecast cost 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); and

Under recovery of overhead costs.

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

The aforementioned project charges of $2.4 million for 2019; offset partially by,

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

A higher margin project mix (excluding the aforementioned project charges).

General and administrative expense - General and administrative expense for 2019 and 2018 was $0.7 million (1.7% of revenue) and $0.7 million (2.8% of revenue), respectively, representing a decrease of 5.6%. 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.

Asset impairments and (gain) loss on assets held for sale, net - Asset impairments and (gain) loss on assets held for sale, net for 2019 was a loss of $0.3 million. The loss for 2019 was primarily due to the impairment of a drydock held for sale as we sold the drydock for net proceeds of $0.6 million in October 2019, which was $0.3 million less than its carrying value.

Services



	Three Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	17,507		$	22,617		$	(5,110	)	(22.6)%
Gross profit	210			3,191			(2,981		)	(93.4)%
Gross profit percentage	1.2		%	14.1		%
General and administrative expense	614			705			91			12.9%
Other (income) expense, net	3			4			1			nm
Operating income (loss)	(407		)	2,482			(2,889		)	(116.4)%

Revenue - Revenue for 2019 and 2018 was $17.5 million and $22.6 million, respectively, representing a decrease of 22.6%. The decrease was primarily due to the timing of new project awards and materials representing a lower percentage of revenue.

Gross profit - Gross profit for 2019 and 2018 was $0.2 million (1.2% of revenue) and $3.2 million (14.1% of revenue), respectively. Gross profit for 2019 was impacted by a charge of $1.5 million related to forecast cost increases and liquidated damages on a subsea components fabrication project (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project). The 2019 period was also impacted by $0.2 million due to Hurricane Barry associated with the costs of hurricane preparation and its impact on the utilization of our facilities and personnel.

The decrease in gross profit for 2019 relative to the prior period was primarily due to the aforementioned project charge, lower revenue and a lower margin project mix (excluding the project charge).

General and administrative expense - General and administrative expense for 2019 and 2018 was $0.6 million (3.5% of revenue) and $0.7 million (3.1% of revenue), respectively, representing a decrease of 12.9%. The decrease was primarily due to lower incentive plan costs other cost reductions.

Corporate



	Three Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue (eliminations)	$	(615	)	$	(779	)	$	164		nm
Gross loss	(65		)	(402		)	337			83.8%
Gross loss percentage	n/a			n/a
General and administrative expense	2,259			2,092			(167		)	(8.0)%
Other (income) expense, net	—			1			1			100.0%
Operating loss	(2,324		)	(2,495		)	171			6.9%

Gross loss - Gross loss for 2019 and 2018 was $0.1 million and $0.4 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 $2.3 million (3.0% of consolidated revenue) and $2.1 million (4.2% of consolidated revenue), respectively, representing an increase of 8.0%. The increase was primarily due to:

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; offset partially by,

Lower incentive plan costs and board of director compensation costs.

The customer disputes relate primarily to the pursuit of claims against a customer for disputed change orders for a completed project, ~~completed~~and our MPSV projects which are subject to a purported termination and for which construction has been suspended.

Comparison of Nine Months Ended September 30, 2019 and 2018 (in thousands for each table, except for percentages):

Consolidated



	Nine Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	223,863		$	161,016		$	62,847		39.0%
Cost of revenue	227,593			164,248			(63,345		)	(38.6)%
Gross loss	(3,730		)	(3,232		)	(498		)	(15.4)%
Gross loss percentage	(1.7		)%	(2.0		)%
General and administrative expense	11,791			14,703			2,912			19.8%
Asset impairments and (gain) loss on assets held for sale, net	254			(5,683		)	(5,937		)	(104.5)%
Other (income) expense, net	(181		)	2,859			3,040			nm
Operating loss	(15,594		)	(15,111		)	(483		)	(3.2)%
Interest (expense) income, net	527			(166		)	693			nm
Net loss before income taxes	(15,067		)	(15,277		)	210			1.4%
Income tax (expense) benefit	(2		)	(419		)	417			nm
Net loss	$	(15,069	)	$	(15,696	)	$	627		4.0%

Revenue - Revenue for 2019 and 2018 was $223.9 million and $161.0 million, respectively, representing an increase of 39.0%. The increase was primarily due to:

Increased revenue for our Shipyard Division of $46.9 million, primarily due to ~~2017,~~progress on our regional class research vessel projects and towing, salvage and rescue ship projects, offset partially by ~~headcount reductions.~~lower revenue for our harbor tug projects and the prior period including revenue on our two MPSV contracts which were suspended during the first quarter 2018 (See Note 5 of our Financial Statements for further discussion of our MPSV contracts); and

Increased revenue for our Fabrication Division of $24.3 million, primarily due to progress on our paddle wheel riverboat project, vehicle ferry projects and jacket and deck project, 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 which was completed during the second quarter 2018; offset partially by,

Decreased revenue for our Services Division of $5.5 million due to the timing of new project awards.

Gross loss - Gross loss for 2019 and 2018 was $3.7 million (1.7% of revenue) and $3.2 million (2.0% 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 Division);

Holding costs of $1.0 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 $3.1 million related to forecast cost increases and liquidated damages on our harbor tug projects in our Shipyard Division (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects);

Charge of $1.4 million related to forecast cost increases and liquidated damages on a subsea components fabrication project in our Services Division (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project); and

Charge of $1.3 million related to forecast cost increases on our ice-breaker tug project in our Shipyard Division (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 $5.8 million for 2019; and

A lower margin project mix for our Services Division (excluding the aforementioned project charge); offset partially by,

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

A higher margin project mix for our Fabrication Division and Shipyard Division (excluding the aforementioned project charges).

General and administrative expense - General and administrative expense for 2019 and 2018 was $11.8 million (5.3% of revenue) and $14.7 million (9.1% of revenue), respectively, representing a decrease of 19.8%. 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 $0.8 million and $1.5 million for 2019 and 2018, respectively.

Asset impairments and (gain) loss on assets held for sale, net - Asset impairments and (gain) loss on assets held for sale, net for 2019 and 2018 was a loss of $0.3 million and a gain $5.7 million, respectively. The loss for 2019 was primarily due to the impairment of a drydock held for sale. 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 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 $2.9 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 was primarily due to net gains on the sales of equipment. The expense for 2018 was primarily due to bad debt expense of $2.8 million related to a contracts receivable reserve recorded within our Fabrication Division as we received indications that collectibility of the receivable was no longer probable, offset partially by net gains on the sales of equipment. The reserved receivable was ultimately collected in the fourth quarter 2018.

Interest (expense) income, net - Interest (expense) income, net for 2019 and 2018, was income of $0.5 million and expense of $0.2 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 - Income tax (expense) benefit for 2019 and 2018 was expense of $2,000 and $0.4 million, respectively. Income tax expense represents state income taxes. No federal tax benefit was recorded for losses during 2019 or 2018 as a full valuation allowance was recorded against our deferred tax assets generated during the periods.

Operating Segments

Fabrication Division⁽¹⁾


Shipyard	Three Months Ended September 30,						Increase (Decrease)
											Nine Months Ended September 30,						Favorable (Unfavorable) Change
	2018			2017			Amount			Percent	2019			2018			Amount			Percent
Revenue ⁽¹⁾	$	24,492		$	15,074		$	9,418		62.5%	$	54,520		$	30,197		$	24,323		80.5%
Gross loss	(1,764		)	(3,504		)	1,740			49.7%	(1,877		)	(5,888		)	4,011			68.1%
Gross loss percentage	(7.2		)%	(23.2		)%					(3.4		)%	(19.5		)%
General and administrative expenses	696			888			(192		)	(21.6)%
Operating loss ⁽¹⁾	(2,460		)	(4,392		)	1,932
General and administrative expense											1,949			3,886			1,937			49.8%
Asset impairments and (gain) loss on assets held for sale, net											(70		)	(5,683		)	(5,613		)	(98.8)%
Other (income) expense, net											(157		)	2,481			2,638			nm
Operating loss											(3,599		)	(6,572		)	2,973			nm

___________

(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 September 30,~~ 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 ~~2017, includes $15,000 and $0.5 million, respectively, of non-cash amortization of deferred revenue~~ related ~~to values assigned to contracts acquired in a previous acquisition.~~financial information.

Revenue - Revenue for ~~the three months ended September 30,~~2019 and 2018 ~~and 2017,~~ was ~~$24.5~~$54.5 million and ~~$15.1~~$30.2 million, respectively, representing an increase of ~~62.5%~~80.5%. The increase was primarily due ~~to additional progress~~to:

Progress on ~~the construction of ten harbor tug vessels~~our paddle wheel riverboat project, vehicle ferry projects and ~~an ice-breaker tug that was~~jacket and deck project which were not under construction ~~during~~in the ~~third quarter 2017,~~prior period; offset partially by, ~~lower~~

The prior period including revenue ~~from our two MPSV contracts that were suspended~~associated with the fabrication of modules for a petrochemical facility which was completed during the ~~first~~second quarter 2018. ~~See Note 8 to our Consolidated Financial Statements for further discussion of the MPSV contracts.~~

Gross loss - Gross loss for ~~the three months ended September 30,~~2019 and 2018 ~~and 2017,~~ was ~~$1.8~~$1.9 million ~~(7.2%~~(3.4% of revenue) and ~~$3.5~~$5.9 million ~~(23.2%~~(19.5% of revenue), ~~respectively, representing a decrease of 49.7%.~~respectively. The gross loss ~~during the 2018 period~~for 2019 was primarily due to the under recovery of ~~our~~ overhead ~~costs and the impact of lower margin backlog related to previous project awards sold during a period of competitive pricing.~~

costs. The decrease in gross loss relative to the 2017 period was primarily due to higher revenue, a reduction in overhead costs, and the prior period including $2.1 million in contract losses related to cost increases on the construction of two MPSVs.

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

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

~~Revenue -~~ Revenue for the three months ended September 30, 2018 and 2017, was $22.6 million and $17.7 million, respectively, representing an increase of 28.1%. The increase was due to an overall increase in activity resulting from higher demand for our onshore and offshore services.

~~Gross profit -~~ Gross profit for the three months ended September 30, 2018 and 2017, was $3.2 million (14.1% of revenue) and $1.9 million (10.8% of revenue), respectively, representing an increase of 66.9%. The increase was due to higher revenue and improved recovery of overhead costs.

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

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

General and administrative expenses 503
—
503
100.0%
Operating loss (708 ) —
(708 )

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

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

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

Corporate Three Months Ended September 30, Increase (Decrease)
2018 2017 Amount Percent
Revenue $ —
$ —
$ —

Gross loss (402 ) (152 ) (250 ) (164.5)%
Gross loss percentage n/a
n/a

General and administrative expenses 2,092
2,009
83
4.1%
Operating loss (2,494 ) (2,161 ) (333 )

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

~~General and administrative expenses~~ - General and administrative expenses for the three months ended September 30, 2018 and 2017, were $2.1 million (4.2% of consolidated revenue) and $2.0 million (4.0% of consolidated revenue), respectively, representing an increase of 4.1%.

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

~~Consolidated~~

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

~~Revenue -~~ Revenue for the nine months ended September 30, 2018 and 2017, was $161.0 million and $133.7 million, respectively, representing an increase of 20.4%. The increase was primarily due to a $22.9 million increase within our Services Division from additional demand for both onshore and offshore services and a $14.9 million increase within our Shipyard Division primarily due to additional progress on the construction of ten harbor tug vessels, two regional class research vessels and an ice-breaker tug that was not under construction during the prior period. These increases were partially offset by a decrease in revenue of $14.3 million within our Fabrication Division primarily due to the completion and delivery of four modules for a petrochemical facility during the second quarter 2018 and lower revenue from our two MPSV contracts that were suspended during the first quarter 2018.

~~Gross loss -~~ Gross loss for the nine months ended September 30, 2018 and 2017, was $3.2 million (2.0% of revenue) and $17.0 million (12.7% of revenue), respectively, representing a decrease of 81.0%. The gross loss during the 2018 period was primarily due to under recovery of our overhead costs (including holding costs for our South Texas Properties of $1.6 million) and the impact of lower margin backlog within our Shipyard Division related to previous project awards sold during a period of competitive pricing.

~~The decrease in gross loss~~2019 relative to the prior period was primarily due to ~~a decrease in gross loss within our Shipyard Division~~higher revenue, increased recoveries of ~~$13.5 million~~overhead costs due to ~~increased revenue,~~higher activity, and a reduction in overhead costs, and the prior period including $12.7 million in contract losses related to cost increases on the construction of two MPSVs, and increased gross profit within our Services Division of $7.1 million due to increased revenue and higher ~~recovery of our overhead costs, offset partially by a gross loss for our Fabrication Division of $5.9 million related to decreased fabrication revenue.~~margin project mix.

General and administrative ~~expenses~~expense - General and administrative ~~expenses~~expense for ~~the nine months ended September 30,~~2019 and 2018 ~~and 2017, were $17.5~~was $1.9 million ~~(10.9%~~(3.6% of revenue) and ~~$12.9~~$3.9 million ~~(9.7%~~(12.9% of revenue), respectively, representing ~~and increase~~a decrease of ~~35.0%~~49.8%. The ~~increase~~decrease was primarily due ~~to:~~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.

~~Bad~~Asset impairments and (gain) loss on assets held for sale, net - Asset impairments and (gain) loss on assets held for sale, net for 2019 and 2018 was a gain of $0.1 million and $5.7 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 related to assets held for sale.

Other (income) expense, net - Other (income) expense, net for the 2019 and 2018 was income of $0.2 million and expense of $2.5 million, respectively. The income for 2019 was primarily due to net gains on the sales of equipment. The expense for 2018 was primarily due to bad debt expense of $2.8 million related to a contracts receivable reserve recorded during the ~~third quarter 2018 within our Fabrication Division~~period as we received indications that ~~collectability~~collectibility of the receivable was no longer ~~probable;~~probable, offset partially by net gains on the sales of equipment. The reserved receivable was ultimately collected in the fourth quarter 2018.

Shipyard



	Nine Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	113,590		$	66,677		$	46,913		70.4%
Gross loss	(5,594		)	(5,563		)	(31		)	(0.6)%
Gross loss percentage	(4.9		)%	(8.3		)%
General and administrative expense	1,871			2,089			218			10.4%
Asset impairments and (gain) loss on assets held for sale, net	324			—			(324		)	nm
Other (income) expense, net	28			158			130			82.3%
Operating loss	(7,817		)	(7,810		)	(7		)	(0.1)%

Revenue - Revenue for 2019 and 2018 was $113.6 million and $66.7 million, respectively, representing an increase of 70.4%. The increase was primarily due to:

Progress on our regional class research vessel projects and towing, salvage and rescue ship projects; offset partially by,

Lower revenue for our harbor tug projects and the prior period including revenue on our two MPSV contracts which were suspended during the first quarter 2018 (See Note 5 of our Financial Statements for further discussion of our MPSV contracts).

Gross loss - Gross loss for 2019 and 2018 was $5.6 million (4.9% of revenue) and $5.6 million (8.3% of revenue), respectively. The gross loss for 2019 was primarily due to:

Charge of $3.1 million related to forecast cost increases and liquidated damages on our harbor tug projects (see Note 2 of our Financial Statements for further discussion of the changes in estimates on these projects);

Charge of $1.3 million related to forecast cost 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); and

Under recovery of overhead costs.

The comparable 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 project charges); offset partially by,

The aforementioned project charges of $4.4 million for 2019.

General and administrative expense - General and administrative expense for 2019 and 2018 was $1.9 million (1.6% of revenue) and $2.1 million (3.1% of revenue), respectively, representing a decrease of 10.4%. 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.

Other (income) expense, net - Other (income) expense, net for 2019 and 2018, was expense of $28,000 and $0.2 million, respectively, primarily due to net losses on the sales of equipment.

Services



	Nine Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue	$	61,174		$	66,692		$	(5,518	)	(8.3)%
Gross profit	4,088			9,390			(5,302		)	(56.5)%
Gross profit percentage	8.9		%	14.1		%
General and administrative expense	1,530			2,201			671			30.5%
Other (income) expense, net	(52		)	(34		)	18			52.9%
Operating income	2,610			7,223			(4,613		)	(63.9)%

Revenue - Revenue for 2019 and 2018 was $61.2 million and $66.7 million, respectively, representing a decrease of 8.3%. The decrease was primarily due to the timing of new project awards.

Gross profit - Gross profit for 2019 and 2018 was $4.1 million (8.9% of revenue) and $9.4 million (14.1% of revenue), respectively. Gross profit for 2019 was impacted by a charge of $1.4 million related to forecast cost increases and liquidated damages on a subsea components fabrication project (see Note 2 of our Financial Statements for further discussion of the changes in estimates on this project). The decrease in gross profit for 2019 relative to the prior period was primarily due to the aforementioned project charge, lower revenue and a lower margin project mix (excluding the project charge).

General and administrative expense - General and administrative expense for 2019 and 2018 was $1.5 million (2.5% of revenue) and $2.2 million (3.3% of revenue), respectively, representing a decrease of 30.5%. The decrease was primarily due to lower incentive plan costs and other cost reductions.

Corporate



	Nine Months Ended September 30,						Favorable (Unfavorable) Change
	2019			2018			Amount			Percent
Revenue (eliminations)	$	(5,421	)	$	(2,550	)	$	(2,871	)	nm
Gross loss	(347		)	(1,171		)	824			70.4%
Gross loss percentage	n/a			n/a
General and administrative expense	6,441			6,527			86			1.3%
Other (income) expense, net	—			254			254			100.0%
Operating loss	(6,788		)	(7,952		)	1,164			14.6%

Gross loss - Gross loss for 2019 and 2018 was $0.3 million and $1.2 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 $6.4 million (2.9% of consolidated revenue) and $6.5 million (4.1% of consolidated revenue), respectively, representing a decrease of 1.3%. 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;~~disputes as the costs were reflected within the operating divisions in 2018; and

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

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

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

~~These increases were offset partially by headcount reductions.~~

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

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

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

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

~~Operating Segments~~

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

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

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

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

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

Bad debt expense of $2.8 million related to a contracts receivable reserve recorded during the third quarter 2018 as we received indications that collectability of the receivable was no longer probable;

~~Legal and advisory fees related to~~ pursuit of claims against a customer for disputed change orders for a completed project, ~~completed prior~~and our MPSV projects which are subject to ~~2017;~~a purported termination and

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

~~These increases were offset partially by headcount reductions.~~ for which construction has been suspended.

~~Asset impairments~~Other (income) expense, net - ~~Asset impairments~~Other (income) expense, net for ~~the nine months ended September 30,~~ 2018 ~~were $1.4~~was expense of $0.3 million. The impairments were recorded during the first half of 2018 and were related to certain assets that were held for sale. See Note 2 to our Consolidated Financial Statements for further discussion of our assets held for sale.

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

~~___________~~


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

~~Revenue -~~ Revenue for the nine months ended September 30, 2018 and 2017, was $66.7 million and $51.8 million, respectively, representing an increase of 28.7%. The increase was primarily due to additional progress on the construction of ten harbor tug vessels, two regional class research vessels and an ice-breaker tug that was not under construction during the prior period, partially offset by lower revenue from our two MPSV contracts that were suspended during the first quarter 2018.

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

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

~~Contract losses of $12.7 million during the prior period related to cost increases on the construction of two MPSVs; and~~

~~Holding and closing costs during the prior period of approximately $0.8 million related to our Prospect shipyard, for which our lease of the facility was terminated during the fourth quarter 2017.~~

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

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

Services Nine Months Ended September 30, Increase (Decrease)
2018 2017 Amount Percent
Revenue $ 66,692
$ 43,758
$ 22,934
52.4%
Gross profit 9,390
2,335
7,055
302.1%
Gross profit percentage 14.1 % 5.3 %
General and administrative expenses 2,201
2,008
193
9.6%
Operating income 7,189
327
6,862

~~Revenue -~~ Revenue for the nine months ended September 30, 2018 and 2017, was $66.7 million and $43.8 million, respectively, representing and increase of 52.4%. The increase was due to an overall increase in activity resulting from higher demand for our onshore and offshore services.

~~Gross profit -~~ Gross profit for the nine months ended September 30, 2018 and 2017, was $9.4 million (14.1% of revenue) and $2.3 million (5.3% of revenue), respectively, representing an increase of 302.1%. The increase was due to higher revenue and improved recovery of overhead costs.

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

EPC Nine Months Ended September 30, Increase (Decrease)
2018 2017 Amount Percent
Revenue $ 2,026
$ —
$ 2,026
100.0%
Gross profit 30
—
30
100.0%
Gross profit percentage 1.5 % n/a

General and administrative expenses 1,405
—
1,405
100.0%
Operating loss (1,375 ) —
(1,375 )

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

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

Corporate Nine Months Ended September 30, Increase (Decrease)
2018 2017 Amount Percent
Revenue $ —
$ —
$ —

Gross loss (1,171 ) (500 ) (671 ) (134.2)%
Gross loss percentage n/a
n/a

General and administrative expenses 6,527
5,665
862
15.2%
Operating loss (7,698 ) (6,165 ) (1,533 )

~~Gross loss -~~ Gross loss for the nine months ended September 30, 2018 and 2017, was $1.2 million and $0.5 million, respectively, representing an increase in gross loss of 134.2%. The increase in gross loss was primarily due to higher costs to support our strategic initiatives and EPC Division.

~~General and administrative expenses~~ - General and administrative expenses for the nine months ended September 30, 2018 and 2017, were $6.5 million (4.1% of consolidated revenue) and $5.7 million (4.2% of consolidated revenue), respectively, representing and increase of 15.2%. The increase was primarily due to increased legal and advisory fees related to customer disputes, costs associated with the evaluation of strategic alternatives and initiatives to diversify our business, and higher long-term incentive plan costs.

Liquidity and Capital Resources

Available Liquidity

Our primary sources of liquidity are our cash and cash equivalents, scheduled maturities of our short-term investments, ~~potential proceeds from the sale of assets held for sale,~~ and availability under our Credit Agreement (discussed below). At September 30, 2019, our cash, cash equivalents and short-term investments totaled $71.4 million, and our immediately available liquidity was as follows (in thousands):



Available Liquidity	Total
Cash and cash equivalents	$	45,911
Short-term investments⁽¹⁾	25,457
Total cash, cash equivalents and short-term investments	71,368
Credit Agreement total capacity	40,000
Outstanding letters of credit	(10,434		)
Credit Agreement available capacity	29,566
Total available liquidity	$	100,934

___________

(1) 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 ~~(excluding cash and cash equivalents and short-term investments)~~ and our capital expenditure requirements. At September 30, ~~2018,~~2019, our working capital was $94.0 million and included $71.4 million of cash, ~~and~~ cash equivalents and short-term investments ~~totaled $54.5 million~~ and ~~our working capital was $124.0 million. Working capital includes $9.5 million of short-term investments and $42.7~~$18.5 million of assets held for sale. Excluding cash, cash equivalents, short-term investments and assets held for sale, our working capital at September 30, 2019 totaled $4.1 million, and consisted of net contracts assets and contract liabilities (collectively, "Contracts in Progress") of $35.2 million; contracts receivable and retainage of $30.3 million; inventory, prepaid expenses and other assets of $7.8 million; and accounts payable, accrued expenses and other liabilities of $69.1 million. The components of our working capital (excluding cash, cash equivalents, short-term investments and assets held for sale) at September 30, 2019 and December 31, 2018, and changes in such amounts during the nine months ended September 30, 2019, were as follows (in thousands):



	September 30,			December 31,
	2019			2018			Change⁽³⁾
Contract assets	$	50,855		$	29,982		$	(20,873	)
Contract liabilities⁽¹⁾	(15,682		)	(16,845		)	(1,163		)
Contracts in progress, net⁽²⁾	35,173			13,137			(22,036		)
Contracts receivable and retainage, net	30,268			22,505			(7,763		)
Inventory, prepaid expenses and other assets	7,795			9,356			1,561
Accounts payable, accrued expenses and other liabilities	(69,140		)	(39,256		)	29,884
Total	$	4,096		$	5,742		$	1,646

___________


(1)	Contract liabilities at September 30, 2019 and December 31, 2018, include accrued contract losses of $3.0 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 sales of fixed assets and other assets.

Fluctuations in our working capital, ~~balance,~~ and its components, are not unusual in our business and are impacted by the size of our projects and the mix of our backlog. Our working capital is particularly impacted by the timing of new project awards and related payments in advance of performing work, and the subsequent achievement of billing milestones or project progress ~~billings~~ 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.

~~A summary of our immediately available liquidity at~~Cash Flow Activity

Operating Activities - During the nine months ended September 30, ~~2018, is as follows (in thousands):~~2019, net cash used in operating activities was $6.7 million, compared to net cash used in operating activities of $18.7 million for the nine months ended September 30, 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:

Available Liquidity Total
Cash and cash equivalents $ 45,020
Short-term investments ⁽¹⁾
9,494
  Total cash, cash equivalents and short-term investments 54,514
Credit Agreement capacity 40,000
Less: Outstanding letters of credit 2,475
  Credit Agreement availability 37,525
  Total available liquidity $ 92,039
Net gains from asset sales of $0.9 million, bad debt expense of $59,000, depreciation and amortization expense of $7.3 million, asset impairments of $0.6 million, and stock-based compensation expense of $1.8 million;

~~___________~~Increase in contract assets of $20.9 million related to the timing of billings on projects, primarily due to an increase in unbilled positions on four projects in our Shipyard Division (primarily for our three regional class research vessel projects and our first towing, salvage and rescue ship) and a project in our Services Division, offset partially by a decrease in unbilled positions on our harbor tug projects. See below for discussion of increase in related accounts payable;

~~(1) Includes U.S. Treasuries~~Decrease in contract liabilities of $1.2 million, primarily due to the unwind of advance payments on a project in our Fabrication Division, offset partially by an increase in billings on a project in our Fabrication Division and advance payments on a project in our Shipyard Division;

Increase in contracts receivable and retainage of $7.8 million related to the timing of billings and collections on our projects, primarily due to an increase in billings on two projects in our Fabrication Division, offset partially by a decrease in billings on certain projects in our Services Division;

Decrease in prepaid expenses, inventory and other ~~investment-grade commercial paper which can be liquidated quickly in open markets.~~

~~Sales of Assets~~

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

~~second quarter 2018, we completed the sale of our Texas South Yard for $55.0 million, less selling costs~~assets of $1.5 million, primarily due to a decrease in inventory;

Increase in accounts payable, accrued expenses and other current liabilities of $28.8 million, primarily due to increased project activity and the timing of payments for ~~total~~projects in our Shipyard Division (primarily for our three regional class research vessel projects and three towing, salvage and rescue ship projects); and

Change in noncurrent assets and liabilities, net ~~proceeds during~~of $0.9 million.

During the ~~nine-months~~three months ended September 30, ~~2018 of approximately $53.5 million and a gain of approximately $3.9~~2019, net cash used in operating activities was $3.8 million.

~~In addition, on~~Investing Activities - During the nine months ended September ~~26, 2018, we entered into an agreement~~30, 2019, net cash used in investing activities was $17.0 million, compared to ~~sell~~net cash provided by investing activities of $55.5 million for the ~~Texas North Yard and certain associated equipment for $28.0 million. We received $0.5 million~~nine months ended September 30, 2018. Cash used in investing activities during the ~~third quarter 2018 as a deposit on~~2019 period was primarily due to the ~~property, which is refundable under certain circumstances. The sale is anticipated to close in the fourth quarter 2018~~purchase of short-term investments of $45.4 million and ~~is subject to customary closing conditions, including the purchaser’s right to conduct inspections~~capital expenditures of ~~the property related to confirmation~~$2.0 million, offset partially by maturities of ~~title, surveys, environmental conditions, easements~~short-term investments of $28.8 million and ~~access rights, and third-party consents. Based on~~proceeds from the sales price and estimated closing and other costs, we expect to realize a gain on the transaction upon closing. We can provide no assurances that we will successfully close the transaction, that closing will occur under our expected timeline or that we will achieve our estimated net proceeds or a gain on the sale. We continue to actively market the remaining Texas North Yard assets held for sale, which primarily consist of ~~three 660-ton crawler cranes, a barge, a plate bending roll machine, and panel line equipment.~~equipment of $1.6 million.

~~Line~~Financing Activities - During the nine months ended September 30, 2019, net cash used in financing activities was $0.8 million, compared to net cash used in financing activities of ~~Credit~~$0.8 million for the nine months ended September 30, 2018. Cash used in financing activities for both the 2019 and 2018 periods was primarily due to tax payments made on behalf of employees from vested stock withholdings.

Credit Facilities

Credit Agreement - We have a $40.0 million ~~Credit Agreement~~revolving credit facility with Hancock Whitney Bank ("Credit Agreement") that can be used for borrowings or letters of credit. On ~~August 27, 2018,~~May 1, 2019, we ~~entered into a third amendment to~~amended our Credit Agreement ~~which extended~~to extend its maturity date ~~from June 9, 2019~~ to June 9, ~~2020,~~2021 and reduced the base tangible net worth requirement from $185.0 million to $180.0 million. The third amendment also removed the inclusion of 50% of Consolidated Net Income (as defined in the Credit Agreement) for each fiscal quarter and the inclusion of 50% of the gain on the sale of our South Texas Properties from our minimum tangible net worth covenant. Accordingly, ouramend certain financial covenants. Our amended quarterly financial covenants ~~during~~for the remaining term of the Credit Agreement, are as follows:

Ratio of current assets to current liabilities of not less than ~~1.25:~~2.00:1.00;

Minimum tangible net worth of at least the sum of ~~$180.0~~$170.0 million, plus 100% of the net proceeds from any issuance of stock or other equity after deducting of any fees, commissions, expenses and other costs incurred in such offering; and

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

At September 30, ~~2018,~~2019, we had no outstanding borrowings under our Credit Agreement and ~~$2.5~~$10.4 million of outstanding letters of credit, providing ~~$37.5~~$29.6 million of available capacity. At September 30, ~~2018,~~2019, we were in compliance with all of our financial covenants, with a tangible net worth of ~~$203.2~~$185.2 million (as defined by the Credit Agreement) ~~and~~, a ratio of current assets to current liabilities of ~~3.37~~2.11:1.00 and a ratio of funded debt to ~~1.0.~~tangible net worth of 0.06:1.00.

~~Cash Flow Activity~~Surety Bonds - We issue surety bonds in the ordinary course of business to support our projects. At September 30, 2019, we had $409.3 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.

During the nine months ended September 30, 2018 and 2017, net cash used in operating activities was $18.7 million and $29.6 million, respectively. During the three months ended September 30, 2018 and 2017, net cash provided by operating activities was $7.8 million, compared to cash used in operating activities of $1.6 million, respectively. The use of cash during the nine months ended September 30, 2018, was primarily due to the following:Liquidity Outlook

Operating losses for the period, excluding gains from asset sales and insurance recoveries of $6.8 million, bad debt expense of $2.8 million, non-cash amortization of deferred revenue of $0.5 million, and non-cash depreciation and amortization, asset impairments, and stock compensation expense totaling $11.3 million;

Increase in contracts receivable and retainage of $6.2 million (exclusive of bad debt expense of $2.8 million and a $3.0 million reclassification of retainage to other noncurrent assets during the period as we do not anticipate collection within the next twelve months). The increase in contracts receivable, net of the reclassification, is primarily due to slower collections of receivables for our T&M work;

~~Increase in contracts in progress of $11.8 million, primarily related to the net billing positions on projects in our Shipyard Division;~~

~~Increase in prepaid expenses, inventory and other assets of $2.5 million, primarily due to the aforementioned reclassification of retainage to other noncurrent assets; and~~

~~Decrease in accrued contract losses and noncurrent deferred revenue of $3.2 million.~~

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

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

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

During the nine months ended September 30, 2018, net cash provided by investing activities was $55.5 million, compared to net cash used in investing activities of $2.4 million for the nine months ended September 30, 2017. Cash provided by investing activities during the 2018 period was due to proceeds received from asset sales of $57.7 million, primarily related to the sale of our Texas South Yard and insurance proceeds of $9.4 million resulting from hurricane damage to our facilities, offset partially by the purchase of short-term investments of $9.2 million and capital expenditures of $2.4 million.

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

~~Future Liquidity Outlook~~

As discussed in our Overview, we continue to focus on maintaining liquidity and securing meaningful new ~~contract~~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 liquidity, including cost reductions ~~in costs~~ (including reducing ~~our workforce and reducing~~ the ~~cash~~ compensation paid to our directors and ~~the salaries of our~~ executive officers) and the ~~divestiture~~sale of underutilized assets. In addition, at September 30, 2019, we continue to have $18.5 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 for the remainder ~~2018~~of 2019 and the foreseeable future are to ~~fund the~~fund:

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

Capital expenditures (including potential enhancements to our Shipyard Division facilities and investments in our Fabrication Division facilities to win and execute potential offshore wind projects);

Accrued contract losses recorded at September 30, 2019;

Working capital requirements for our projects ~~capital expenditures~~(including the potential additional projects for the U.S. Navy if the aforementioned options are exercised); and ~~enhancements to our Shipyard facilities, the expansion of our EPC Division, corporate~~

Corporate administrative expenses and strategic initiatives. ~~Future capital expenditures will be highly dependent upon the amount and timing of future new project awards. Capital expenditures for the nine months ended September 30, 2018 were $2.4 million and we~~

We anticipate capital expenditures of ~~approximately $1.0~~$2.0 million to $3.0 million for the remainder of ~~2018.~~2019.

If ~~industry~~ conditions for ~~offshore~~the oil and gas industry do not improve, we are unable to increase our backlog, or we are unable to diversify our customer base, or we are unsuccessful in our strategic repositioning of the Company, we would take additional measures to reduce costs and preserve our ~~cash~~liquidity until we are able to generate cash flows from operations.

We believe that our cash, cash equivalents and short-term investments at September 30, ~~2018,~~2019, and availability under our Credit Agreement, will be sufficient to enable us to fund our operating expenses, meet our working capital and capital expenditure requirements, and satisfy any debt service obligations or other funding requirements, for at least twelve months from the date of this Report. Our evaluation of the sufficiency of our cash and liquidity is primarily based on our financial forecast for ~~the remainder of 2018~~2019 and ~~2019,~~2020, which is impacted by our existing backlog and estimates of future new project awards. We can provide no assurances that our financial forecast will be achieved or that we will have sufficient cash or availability under our Credit Agreement to meet planned operating expenses and other unforeseen cash requirements. Accordingly, we may be required to obtain 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.

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~~nine months ended September 30, ~~2018.~~2019. For more information on market risk, refer to Part II, Item 7A of our ~~2017~~2018 Annual 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 ~~quarter~~three months ended September 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.

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

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 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. The customer recently filed an amendment to its counterclaim to add claims by the customer against our Surety for the contracts. The customer also recently filed a second motion for summary judgment re-urging its previously denied request to obtain possession of the vessels. A hearing on the second motion is currently scheduled for November 5, 2019.

See Note ~~8 to~~5 of our ~~Consolidated~~ Financial Statements for further ~~information relating to~~discussion of this ~~recent~~ litigation.

Item 1A. Risk Factors.

There have been no material changes from the information included in Item 1A “Risk Factors” ~~included~~ in our ~~2017~~2018 Annual 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 Form ~~10-Q~~8-K filed with the SEC on ~~April 23, 2009~~May 13, 2019 (SEC File No. 001-34279).
3.2	Amended and Restated Bylaws of the Company, incorporated by reference to Exhibit ~~3.1~~3.2 of the Company’s Form 8-K filed with the SEC on ~~November 6, 2018~~May 13, 2019 (SEC File no. 001-34279).
10.1	~~Third Amendment~~Separation and Transition Agreement by and between Gulf Island Fabrication, Inc. and Kirk J. Meche, dated October 18, 2019, incorporated by reference to ~~Credit Agreement dated August 27, 2018.~~ *
~~10.2~~	~~Agreement~~Exhibit 10.1 of ~~Sale between Berry Contracting, L.P. and Gulf Marine Fabricators, L.P. dated as of September 26, 2018.~~the Company’s Form 8-K filed with the SEC on October 21, 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. *

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

*	Filed herewith.

SIGNATURES

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



GULF ISLAND FABRICATION, INC.

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

Date: November ~~8, 2018~~5, 2019

- 3940 -




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



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



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



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