Quarterly report pursuant to Section 13 or 15(d)

LEEVAC TRANSACTION

v3.5.0.2
LEEVAC TRANSACTION
 9 Months Ended
Sep. 30, 2016
Business Combinations [Abstract]  
LEEVAC TRANSACTION
LEEVAC TRANSACTION

On January 1, 2016, we acquired substantially all of the assets and assumed certain specified liabilities of LEEVAC Shipyards, L.L.C. and its affiliates (“LEEVAC”). The purchase price for the acquisition was $20.0 million, subject to a working capital adjustment whereby we received a dollar-for-dollar reduction for the assumption of certain net liabilities of LEEVAC and settlement payments received from sureties on certain ongoing fabrication projects that were assigned to us in the transaction. After taking into account these adjustments, we received approximately $1.6 million in cash at closing. During the quarter ended September 30, 2016, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due from the seller and an adjustment to the initial purchase price accounting values as further discussed below.

Included in our consolidated balance sheet as of September 30, 2016 are assets of $21.4 million and liabilities of $21.1 million from the LEEVAC transaction. The results of LEEVAC are included in our consolidated statements operations for the three and nine months ended September 30, 2016. Revenue and net income (loss) included in our results of operations and attributable to the assets and operations acquired in the LEEVAC transaction were $16.8 million and $(471,000) for the three months ended September 30, 2016, and $55.9 million and $280,000 for the nine months ended September 30, 2016, respectively. Revenue for the three and nine months ended September 30, 2016 included $1.5 million and $4.1 million in non-cash amortization of deferred revenue, respectively, related to the values assigned to the contracts acquired in the LEEVAC transaction.
The facilities acquired in the LEEVAC transaction are leased and operated under lease and sublease agreements as follows:
  
•
Jennings - Leased facilities from a third party for a 180 acre complex five miles east of Jennings, LA on the west bank of the Mermentau River approximately 25 miles north of the Intracoastal waterway. The Jennings complex includes over 100,000 square feet of covered fabrication area and 3,000 feet of water frontage with two launch ways. The lease, including exercisable renewal options, extends through January 2045.

•
Lake Charles - Subleased facilities from a third party for a 10 acre complex 17 miles from the Gulf of Mexico on the Calcasieu River near Lake Charles, Louisiana. The Lake Charles complex includes 1,100 feet of bulkhead water frontage with a water depth of 40 feet located one mile from the Gulf Intracoastal Waterway and is located near multiple petrochemical plants. The sublease, including exercisable renewal options (subject to sublessor renewals), extends through July 2038.

•
Houma - Leased facilities from the former owner of LEEVAC Shipyards, currently the Senior Vice President of our Shipyards division, for a 35 acre complex 26 miles from the Gulf of Mexico near Houma, Louisiana. Payment terms are approximately $67,000 per month. The lease expires on the later of December 31, 2016 or 90 days following the completion of the first of two vessels currently under construction at the facility, but no later than August 31, 2017. Upon expiration, we have the option to extend the lease at market rates.

Strategically, the LEEVAC transaction expands our marine fabrication and repair and maintenance presence in the Gulf South market. We acquired approximately $121.2 million of new build construction backlog inclusive of approximately $9.2 million of purchase price fair value allocated to four, new build construction projects to be delivered in 2017 and 2018 for two customers. Additionally, we hired 380 employees representing substantially all of the former LEEVAC employees.

During the quarter ended September 30, 2016, we presented our working capital true-up to the seller, which resulted in an additional $1.5 million due from the seller that is included within prepaid expenses and other assets as of September 30, 2016. We have recorded adjustments to the initial purchase price accounting values based upon the actual working capital values that we presented. Our working capital true-up resulted from a $2.1 million reduction in the seller payment owed for prepaid contracts and a $3.6 million decrease in the actual value of working capital (primarily accounts receivable and accounts payable) that we received. We also recorded an adjustment of $2.1 million to the purchase price valuation allocated to machinery and equipment. The impact to depreciation expense recorded in prior periods as a result of the increase in purchase price allocated to machinery and equipment was determined to be immaterial. We expect to finalize our purchase price allocation during the fourth quarter of 2016. The tables below present the total cash received as reported in our consolidated statements of cash flows, the amount due from seller and the corresponding preliminary fair values assigned to the assets and liabilities acquired from LEEVAC which includes the effect of the working capital true-up and our updated valuation of machinery and equipment.
 
 
 
As of June 30, 2016
 
Adjustment from working capital true-up
 
Valuation Adjustment
 
Fair Value
Assets:
 
 
 
 
 
 
 
 
 
Accounts receivable
 
$
3,544

 
$
(1,882
)
 
$
—

 
$
1,662

 
Inventory
 
4,938

 
724

 
—

 
5,662

 
Prepaid expenses and other assets
 
—

 
57

 
—

 
57

 
Machinery and equipment
 
23,056

 
—

 
2,118

 
25,174

 
Intangible assets (leasehold interests)
 
2,123

 
—

 
—

 
2,123

Liabilities:
 
 
 
 
 
 
 
—

 
Accounts payable and accrued expenses
 
6,003

 
2,514

 
—

 
8,517

 
Deferred revenue and below market contracts
 
29,246

 
—

 
—

 
29,246

Net cash received and due from seller upon the acquisition of LEEVAC
 
$
1,588

 
$
3,615

 
$
(2,118
)
 
$
3,085


 
 
 
As of June 30, 2016
 
Adjustment from working capital true-up
 
Adjusted
Consideration received upon acquisition of LEEVAC:
 
 
 
 
 
 
 
Seller payment for prepaid contracts (1)
 
$
16,942

 
$
(2,118
)
 
$
14,824

 
Surety payments related to assigned contracts (2)
 
7,125

 
—

 
7,125

 
 
24,067

 
(2,118
)
 
21,949

Less:
 
 
 
 
 
 
 
Working capital assumed
 
2,479

 
(3,615
)
 
(1,136
)
 
Due from seller
 
—

 
1,497

 
1,497

 
Net cash due to the Company at closing
 
1,588

 
—

 
1,588

 
 
 
4,067

 
(2,118
)
 
1,949

Purchase price
 
$
20,000

 
$
—

 
$
20,000

__________
(1)
Payment from sellers for customer payments received in advance of progress on contracts assigned to us concurrent with the closing of the LEEVAC transaction.
(2)
Payments from sureties in connection with the release of further obligations related to contracts assigned to us concurrent with the closing of the LEEVAC transaction.

Pro Forma Results of Acquisitions

The table below presents our pro forma results of operations for the three and nine months ended September 30, 2015 assuming that we acquired substantially all of the assets and certain specified liabilities of LEEVAC on January 1, 2015 (in thousands):
Three Months Ended September 30, 2015
 
Pro forma adjustments
 
 
 
 
 
Historical results
 
LEEVAC
 
Adj
 
 
Pro forma results
Revenue
 
$
67,531

 
$
20,024

 
$
—

 
 
$
87,555

Net income (loss)
 
$
(12,137
)
 
$
1,215

 
$
30

(1) 
 
$
(10,892
)
Nine Months Ended September 30, 2015
 
Pro forma adjustments
 
 
 
 
 
Historical results
 
LEEVAC
 
Adj
 
 
Pro forma results
Revenue
 
$
251,102

 
$
69,117

 
$
—

 
 
$
320,219

Net income (loss)
 
$
(10,697
)
 
$
(5,359
)
 
$
3,469

(1) 
 
$
(12,587
)
______________
(1) Adjustments to historical results are as follows:
 
 
Three Months Ended September 30, 2015
 
Nine Months Ended September 30, 2015
Effect of purchase price depreciation
 
$
266

 
$
803

Elimination of interest expense
 
406

 
1,692

Income taxes
 
(642
)
 
974

 
 
$
30

 
$
3,469