Quarterly report pursuant to Section 13 or 15(d)

LEEVAC ACQUISITION

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LEEVAC ACQUISITION
 3 Months Ended
Mar. 31, 2016
Business Combinations [Abstract]  
LEEVAC ACQUISITION
LEEVAC ACQUISITION

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 from sureties on certain ongoing fabrication projects that were assigned to us in the acquisition. After taking into account these adjustments, we received approximately $1.6 million in cash at closing.

The facilities acquired are operated under lease 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 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 acquisition expands our marine fabrication and repair and maintenance presence in the Gulf South market. At the date of acquisition, we acquired approximately $112.0 million of new build construction backlog which includes four new build construction projects to be delivered in 2016 and 2017 for two customers. Additionally, we hired 380 employees upon acquisition of the facilities representing substantially all of the former LEEVAC employees.

The tables below represents the total cash received as reported on our consolidated statements of cash flows and the corresponding preliminary fair values assigned to the assets and liabilities acquired from LEEVAC.

Assets:
 
 
 
Accounts receivable
 
$
3,544

 
Inventory
 
4,938

 
Machinery and equipment
 
23,056

 
Intangible assets (leasehold interests)
 
2,123

 
 
 
 
Liabilities:
 
 
 
Accounts payable and accrued expenses
 
6,003

 
Deferred revenue and below market contracts
 
29,246

 
 
 
 
Net cash received upon the acquisition of LEEVAC
 
$
1,588



Cash received upon acquisition of LEEVAC:
 
 
 
Owner payment for prepaid contracts (1)
 
$
16,942

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

 
 
24,067

Less:
 
 
 
Working capital assumed
 
2,479

 
Net cash due to the Company at closing
 
1,588

 
 
 
4,067

 
 
 
 
Purchase price
 
$
20,000


__________
(1)
Payment from sellers for milestones achieved in advance of progress on contracts assigned to the Company concurrent with the closing of the LEEVAC transaction.
(2)
Payments from owner's surety in connection with the release of further obligations related to contracts assigned to the Company concurrent with the closing of the LEEVAC transaction.
Our determination and allocation of the values assigned to the assets and liabilities acquired from LEEVAC are preliminary. Amounts settled for working capital are subject to a working capital true up between us and LEEVAC. In addition the valuation of deferred revenue and below market contracts are based upon our best estimate; however, these estimates have not been finalized. Future changes in the above could impact future determinations of depreciation expense as well as revenue recognized from deferred revenue.
Pro Forma Results of Acquisitions
The results of LEEVAC are included in our consolidated statements operations for the three months ended March 31, 2016, as the acquisition was effective January 1, 2016. Revenues and net loss included in our results of operations for the three months ended March 31, 2016 and attributable to LEEVAC were $21.8 million and $(706,000), respectively.

The table below presents our pro forma results of operations for the three months ended March 31, 2015 assuming that we acquired LEEVAC on January 1, 2015 (in thousands):
 
 
 
 
Pro forma adjustments
 
 
 
 
 
Historical results
 
LEEVAC
 
Adj
 
 
Pro forma results
Revenue
 
$
99,233

 
$
24,718

 
$
—

 
 
$
123,951

Net income (loss)
 
$
83

 
$
(4,408
)
 
$
963

(1
)
 
$
(3,362
)
______________
(1) Adjustments to historical results are as follows:
Effect of purchase price depreciation
 
$
200

Elimination of interest expense
 
763

 
 
$
963