Shipyard Transaction 

Transaction Summary – On April 19, 2021 (the “Closing Date”), we entered into a definitive agreement (the “Purchase Agreement”) pursuant to which we sold the operating assets and certain construction contracts of our Shipyard Division (“Shipyard Transaction”) to Bollinger Houma Shipyards, L.L.C. and Bollinger Shipyards Lockport, L.L.C. (collectively, “Bollinger”) for approximately $28.6 million (“Transaction Price”) ($26.1 million, net of transaction and other costs).  We received $26.4 million of the Transaction Price on the Closing Date and the remaining $2.2 million (“Deferred Transaction Price”) will be received upon Bollinger’s collection of certain customer payments associated with the Divested Shipyard Contracts (defined below), of which $1.3 million was received in October 2021 and the remainder is anticipated to be received in the first quarter 2022. The $2.2 million receivable associated with the Deferred Transaction Price has been reflected within prepaid expenses and other assets on our Balance Sheet at September 30, 2021.

We also received $8.0 million from Bollinger on the Closing Date, representing an estimate of the change in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date (the “Closing Adjustment”). The Closing Adjustment was subject to a post-closing reconciliation and true-up (the “Closing Adjustment True-Up”) based on actual changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date compared to the Closing Adjustment. Actual changes in working capital for the Divested Shipyard Contracts from December 31, 2020 through the Closing Date totaled approximately $7.8 million. Accordingly, $0.2 million of the Closing Adjustment was returned to Bollinger during the three months ended June 30, 2021 in connection with the Closing Adjustment True-Up.

Included in the Shipyard Transaction were the Shipyard Division’s:

Bollinger offered employment to most of the employees of our Shipyard Division associated with the Divested Shipyard Contracts.

Excluded from the Shipyard Transaction were the Shipyard Division’s:

We retained those employees of our Shipyard Division associated with the Retained Shipyard Contracts.

In connection with the Shipyard Transaction, we recorded a total pre-tax loss of $25.3 million during the nine months ended September 30, 2021, of which $22.8 million was related to the impairment of our Shipyard Division’s long-lived assets (discussed further below) and $2.6 million was related to transaction and other costs associated with the Shipyard Transaction.

At September 30, 2021, the net liabilities on our Balance Sheet associated with the Retained Shipyard Contracts and other retained Shipyard Division operations totaled $11.0 million. The wind down of the Shipyard Division operations is anticipated to occur by the third quarter 2022.

Impairment – During the first quarter 2021, events and changes in circumstances indicated that the carrying amount of our Shipyard Division’s long-lived assets may not be recoverable. These changes in circumstances were primarily attributable to a reassessment of our asset groups within our Shipyard Division as well as revisions to our probability assessment of net future cash flows of the applicable asset group based on the likelihood, that existed as of March 31, 2021, of the Shipyard Transaction occurring. Based on these assessments, we determined that an impairment of our Shipyard Division’s property, plant and equipment had occurred during the first quarter 2021.  We measured the impairment by comparing the carrying amount of the applicable asset group at March 31, 2021 to an estimate of its fair value (which represents a Level 3 fair value measurement), resulting in an impairment charge of $22.8 million during the three months ended March 31, 2021. We based our fair value estimate on the Transaction Price inclusive of the Closing Adjustment and an estimate of the Closing Adjustment True-Up, associated with the Shipyard Transaction.

Discontinued Operations

The Shipyard Transaction (which included, among other things, our owned Shipyard Facility, Divested Shipyard Contracts and drydocks), and the fourth quarter 2020 closures of our leased Lake Charles Facility and Jennings Facility, represented the disposal and closure of a substantial portion of our Shipyard Division operations and the culmination of a strategic shift that will have a major effect on our ongoing operations and financial results. Therefore, we determined the assets, liabilities and operations associated with the Shipyard Transaction, and associated with the previously closed facilities, to be discontinued operations in the second quarter 2021. Accordingly, such assets and liabilities at September 30, 2021, and operating results for the three and nine months ended September 30, 2021, have been classified as discontinued operations on our Balance Sheet and Statement of Operations, respectively. Our classification of these operations as discontinued requires retrospective application to financial information for all prior periods presented.  Therefore, such assets and liabilities at December 31, 2020, and operating results for the three and nine months ended September 30, 2020, have been recast and classified as discontinued operations on our Balance Sheet and Statement of Operations, respectively. We are completing construction of the Retained Shipyard Contracts within our F&S Facility and are winding down our Shipyard Division operations, which is anticipated to occur by the third quarter 2022.  The assets, liabilities and operating results attributable to the Retained Shipyard Contracts and remaining assets and liabilities of our Shipyard Division operations that were excluded from the Shipyard Transaction, and are not associated with the previously closed facilities, represent our Shipyard Segment and are classified as continuing operations on our Balance Sheet and Statement of Operations.  Discontinued operations are presented separately from continuing operations on our Balance Sheet and Statement of Operations; however, they are not presented separately on our Statement of Cash Flows.

Statement of Operations – A summary of the operating results constituting the loss from discontinued operations for the three and nine months ended September 30, 2021 and 2020, is as follows (in thousands):

As a result of the Shipyard Transaction and classification of certain Shipyard Division operations as discontinued operations, certain allocations that were previously reflected within our Shipyard Division have been reclassified to our Corporate Division and Fabrication & Services Division for the three and nine months ended September 30, 2020.  Further, legal costs associated with our MPSV dispute that were previously reflected within our Corporate Division have been reclassified to our Shipyard Division for the three and nine months ended September 30, 2020. See Note 8 for a summary of the reclassifications to our previously reported segment results and Note 6 for further discussion of our MPSV dispute.

Assets and Liabilities – A summary of the carrying values of the major classes of assets and liabilities of discontinued operations at September 30, 2021 and December 31, 2020, is as follows (in thousands):

Cash Flows – A summary of the cash flows of discontinued operations for the nine months ended September 30, 2021 and 2020, is as follows (in thousands):

Changes in Project Estimates – For the nine months ended September 30, 2021, significant changes in estimated margins on projects positively impacted operating results of our discontinued operations by $8.4 million.  The impacts were associated with our towing, salvage and rescue ship projects, resulting from increased contract price primarily associated with an approved change order ($9.2 million impact), offset partially by increased forecast costs primarily associated with increased craft labor costs ($0.8 million impact).

For the three and nine months ended September 30, 2020, significant changes in estimated margins on projects negatively impacted operating results of our discontinued operations by $6.7 million and $7.4 million, respectively.  The impacts were associated with our towing, salvage and rescue ship projects and final two harbor tug projects, resulting from increased forecast costs primarily associated with increased craft labor and subcontracted services costs and extensions of schedule.

Other – Other (income) expense, net includes a gain of $0.6 million for the nine months ended September 30, 2021, resulting from insurance recoveries in the second quarter 2021 associated with damage previously caused by Hurricane Laura to a drydock that was sold in connection with the Shipyard Transaction.