ENETI INC
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information is based on the historical financial information of Eneti Inc. and its subsidiaries (“Eneti”) and Atlantis Investorco Limited and its subsidiaries (“Seajacks”) and gives pro forma effect to (i) our August 12, 2021 acquisition of Seajacks (the “Acquisition”), after which Seajacks became a wholly-owned subsidiary of Eneti, (ii) borrowings under our newly issued $71 million of redeemable notes, and the issuance of 7.5 million of ordinary shares and 0.7 million of preferred shares used to partially finance the Acquisition, and (iii) the assumptions and adjustments described in the accompanying notes to the unaudited pro forma condensed combined financial information.
Seajacks has a March 31 fiscal year end, and the Combined Group will retain a December 31 year end, as such the following periods are presented, in accordance with Rule 11-02(c)(3) of Regulation S-X.
•The unaudited pro forma condensed combined balance sheet as of June 30, 2021 combines Eneti’s unaudited consolidated balance sheet at June 30, 2021 with the audited consolidated statement of financial position of Seajacks at March 31, 2021 and is presented as if the Acquisition occurred on June 30, 2021.
•The unaudited pro forma condensed combined statement of operations for the fiscal year ended December 31, 2020 combines Eneti’s audited consolidated statement of operations for the year ended December 31, 2020 with the audited consolidated statement of comprehensive income of Seajacks for the fiscal year ended March 31, 2021 and is presented as if the Acquisition occurred on January 1, 2020.
•The unaudited pro forma condensed combined statement of operations for the six months ended June 30, 2021 combines Eneti’s unaudited consolidated statement of operations for the six month period ended June 30, 2021 with the unaudited consolidated statement of comprehensive income of Seajacks for the six month period ended March 31, 2021 and is presented as if the Acquisition occurred on January 1, 2020.
The preliminary allocation of the purchase price used in the unaudited pro forma condensed combined financial information is based upon a preliminary valuation (see Note 5). The estimated fair values of certain assets and liabilities have been determined with the assistance of a third-party valuation firm. Our estimates and assumptions are preliminary and accordingly are subject to change upon finalization of the valuation.
The unaudited pro forma condensed combined financial information is not intended to represent or be indicative of our consolidated results of operations or our financial position that would have been reported if the Acquisition, share issue, and borrowings had been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Eneti. The unaudited pro forma condensed combined financial information does not represent any operating efficiencies and cost savings that we may achieve with respect to the combined companies. The unaudited pro forma condensed combined financial information should be read in conjunction with the historical consolidated financial information and accompanying notes of Eneti included in our annual reports on Form 20-F and interim reports on Form 6-K.
1
ENETI, INC.
Unaudited Pro Forma Condensed Combined Balance Sheet
June 30, 2021
(Amounts in thousands)
Eneti Historical (U.S. GAAP) | Seajacks March 31, 2021 (IFRS as reclassified) Note (2) | Exit from Dry Bulk Business Note (3) | Policy Alignment Notes (4a,b) | Pro Forma Adjustments Notes (5, 6) | Note (6) ref. | Combined Pro Forma | ||||||||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||||||||||||||
Cash and cash equivalents | $ | 270,787 | $ | 6,976 | 2,366 | — | $ | (251,589) | (a) | $ | 28,540 | |||||||||||||||||||||||||||
Cash, restricted | — | 3,640 | — | — | — | 3,640 | ||||||||||||||||||||||||||||||||
Trade and other receivables | — | 11,481 | — | — | — | 11,481 | ||||||||||||||||||||||||||||||||
Contract fulfillment costs | — | 18,524 | — | — | (3,364) | (b) | 15,160 | |||||||||||||||||||||||||||||||
Due from related parties | 4,081 | — | — | — | — | 4,081 | ||||||||||||||||||||||||||||||||
Inventories | 655 | 6,345 | (655) | — | (1,221) | (b) | 5,124 | |||||||||||||||||||||||||||||||
Prepaid expenses and other current assets | 9,649 | — | — | — | — | 9,649 | ||||||||||||||||||||||||||||||||
Total current assets | 285,172 | 46,966 | 1,711 | — | (256,174) | 77,675 | ||||||||||||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||||||||||||||
Property, plant and equipment | — | 586,075 | — | — | (19,075) | (b) | 567,000 | |||||||||||||||||||||||||||||||
Equity investment | 47,521 | — | — | — | — | 47,521 | ||||||||||||||||||||||||||||||||
Intangible assets | — | 72,321 | — | — | (67,803) | (b) | 4,518 | |||||||||||||||||||||||||||||||
Goodwill | — | — | — | — | — | (b) (o) | — | |||||||||||||||||||||||||||||||
Contract fulfillment costs | — | 220 | — | — | 8,580 | (b) | 8,800 | |||||||||||||||||||||||||||||||
Non-current assets held for sale | 17,008 | — | (17,008) | — | — | — | ||||||||||||||||||||||||||||||||
Other assets | 10,750 | 4,384 | — | 257 | — | 15,391 | ||||||||||||||||||||||||||||||||
Deferred tax asset | — | 36,103 | — | — | 15,030 | (b) | 51,133 | |||||||||||||||||||||||||||||||
Total non-current assets | 75,279 | 699,103 | (17,008) | 257 | (63,268) | 694,363 | ||||||||||||||||||||||||||||||||
Total assets | $ | 360,451 | $ | 746,069 | $ | (15,297) | $ | 257 | $ | (319,442) | $ | 772,038 | ||||||||||||||||||||||||||
Liabilities and stockholders equity | ||||||||||||||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||||||||||||||
Bank loans, net | $ | — | $ | 281,415 | $ | — | $ | — | $ | (153,765) | (c) | 127,650 | ||||||||||||||||||||||||||
Redeemable notes | — | — | — | — | 17,562 | (d) | 17,562 | |||||||||||||||||||||||||||||||
Financing obligations | 1,532 | — | (1,532) | $ | — | — | — | |||||||||||||||||||||||||||||||
Accounts payable and accrued expenses | 13,342 | 25,892 | — | 55 | 11,437 | (n) | 50,726 | |||||||||||||||||||||||||||||||
Contract liabilities | — | 47,139 | — | — | (28,279) | (b) | 18,860 | |||||||||||||||||||||||||||||||
Due to related parties | 603 | 74,684 | — | — | (74,684) | (c) | 603 | |||||||||||||||||||||||||||||||
Total current liabilities | 15,477 | 429,130 | (1,532) | 55 | (227,729) | 215,401 | ||||||||||||||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||||||||||||||
Bank loans, net | — | 70,949 | — | — | (70,949) | (c) | — | |||||||||||||||||||||||||||||||
Financing obligation | 16,506 | — | (16,506) | — | — | — | ||||||||||||||||||||||||||||||||
Redeemable notes | — | — | — | — | 53,124 | (d) | 53,124 | |||||||||||||||||||||||||||||||
Contract liabilities | — | 5,331 | — | — | (2,646) | (b) | 2,685 | |||||||||||||||||||||||||||||||
Other liabilities | — | 2,128 | — | 11 | — | 2,139 | ||||||||||||||||||||||||||||||||
Total non-current liabilities | 16,506 | 78,408 | (16,506) | 11 | (20,471) | 57,948 | ||||||||||||||||||||||||||||||||
Total liabilities | 31,983 | 507,538 | (18,038) | 66 | (248,200) | 273,349 | ||||||||||||||||||||||||||||||||
Shareholders' equity | ||||||||||||||||||||||||||||||||||||||
Preferred shares | — | — | — | — | 7 | (e) | 7 | |||||||||||||||||||||||||||||||
Common shares | 839 | 595,000 | — | — | (594,930) | (f) (g) | 909 | |||||||||||||||||||||||||||||||
Paid in capital | 1,731,718 | — | — | — | 152,211 | (e) (f) (g) | 1,883,929 | |||||||||||||||||||||||||||||||
Common shares held in treasury | (717) | — | — | — | — | (717) | ||||||||||||||||||||||||||||||||
Accumulated other comprehensive income | — | (2,664) | — | — | 2,664 | (g) | — | |||||||||||||||||||||||||||||||
Accumulated deficit | (1,403,372) | (353,805) | 2,741 | 191 | 368,806 | (g) (o) | (1,385,439) | |||||||||||||||||||||||||||||||
Total shareholders' equity | 328,468 | 238,531 | 2,741 | 191 | (71,242) | 498,689 | ||||||||||||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 360,451 | $ | 746,069 | $ | (15,297) | $ | 257 | $ | (319,442) | $ | 772,038 |
See accompanying notes to the unaudited pro forma condensed combined financial information
2
ENETI INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
Year Ended December 31, 2020
(Amounts in thousands, except per share data)
Eneti Historical (U.S. GAAP) | Seajacks March 31, 2021 (IFRS as reclassified) Note (2) | Exit from Dry Bulk Business Note (3) | Policy Alignment Notes (4a,b) | Pro Forma Adjustments Notes (5, 6) | Note (6) ref. | Combined Pro Forma | ||||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||||||||
Vessel revenue | $ | 33,120 | $ | 42,755 | $ | (33,120) | $ | — | $ | — | 42,755 | |||||||||||||||||||||||||||
Vessel revenue-related party pools | 130,612 | — | (130,612) | — | — | — | ||||||||||||||||||||||||||||||||
Total vessel revenue | 163,732 | 42,755 | (163,732) | — | — | 42,755 | ||||||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||
Voyage expenses | 6,716 | — | (6,716) | — | — | — | ||||||||||||||||||||||||||||||||
Voyage expenses-related party | 3,293 | — | (3,293) | — | — | — | ||||||||||||||||||||||||||||||||
Vessel operating and project costs | 80,860 | 36,293 | (80,860) | 1,042 | — | 37,335 | ||||||||||||||||||||||||||||||||
Vessel operating costs-related party | 11,946 | — | (11,946) | — | — | — | ||||||||||||||||||||||||||||||||
Charterhire expense | 21,107 | — | (21,107) | — | — | — | ||||||||||||||||||||||||||||||||
Depreciation and amortization | 48,369 | 30,721 | (48,369) | (362) | (4,281) | (h) | 26,078 | |||||||||||||||||||||||||||||||
Impairment of long lived assets | — | 289,125 | — | — | — | 289,125 | ||||||||||||||||||||||||||||||||
Amortization of intangibles | — | 5,332 | — | — | (5,332) | (k) | — | |||||||||||||||||||||||||||||||
General and administrative expenses | 17,568 | 11,167 | (102) | 451 | 44,628 | (i) | 73,712 | |||||||||||||||||||||||||||||||
General and administrative expenses-related party | 8,103 | — | (5,505) | — | — | 2,598 | ||||||||||||||||||||||||||||||||
Loss / write down on assets held for sale | 458,610 | — | (458,610) | — | — | — | ||||||||||||||||||||||||||||||||
Loss / write down on assets held for sale-related party | 36,803 | — | (36,803) | — | — | — | ||||||||||||||||||||||||||||||||
Total operating expenses | 693,375 | 372,638 | (673,311) | 1,131 | 35,015 | 428,848 | ||||||||||||||||||||||||||||||||
Operating (loss) income | (529,643) | (329,883) | 509,579 | (1,131) | (35,015) | (386,093) | ||||||||||||||||||||||||||||||||
Other (expense) income: | ||||||||||||||||||||||||||||||||||||||
Interest income | 210 | 1,407 | — | — | — | 1,617 | ||||||||||||||||||||||||||||||||
Gain on bargain purchase of Seajacks | — | — | — | — | 58,443 | (o) | 58,443 | |||||||||||||||||||||||||||||||
Gain on derivative financial instruments | — | (667) | — | — | — | (667) | ||||||||||||||||||||||||||||||||
(Loss) income from equity investment-related party | (105,384) | — | — | — | — | (105,384) | ||||||||||||||||||||||||||||||||
Foreign exchange gain (loss) | (348) | 809 | 348 | 178 | — | 987 | ||||||||||||||||||||||||||||||||
Financial expense, net | (36,818) | (21,571) | 36,818 | 128 | 15,842 | (j) | (5,601) | |||||||||||||||||||||||||||||||
Total other (expense) income | (142,340) | (20,022) | 37,166 | 306 | 74,285 | (50,605) | ||||||||||||||||||||||||||||||||
Income before income tax benefit | (671,983) | (349,905) | 546,745 | (825) | 39,270 | (436,698) | ||||||||||||||||||||||||||||||||
Income tax (benefit) provision | — | (15,186) | — | (2,265) | 2,498 | (h) (k) (i) (j) | (14,953) | |||||||||||||||||||||||||||||||
Net income (loss) | (671,983) | (334,719) | 546,745 | 1,440 | 36,772 | (421,745) | ||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | 140 | (m) | 140 | |||||||||||||||||||||||||||||||
Net income (loss) available for common shareholders | $ | (671,983) | $ | (334,719) | $ | 546,745 | $ | 1,440 | $ | 36,632 | $ | (421,885) | ||||||||||||||||||||||||||
Basic earnings per share | $ | (70.85) | $ | (24.83) | ||||||||||||||||||||||||||||||||||
Diluted earnings per share | $ | (70.85) | $ | (24.83) | ||||||||||||||||||||||||||||||||||
Weighted average number of shares outstanding | ||||||||||||||||||||||||||||||||||||||
Basic | 9,484 | 7,505 | (f) | 16,989 | ||||||||||||||||||||||||||||||||||
Diluted | 9,484 | 7,505 | (f) | 16,989 |
See accompanying notes to the unaudited pro forma condensed combined financial information
3
ENETI INC.
Unaudited Pro Forma Condensed Combined Statement of Operations
Six Month Period Ended June 30, 2021
(Amounts in thousands, except per share data)
Eneti Historical (U.S. GAAP) | Seajacks March 31, 2021 (IFRS as reclassified) Note (2) | Exit from Dry Bulk Business Note (3) | Policy Alignment Notes (4a,b) | Pro Forma Adjustments Notes (5, 6) | Note (6) ref. | Combined Pro Forma | ||||||||||||||||||||||||||||||||
Revenue: | ||||||||||||||||||||||||||||||||||||||
Vessel revenue | $ | 82,585 | $ | 26,542 | $ | (82,585) | $ | — | $ | — | $ | 26,542 | ||||||||||||||||||||||||||
Vessel revenue-related party pools | 14,895 | — | (14,895) | — | — | — | ||||||||||||||||||||||||||||||||
Total vessel revenue | 97,480 | 26,542 | (97,480) | — | — | 26,542 | ||||||||||||||||||||||||||||||||
— | ||||||||||||||||||||||||||||||||||||||
Operating expenses | ||||||||||||||||||||||||||||||||||||||
Voyage expenses | 9,782 | — | (9,782) | — | — | — | ||||||||||||||||||||||||||||||||
Voyage expenses-related party | 4,800 | — | (4,800) | — | — | — | ||||||||||||||||||||||||||||||||
Vessel operating and project costs | 20,825 | 21,256 | (20,825) | — | — | 21,256 | ||||||||||||||||||||||||||||||||
Vessel operating costs-related party | 3,025 | — | (3,025) | — | — | — | ||||||||||||||||||||||||||||||||
Charterhire expense | 29,346 | — | (29,346) | — | — | — | ||||||||||||||||||||||||||||||||
Depreciation and amortization | — | 15,412 | — | (181) | (2,140) | (h) | 13,091 | |||||||||||||||||||||||||||||||
Impairment of long-lived assets | — | 289,125 | — | — | (289,125) | (l) | — | |||||||||||||||||||||||||||||||
Amortization of intangibles | — | 2,666 | — | — | (2,666) | (k) | — | |||||||||||||||||||||||||||||||
Goodwill impairment | — | — | — | — | — | (l) | — | |||||||||||||||||||||||||||||||
General and administrative expenses | 10,403 | 6,495 | (202) | 231 | — | 16,927 | ||||||||||||||||||||||||||||||||
General and administrative expenses-related party | 2,316 | — | (1,283) | — | — | 1,033 | ||||||||||||||||||||||||||||||||
Loss / write down on assets held for sale | (23,438) | — | 23,438 | — | — | — | ||||||||||||||||||||||||||||||||
Loss / write down on assets held for sale-related party | 1,454 | — | (1,454) | — | — | — | ||||||||||||||||||||||||||||||||
Total operating expenses | 58,513 | 334,954 | (47,279) | 50 | (293,931) | 52,307 | ||||||||||||||||||||||||||||||||
Operating (loss) income | 38,967 | (308,412) | (50,201) | (50) | 293,931 | (25,765) | ||||||||||||||||||||||||||||||||
Other (expense) income: | ||||||||||||||||||||||||||||||||||||||
Interest income | 39 | 80 | — | — | — | 119 | ||||||||||||||||||||||||||||||||
Gain on sale of equity investment | 5,381 | — | — | — | — | 5,381 | ||||||||||||||||||||||||||||||||
Gain on derivative financial instruments | — | 2 | — | — | — | 2 | ||||||||||||||||||||||||||||||||
(Loss) income from equity investment-related party | 23,836 | — | — | — | — | 23,836 | ||||||||||||||||||||||||||||||||
Foreign exchange gain (loss) | 3 | (296) | (3) | 89 | — | (207) | ||||||||||||||||||||||||||||||||
Financial expense, net | (13,350) | (10,860) | 13,350 | 64 | 8,214 | (j) | (2,582) | |||||||||||||||||||||||||||||||
Total other (expense) income | 15,909 | (11,074) | 13,347 | 153 | 8,214 | 26,549 | ||||||||||||||||||||||||||||||||
Income before income tax benefit | 54,876 | (319,486) | (36,854) | 103 | 302,145 | 784 | ||||||||||||||||||||||||||||||||
Income tax (benefit) | — | (5,347) | — | — | 2,498 | (h) (k) (i) (j) | (2,849) | |||||||||||||||||||||||||||||||
Net income (loss) | 54,876 | (314,139) | (36,854) | 103 | 299,647 | 3,633 | ||||||||||||||||||||||||||||||||
Preferred stock dividends | — | — | — | — | 70 | (m) | 70 | |||||||||||||||||||||||||||||||
Net income (loss) available for common shareholders | $ | 54,876 | $ | (314,139) | $ | (36,854) | $ | 103 | $ | 299,577 | $ | 3,563 | ||||||||||||||||||||||||||
Basic earnings per share | $ | 5.16 | $ | 0.20 | ||||||||||||||||||||||||||||||||||
Diluted earnings per share | $ | 5.03 | $ | 0.19 | ||||||||||||||||||||||||||||||||||
Weighted average number of shares outstanding | ||||||||||||||||||||||||||||||||||||||
Basic | 10,628 | 7,505 | (f) | 18,133 | ||||||||||||||||||||||||||||||||||
Diluted | 10,907 | 7,505 | (f) | 18,412 |
See accompanying notes to the unaudited pro forma condensed combined financial information
4
ENETI INC.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
Note 1 - Basis of pro forma presentation
This unaudited pro forma condensed combined financial information is based on Eneti’s historical consolidated financial statements as adjusted to give pro forma effect to these transactions: (i) the acquisition of Seajacks by Eneti, (ii) the issuance of borrowings and shares to finance the acquisition, and (iii) the Eneti exit from the Dry Bulk business.
The purchase of Seajacks is accounted for as an acquisition in accordance with Accounting Standards Codification (“ASC”) Topic 805, Business Combinations (“ASC 805”) which requires the allocation of purchase consideration to the fair value of the identified assets acquired and liabilities assumed upon consummation of a business combination.
The unaudited pro forma condensed combined financial information of Eneti was prepared in accordance with U.S. Generally Accepted Accounting Principles (U.S. GAAP) and includes adjustments and reclassifications to convert the statement of financial position and statement of comprehensive income of Seajacks from IFRS as issued by the IASB to U.S. GAAP. The accounting policies used, on a preliminary basis, in the preparation of these unaudited pro forma condensed combined financial information are those set forth in Eneti’s audited consolidated financial statements as of and for the year ended December 31, 2020.
Note 2 - Reclassifications of Seajacks historical information to Eneti presentation format
A preliminary review has been performed by management to assess if reclassifications are necessary in the unaudited pro forma condensed combined financial information to conform Seajacks presentation to Eneti's balance sheet and statement of operations presentation. Accordingly, the unaudited pro forma condensed combined balance sheet has been adjusted to reflect certain reclassifications of Seajacks’ balance sheet to conform to Eneti’s financial statement presentation, as indicated in the table below:
5
Balance Sheet Reclassifications (March 31, 2021) | Seajacks Historical | Reclassifications | Notes | Seajacks as reclassified | ||||||||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||||||||
Assets | ||||||||||||||||||||||||||
Current assets | ||||||||||||||||||||||||||
Cash and cash equivalents | $ | 6,976 | — | $ | 6,976 | |||||||||||||||||||||
Cash, restricted | 3,640 | — | 3,640 | |||||||||||||||||||||||
Trade and other receivables | 11,481 | — | 11,481 | |||||||||||||||||||||||
Contract fulfillment costs | 18,524 | — | 18,524 | |||||||||||||||||||||||
Inventories | 6,345 | — | 6,345 | |||||||||||||||||||||||
Prepaid expenses and other current assets | — | — | — | |||||||||||||||||||||||
Total current assets | 46,966 | — | 46,966 | |||||||||||||||||||||||
Non-current assets | ||||||||||||||||||||||||||
Property, plant and equipment | 589,248 | (3,173) | (a) | 586,075 | ||||||||||||||||||||||
Right of use assets | 1,211 | (1,211) | (b) | — | ||||||||||||||||||||||
Intangible assets | 72,321 | — | 72,321 | |||||||||||||||||||||||
Goodwill | — | — | — | |||||||||||||||||||||||
Contract fulfillment costs | 220 | — | 220 | |||||||||||||||||||||||
Other assets | — | 4,384 | (a) (b) | 4,384 | ||||||||||||||||||||||
Deferred tax asset | 36,103 | — | 36,103 | |||||||||||||||||||||||
Total non-current assets | 699,103 | — | 699,103 | |||||||||||||||||||||||
Total assets | $ | 746,069 | $ | — | $ | 746,069 | ||||||||||||||||||||
Liabilities and stockholders equity | ||||||||||||||||||||||||||
Current liabilities | ||||||||||||||||||||||||||
Bank loans, net | $ | 281,415 | $ | — | $ | 281,415 | ||||||||||||||||||||
Loan from shareholders | 62,623 | $ | (62,623) | (c) | — | |||||||||||||||||||||
Derivative financial instruments | 3,290 | (3,290) | (d) | — | ||||||||||||||||||||||
Accounts payable and accrued expenses | 21,577 | 4,315 | (d) (e) (f) | 25,892 | ||||||||||||||||||||||
Contract liabilities | 47,139 | — | 47,139 | |||||||||||||||||||||||
Corporate income taxes payable | 696 | (696) | (e) | — | ||||||||||||||||||||||
Lease liabilities | 329 | (329) | (f) | — | ||||||||||||||||||||||
Convertible loan notes | 3,820 | (3,820) | (c) | — | ||||||||||||||||||||||
Other Liabilities | 8,241 | (8,241) | (c) | — | ||||||||||||||||||||||
Due to related parties | — | 74,684 | (c) | 74,684 | ||||||||||||||||||||||
Total current liabilities | 429,130 | — | 429,130 | |||||||||||||||||||||||
Non-current liabilities | ||||||||||||||||||||||||||
Bank loans, net | 70,949 | — | 70,949 | |||||||||||||||||||||||
Contract liabilities | 5,331 | — | 5,331 | |||||||||||||||||||||||
Lease liabilities | 2,128 | (2,128) | (g) | — | ||||||||||||||||||||||
Other liabilities | — | 2,128 | (g) | 2,128 | ||||||||||||||||||||||
Total non-current liabilities | 78,408 | — | 78,408 | |||||||||||||||||||||||
Total liabilities | 507,538 | — | 507,538 | |||||||||||||||||||||||
Shareholders' equity | ||||||||||||||||||||||||||
Common shares | 595,000 | — | 595,000 | |||||||||||||||||||||||
Accumulated other comprehensive income | (2,664) | — | (2,664) | |||||||||||||||||||||||
Accumulated deficit | (353,805) | — | (353,805) | |||||||||||||||||||||||
Total shareholders' equity | 238,531 | — | 238,531 | |||||||||||||||||||||||
Total liabilities and shareholders' equity | $ | 746,069 | $ | — | $ | 746,069 |
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Financial information presented in the “Seajacks as reclassified” column in the unaudited condensed combined pro forma statements of operations have been reclassified to conform to the presentation of Eneti as indicated in the table below:
Year ended March 31, 2021 | Six months ended March 31, 2021 | ||||||||||||||||||||||||||||||||||||||||
Statement of Operations Reclassifications | Seajacks Historical | Reclassifi-cations | Notes | Seajacks as reclassified | Seajacks Historical | Reclassifi-cations | Notes | Seajacks as reclassified | |||||||||||||||||||||||||||||||||
(Dollars in thousands) | |||||||||||||||||||||||||||||||||||||||||
Vessel revenue | $ | 42,755 | $ | — | $ | 42,755 | $ | 26,542 | $ | — | $ | 26,542 | |||||||||||||||||||||||||||||
Other operating income | 22 | (22) | (A) | — | 23 | (23) | (A) | — | |||||||||||||||||||||||||||||||||
Operating expenses | |||||||||||||||||||||||||||||||||||||||||
Vessel operating and project costs | 36,315 | (22) | (A) | 36,293 | 21,279 | (23) | (A) | 21,256 | |||||||||||||||||||||||||||||||||
Depreciation and amortization | 30,721 | — | 30,721 | 15,412 | — | (B) | 15,412 | ||||||||||||||||||||||||||||||||||
Impairment of long lived assets | 289,125 | — | 289,125 | 289,125 | — | 289,125 | |||||||||||||||||||||||||||||||||||
Amortization of intangibles | 5,332 | — | 5,332 | 2,666 | — | 2,666 | |||||||||||||||||||||||||||||||||||
Foreign exchange loss (gain) | (809) | 809 | (B) | — | 296 | (296) | (B) | — | |||||||||||||||||||||||||||||||||
Loss (gain) on derivative financial instruments | 667 | (667) | (C) | — | (2) | 2 | (C) | — | |||||||||||||||||||||||||||||||||
General and administrative expenses | 11,167 | — | 11,167 | 6,495 | — | 6,495 | |||||||||||||||||||||||||||||||||||
Total operating expenses | 372,518 | 120 | 372,638 | 335,271 | (317) | 334,954 | |||||||||||||||||||||||||||||||||||
Operating (loss) income | (329,741) | (142) | (329,883) | (308,706) | 294 | (308,412) | |||||||||||||||||||||||||||||||||||
Other (expense) income: | |||||||||||||||||||||||||||||||||||||||||
Interest income | 1,407 | — | 1,407 | 80 | — | 80 | |||||||||||||||||||||||||||||||||||
Gain (loss) on derivative financial instruments | — | (667) | (C) | (667) | — | 2 | (C) | 2 | |||||||||||||||||||||||||||||||||
Foreign exchange loss (gain) | — | 809 | (B) | 809 | — | (296) | (B) | (296) | |||||||||||||||||||||||||||||||||
Financial expense, net | (21,571) | — | (21,571) | (10,860) | — | (10,860) | |||||||||||||||||||||||||||||||||||
Total other (expense) income | (20,164) | 142 | (20,022) | (10,780) | (294) | (11,074) | |||||||||||||||||||||||||||||||||||
Income before income tax benefit | (349,905) | — | (349,905) | (319,486) | — | (319,486) | |||||||||||||||||||||||||||||||||||
Income tax (benefit) | (15,186) | — | (15,186) | (5,347) | — | (5,347) | |||||||||||||||||||||||||||||||||||
Net income (loss) | $ | (334,719) | $ | — | $ | (334,719) | $ | (314,139) | $ | — | $ | (314,139) |
Notes to Balance Sheet Reclassification Table | As of March 31, 2021 | ||||||||||
(Dollars in thousands) | |||||||||||
(a) | to reclass non-vessel property, plant and equipment to other assets | 3,173 | |||||||||
(b) | to reclass right of use asset to other assets | 1,211 | |||||||||
(c) | to reclass borrowings from related parties to due to related parties | (74,864) | |||||||||
(d) | to reclass derivative financial instruments to accounts payable and accrued expenses | 3,290 | |||||||||
(e) | to reclass corporate income taxes payable to accounts payable and accrued expenses | 696 | |||||||||
(f) | to reclass current lease liability to accounts payable and accrued expenses | 329 | |||||||||
(g) | to reclass non-current lease liability to other liabilities | (2,128) |
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Notes to Statement of Operations Reclassification Tables | Year ended March 31, 2021 | 6 months ended March 31, 2021 | |||||||||||||||
(Dollars in thousands) | |||||||||||||||||
(A) | to reclass other operating income to vessel operating and project costs | $ | 22 | $ | 23 | ||||||||||||
(B) | to reclassify foreign exchange loss (gain) from operating (loss) income to other (expense) income | (809) | 296 | ||||||||||||||
(C) | to reclassify loss (gain) on derivative financial instruments from operating (loss) income to other (expense) income | 667 | (2) |
Note 3 - Adjustment to reflect exit from dry bulk business
Eneti announced on August 3, 2020 its intention to transition away from the business of dry bulk commodity transportation and towards marine-based renewable energy including investing in the next generation of wind turbine installation vessels. During July 2021, the Company completed its exit from the business of dry bulk commodity transportation, as such the unaudited pro forma condensed combined balance sheet reflects the impact of the sale of all vessels as if it had taken place on June 30, 2021 and the unaudited pro forma condensed combined statement of operations as if it had taken place on January 1, 2020. The acquired Seajacks business will constitute Eneti’s sole business segment.
Note 4 - Accounting policy alignments and adjustments
(4a) Accounting policy alignments
As stated in Note 1 - Basis of pro forma presentation, as part of preparing the unaudited pro forma condensed combined financial information, Eneti performed a review of the accounting policies of Seajacks to determine if differences in accounting policies potentially required revising of financial statement items to conform to Eneti’s accounting policies. Although Eneti management believes the adjustments to Seajacks’ financial statements represent the known material adjustments to conform to U.S. GAAP, the IFRS to U.S. GAAP adjustments presented below are preliminary and are subject to further adjustments as additional information becomes available and as additional analyses are performed.
Presentation in Seajacks’ historical financial statements | Presentation in pro forma combined financial information | Year ended December 31, 2020 | 6 months ended June 30, 2021 | |||||||||||||||||
(Dollars in thousands) | ||||||||||||||||||||
Inventory (1) | Vessel operating costs | 1,042 | — | |||||||||||||||||
Note: (1) to reflect the expensing of previously capitalized inventory consumables from inventory to vessel operating costs |
(4b) Adjustments from IFRS to U.S. GAAP
The following adjustments have been made to convert the Seajacks balance sheet from IFRS to U.S. GAAP:
(Dollars in thousands) | Notes | At June 30, 2021 | |||||||||
Other assets | (1) | 257 | |||||||||
Accounts payable and accrued expenses | (1) | 55 | |||||||||
Other liabilities | (1) | 11 |
The following adjustments have been made to convert the Seajacks statement of operations from IFRS to U.S. GAAP:
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(Dollars in thousands) | Notes | Year ended December 31, 2020 | 6 months ended June 30, 2021 | ||||||||||||||
Depreciation and amortization | (1) | (362) | (181) | ||||||||||||||
General and administrative expenses | (1) | 451 | 231 | ||||||||||||||
Foreign exchange (gain) | (1) | (178) | (89) | ||||||||||||||
Financial expense, net | (1) | (128) | (64) | ||||||||||||||
Income tax benefit | (2) | 2,067 | — |
IFRS to U.S. GAAP Notes:
(1)Under U.S. GAAP, leases are classified as either finance or operating at lease commencement if specified criteria have been met, whereas after the adoption of IFRS 16 Leases, IFRS does not distinguish between operating and finance leases. Rather, IFRS applies a single recognition and measurement model to all leases, which is similar to the treatment of finance leases under U.S. GAAP after the adoption of ASC 842 Leases with effect from January 1, 2019. All of Seajacks’ leases have been classified as operating under its U.S. GAAP accounting policy, where the lease liability is measured as the present value of the remaining lease payments and the right-of-use asset is re-measured as the amount of the lease liability adjusted for any lease incentives, prepaid/ accrued rents, initial direct costs, or impairment. Therefore, amortization and finance cost recognized on right of use assets and the corresponding lease liability under IFRS 16 has been reversed, and adjustments have been made to recognize rent expense on a straight-line basis over the lease term. The adjustment resulted in the reversal of Vessel expenses of $0.2 million and $0.4 million and Financial expenses of less than $0.1 million and $0.1 million for the six months ended March 31, 2021 and the year-ended March 31, 2021, respectively, recognized under IFRS, and an increase in General and administrative expenses of $0.2 million and $0.5 million for the six months ended March 31, 2021 and the year-ended March 31, 2021, respectively, under U.S. GAAP. The adjustment also resulted in a decrease to Foreign exchange loss of $0.1 million for the six months ended March 31, 2021 and an increase to Foreign exchange gain of $0.2 million the year-ended March 31, 2021. The adjustment also resulted in an increase to the right of use asset of $0.3 million and an increase of less than $0.1 million to Accounts payable and accrued expenses and Other liabilities as of March 31, 2021 under US GAAP.
(2)IFRS requires tax laws enacted or “substantively enacted” as of the balance sheet date to be used, while the requirement under U.S. GAAP is to use only the enacted tax rates or laws. On March 11, 2020, the United Kingdom announced a change to the main corporation tax rate from 17% to 19% and was substantively enacted for IFRS purposes on March 17, 2020. Under IFRS, this resulted in the remeasurement of deferred tax balance as of March 31, 2020. Under U.S. GAAP, the rate change was not considered enacted until the Finance Bill received Royal Assent, which occurred on July 22, 2020. As such, under U.S. GAAP, the rate change should be reflected in the period ended March 31, 2021. This adjustment resulted in an increase to the Income tax benefit of $2.1 million for the year-ended March 31, 2021.
Note 5 - Preliminary purchase price allocation
The preliminary purchase price for the Acquisition is listed below, subject to certain adjustments.
Consideration | ||||||||
(Dollars in thousands) | ||||||||
Issuance of redeemable notes | $ | 70,686 | ||||||
Equity issued | 152,288 | |||||||
$ | 222,974 |
As part of the Acquisition, Eneti issued approximately 7.5 million common shares and 700,000 preferred shares valued at $18.56 per share, for total consideration of $152.3 million, issued $70.7 million of redeemable notes (maturing in March 2023) to selling shareholders and assumed Seajacks’ remaining debt obligations. The redeemable notes carry an interest rate of 5.5% until December 31, 2021 and 8.0% thereafter.
The purchase price allocated below has been developed based on preliminary estimates of fair value using the historical financial information of Seajacks as of March 31, 2021. In addition, the allocation of the purchase price to acquired identifiable assets and assumed liabilities is
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based on the valuation of the tangible and identifiable intangible assets acquired and liabilities assumed by management to prepare the unaudited pro forma condensed combined financial information. The Company’s acquisitions are accounted for such that the assets acquired and liabilities assumed are recognized at their acquisition date fair values, based upon preliminary appraisals performed, with any excess of the consideration transferred over the estimated fair values of the identifiable net assets acquired recorded as goodwill, or if the fair value of the net assets acquired exceeds the purchase consideration (“negative goodwill”), a bargain purchase gain is recorded.
The purchase accounting is dependent upon certain valuation and other studies that have not yet been completed. Accordingly, the preliminary purchase accounting is subject to further adjustments as additional information becomes available and as additional analyses and final fair valuations are conducted. The final fair valuations could differ materially from the preliminary fair valuations presented below and, as such, no assurances can be provided regarding the preliminary purchase accounting.
(Dollars in thousands) | |||||||||||
Purchase price: | $222,974 | ||||||||||
Allocated to (preliminary): | |||||||||||
Historical book value of Seajacks assets, net | 309,217 | ||||||||||
Fair value adjustments: | |||||||||||
Property, plant & equipment | (19,075) | ||||||||||
Inventory | (1,221) | ||||||||||
Contract assets - current | (3,364) | ||||||||||
Contract assets - non current | 8,580 | ||||||||||
Contract liabilities - current | 28,279 | ||||||||||
Contract liabilities - non-current | 2,646 | ||||||||||
Write down of pre-acquisition intangible assets | (72,321) | ||||||||||
Deferred tax asset | 15,030 | ||||||||||
Other net assets and liabilities | 9,128 | ||||||||||
Fair value of tangible net assets acquired | 276,899 | ||||||||||
Brand name - identifiable intangible* | 4,518 | ||||||||||
Preliminary gain on bargain purchase (excess of the estimated fair value of net assets acquired over acquisition cost) | $ | (58,443) | |||||||||
*indefinite useful life, based upon appraisal performed |
Management’s preliminary estimate as of the date of this Form 6-K is that the fair value of the net assets and liabilities acquired is greater than the purchase price (resulting in a negative value for goodwill). When the net fair value of the identifiable assets and liabilities acquired exceeds the purchase consideration, the fair value of net assets acquired is reassessed, with any residual negative goodwill recognized immediately in net income as a bargain purchase gain.
A key reason for the preliminary gain on bargain purchase is that the transaction was priced based on net asset value (“NAV”), with the number of shares issued being based on NAV per share. However, the share price upon which the fair value of the consideration is based for accounting purposes, the actual quote price, was materially lower. Also, the previous owners recognized that additional funding would be required to enable Seajacks to grow its business further through new vessel construction and upgrade of the existing vessels, however previous ownership structure was not appropriate for such growth due to the limitation of one of the former owners. The reduction in share value combined with the previous owners’ desire to close the transaction on an accelerated basis enabled Eneti to obtain the Seajacks business at a lower price resulting in the recognition of a bargain purchase gain.
Note 6 - Transaction pro forma accounting adjustments
(a) Reflects the decrease in cash for cash consideration for acquisition financing and debt repayment ($219.8 million) and acquisition costs ($31.8 million)
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(b) Reflects adjustments to record acquired assets at estimated acquisition date fair values and reflect the excess of the fair value of net tangible and intangible assets acquired over acquisition cost (see note 5)
(c) Reflects the pay down or assumption of existing Seajacks debt by Eneti
(d) Reflects the issuance of $70.7 million of redeemable notes in exchange for shareholder loan
(e) Reflects the issuance of 700,000 preferred shares to partially finance the Acquisition
(f) Reflect the issuance of approximately 7.5 million common shares to partially finance the Acquisition
(g) To eliminate the shareholder equity accounts of Seajacks ($353.8 million)
(h) Reflects lower depreciation and amortization expense following fair value adjustments to vessel and non-vessel fixed assets ($4.3 million) for the combined statement of operations for the fiscal year ended December 31, 2020 and $2.1 million for the combined statement of operations for the six months ended June 30, 2021
(i) Reflects non-recurring acquisition costs being fully reflected in the combined statements of operations for the fiscal year ended December 31, 2020 and relating to compensation ($32.5 million for the combined statement of operations for the fiscal year ended December 31, 2020) and consulting and financing fees ($12.1 million for the combined statement of operations for the fiscal year ended December 31, 2020
(j) Reflects lower interest costs from lower debt levels following Acquisition
(k) Reflects the reversal of intangible amortization costs following fair value analysis determination of indefinite life
(l) Reflects the removal of non-recurring items (i.e. impairment of property, plant and equipment and goodwill impairment) from the six month period combined statements of operations ended June 30, 2021 as these items are already reflected in the results of operations for Seajacks for the year ended March 31, 2021.
(m) Reflects dividend distribution to preferred stock as if they had been issued on January 1, 2020
(n) Reflects accrual of transaction costs not yet paid
(o) Reflects the recognition of bargain purchase gain (see Note 5) in net income ($58.4 million) and recognition of other acquisition related adjustments ($43.4 million)
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