Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

12 Months Ended

Dec. 31, 2023

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

2.    Discontinued Operation and Assets and Liabilities Related to Discontinued Operation

The Company’s decision to sell certain assets and wind down the operations of OKC met the “held for sale” under ASC 205-20-45-9 Discontinued Operations, and represented a strategic shift that had a significant impact on the Company’s overall operations and financial results. Accordingly, the assets and liabilities of OKC are reflected as “Assets and Liabilities related to Discontinued Operation” in the Consolidated Balance Sheets as of December 31, 2023 and December 31, 2022 (as reclassified).  In addition, OKC’s operating loss, the loss on sale of assets, divestiture costs, and impairment charges on long-lived assets were reclassified to “Loss from Discontinued Operation, net of tax” in the Consolidated Statements of Operations for the twelve-month years ended December 31, 2023 and December 31, 2022 (as reclassified).

Under the terms of the Asset Purchase Agreement, the Company sold inventory, machinery & equipment and intellectual property (patents & trademarks/tradenames) to a buyer for approximately $2,158,000.  The sale transaction closed on August 1, 2023, and in accordance with the sale, the Company evaluated whether the fair value of OKC assets sold, less estimated costs to sell, exceeded the net carrying values.  The Company concluded that the net carrying values exceeded the fair value, less estimated costs to sell, resulting in a loss on the sale of assets of approximately $3,162,000 for the twelve-month year ended December 31, 2023.

Also, as a direct result of Management’s decision to sell OKC’s assets, divest the operations, and exit the CPG segment, the Company incurred an impairment charge on its long-lived asset (building) of approximately $1,219,000 for the year ended December 31, 2023.  This charge was based on two independent, third party real property appraisals (less estimated costs to sell).  In addition, divestiture costs of approximately $807,000 were incurred for the year ended December 31, 2023 related to key employee retention agreements, employee severance agreements, and supplier open purchase order obligations.  The aggregate total of the impairment charge and divestiture costs resulted in a loss of approximately $2,026,000 for the year ended December 31, 2023.

Finally, OKC’s operating loss of approximately $2,052,000 for the year ended December 31, 2023 are also included in the Loss from Discontinued Operation (loss of $22,000 for the year ended December 31, 2022, as reclassified).

In summary, the Discontinued Operation, net of tax, resulted in a loss of approximately $7,240,000 for the year ended December 31, 2023 (loss of $22,000 for the year ended December 31, 2022, as reclassified).

Discontinued Operation Financial Information

Consolidated Statements of Operations are as follows:

	Years Ended December 31,
(in thousands)	2023		2022
Net Sales	$	3,410	$	8,636
Operating costs		(5,462)		(8,658)
Loss from discontinued operation		(2,052)		(22)
Loss from discontinued operation - impairment and divestiture costs		(2,026)		—
Loss on sale of assets		(3,162)		—
Loss from discontinued operation before income taxes		(7,240)		(22)
Income tax benefit		—		5
Loss from discontinued operation, net of tax	$	(7,240)	$	(17)

Assets & Liabilities Related to Discontinued Operation Financial Information

A summary of the carrying amounts of major classes of assets and liabilities, which are included in assets and liabilities related to discontinued operation in the Consolidated Balance Sheets, are as follows:

	Years Ending December 31,
(in thousands)	2023		2022
Accounts receivable, net	$	38	$	1,016
Prepaid and other assets		31		338
Inventories, net		55		4,758
Building and improvements, net		1,428		—
Assets related to discontinued operation	$	1,552	$	6,112
Noncurrent assets related to discontinued operation	$	—	$	3,440
Accounts payable	$	197	$	1,272
Accrued employee compensation and other costs		16		473
Liabilities related to discontinued operation	$	213	$	1,745

The Company plans to actively market and sell the building in 2024, as well as the inventory (steel) acquired from suppliers that was not part of the sale of assets sold to a third party.  The majority of the remaining assets and liabilities are expected to be settled in early 2024.