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Business Combinations | 12 Months Ended
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Dec. 31, 2018
Business Combinations |
Business Combinations | Note 4—Business Combinations 2018 Acquisition Acquisition of Willbros Group, Inc. On June 1, 2018, we acquired all of the outstanding common stock of Willbros, a specialty energy infrastructure contractor serving the oil and gas and power industries for approximately $110.6 million, net of cash and restricted cash acquired. The total purchase price was funded through a combination of existing cash balances and borrowings under our revolving credit facility. The tables below represent the purchase consideration and preliminary estimated fair values of the assets acquired and liabilities assumed. Significant changes since our initial estimates reported in the second quarter of 2018 primarily relate to fair value adjustments to our acquired contracts, which resulted in an increase to contract liabilities of $19.6 million. In addition, fair value adjustments to our acquired insurance liabilities and lease obligations reduced our liabilities assumed by approximately $9.3 million and $8.0 million, respectively. As a result of these and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill increased by approximately $9.1 million since the second quarter of 2018. Adjustments recorded to the estimated fair values of the assets acquired and liabilities assumed are recognized in the period in which the adjustments are determined and calculated as if the accounting had been completed as of the acquisition date. The final determination of fair value for certain assets and liabilities is subject to further change and will be completed as soon as the information necessary to complete the analysis is obtained. These amounts, which may differ materially from these preliminary estimates, will continue to be refined and will be finalized as soon as possible, but no later than one year from the acquisition date. The primary areas of the preliminary estimates that are not yet finalized relate to property, plant and equipment, contract assets and liabilities, leases, deferred income taxes, uncertain tax positions, and the fair value of certain contractual obligations.
Purchase consideration (in thousands) |  |  |  |
Total purchase consideration |  | $ | 164,758 |
Less cash and restricted cash acquired |  |  | (54,138) |
Net cash paid |  |  | 110,620 |
Preliminary identifiable assets acquired and liabilities assumed (in thousands) |  |  |  |
Cash and restricted cash |  | $ | 54,138 |
Accounts receivable |  |  | 102,719 |
Contract assets |  |  | 30,762 |
Other current assets |  |  | 18,712 |
Property, plant and equipment |  |  | 30,522 |
Intangible assets: |  |  |  |
Customer relationships |  |  | 47,500 |
Tradename |  |  | 200 |
Deferred income taxes |  |  | 24,017 |
Other non-current assets |  |  | 2,261 |
Accounts payable and accrued liabilities |  |  | (114,088) |
Contract liabilities |  |  | (63,902) |
Other non-current liabilities |  |  | (20,868) |
Total identifiable net assets |  |  | 111,973 |
Goodwill |  |  | 52,785 |
Total purchase consideration |  | $ | 164,758 |
We separated the operations of Willbros among two of our existing segments, and created a new segment for the utility transmission and distribution operations called the Transmission segment. The oil and gas operations are included in the Pipeline segment, and the Canadian operations are included in the Power segment. Goodwill associated with the Willbros acquisition principally consists of expected benefits from the expansion of our services into electric utility-focused offerings and the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce. We allocated $50.5 million of goodwill to the Transmission segment, $1.5 million to the Power segment, and $0.8 million to the Pipeline segment. Based on the current tax treatment, goodwill is not expected to be deductible for income tax purposes. As part of the Willbros acquisition, we acquired approximately $40.2 million of restricted cash that was pledged by Willbros to secure letters of credit. Subsequent to the acquisition, we issued new letters of credit under our Credit Facility to replace the Willbros letters of credit secured by the restricted cash. As of December 31, 2018, substantially all of the restricted cash had been released. For the period June 1, 2018, the acquisition date, to December 31, 2018, Willbros contributed revenue of $400.8 million and gross profit of $39.5 million. For the year ended December 31, 2018, costs related to the acquisition of Willbros were $13.2 million and are included in “Merger and related costs” on the Consolidated Statements of Income. Such costs primarily consisted of severance and retention bonus costs for certain employees of Willbros, professional fees paid to advisors, and exiting or impairing certain duplicate facilities. 2017 Acquisitions Acquisition of Florida Gas Contractors On May 26, 2017, we acquired certain assets of FGC, a utility contractor specializing in underground natural gas infrastructure, for approximately $33.0 million in cash. In addition, the sellers could receive a contingent earnout amount of up to $1.5 million over a one-year period ending May 26, 2018, based on the achievement of certain operating targets. The estimated fair value of the potential contingent consideration on the acquisition date was $1.2 million. FGC operates in the Utilities segment and expands our presence in the Florida and Southeast markets. The purchase was accounted for using the acquisition method of accounting. During the fourth quarter of 2017, we finalized the estimate of fair value of the acquired assets of FGC, which included $4.8 million of fixed assets; $3.3 million of working capital; $9.1 million of intangible assets; and $17.0 million of goodwill. In connection with the FGC acquisition, we also paid $3.5 million to acquire certain land and buildings. Intangible assets primarily consist of customer relationships. Goodwill associated with the FGC acquisition principally consists of expected benefits from providing expertise for our construction efforts in the underground utility business as well as the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce that FGC provides to us. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. For the year ended December 31, 2018, FGC contributed revenue of $31.3 million and gross profit of $7.6 million. From the acquisition date through December 31, 2017, FGC contributed revenue of $15.5 million and gross profit of $3.8 million. Acquisition of Engineering Assets On May 30, 2017, we acquired certain engineering assets for approximately $2.3 million in cash which further enhances our ability to provide quality service for engineering and design projects. The purchase was accounted for using the acquisition method of accounting. The identifiable assets acquired consisted of $0.2 million of fixed assets and $2.1 million of intangible assets. Intangible assets primarily consist of customer relationships. The operations of this acquisition were fully integrated into our Power segment operations and no separate financial results were maintained. Therefore, it is impracticable for us to report the amounts of revenue and gross profit included in the Consolidated Statements of Income. Acquisition of Coastal Field Services On June 16, 2017, we acquired certain assets and liabilities of Coastal for approximately $27.5 million in cash. Coastal provides pipeline construction and maintenance, pipe and vessel coating and insulation, and integrity support services for companies in the oil and gas industry. Coastal operates in the Pipeline segment and increases our market share in the Gulf Coast energy market. The purchase was accounted for using the acquisition method of accounting. During the second quarter of 2018, we finalized the estimate of the fair value of the acquired assets, which included $4.0 million of fixed assets; $4.6 million of working capital; $9.9 million of intangible assets; $9.3 million of goodwill; and $0.3 million of long-term capital leases. Intangible assets primarily consist of customer relationships and tradename. Goodwill associated with the Coastal acquisition principally consists of expected benefits from providing expertise for our expansion of services in the pipeline construction and maintenance business. Goodwill also includes the value of the assembled workforce that Coastal provides to us. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. For the year ended December 31, 2018, Coastal contributed revenue of $14.1 million and gross profit of $1.4 million. From the acquisition date through December 31, 2017, Coastal contributed revenue of $17.9 million and gross profit of $3.2 million. The following table represents the identifiable assets acquired and liabilities assumed related to the 2017 acquisitions described above (in thousands):
Accounts receivable | $ | 10,721 |  |
Contract assets |  | 580 |  |
Other current assets |  | 2,352 |  |
Property, plant and equipment |  | 12,402 |  |
Intangible assets |  | 21,125 |  |
Goodwill |  | 26,269 |  |
Accounts payable and accrued liabilities |  | (5,476) |  |
Contract liabilities |  | (447) |  |
Total | $ | 67,526 |  |
2016 Acquisitions On January 29, 2016, we acquired certain assets and liabilities of Mueller Concrete Construction Company for $4.1 million. The purchase was accounted for using the acquisition method of accounting. During the second quarter of 2016, we finalized the estimate of fair value of the acquired assets of Mueller, which included $2.0 million of fixed assets, $2.0 million of goodwill and $0.1 million of inventory. Mueller operates within the Utilities segment. Goodwill largely consists of expected benefits from providing foundation expertise for our construction efforts in underground line work, substations and telecom/fiber. Goodwill also includes the value of the assembled workforce that Mueller provides to our business. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. The operations of Mueller were fully integrated into our operations and no separate financial results were maintained. Therefore, it is impracticable for us to report the amounts of revenue and gross profit included in the Consolidated Statements of Income. On November 18, 2016, we acquired certain assets and liabilities of Northern Energy & Power for $6.9 million. Northern operates in the Power segment and serves the renewable energy sector with a specific focus on solar photovoltaic installations in the United States. The purchase was accounted for using the acquisition method of accounting. During the second quarter of 2017, we finalized our estimated fair value of the acquired assets of Northern, which resulted in a $0.1 million reduction in goodwill compared to amounts previously recorded. The allocation of the total purchase price included $3.0 million of intangible assets, $3.7 million of goodwill and $0.1 million of fixed assets. Intangible assets consist of customer relationships. Goodwill is derived from the expected benefits of services in the renewable energy sector with a specific focus on Solar Photovoltaic installations in the United States. Goodwill also includes the value of the assembled workforce that Northern provides to our business. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. For the year ended December 31, 2018, Northern contributed revenue of $44.5 million and gross profit of ($1.2) million. For the year ended December 31, 2017, Northern contributed revenue of $19.1 million and gross profit of $1.1 million. From the acquisition date through December 31, 2016, Northern contributed revenue of $2.0 million and gross profit of $0.6 million. The following table represents the identifiable assets acquired and liabilities assumed related to the 2016 acquisitions described above (in thousands):
Accounts receivable | $ | 1,606 |  |
Other current assets |  | 64 |  |
Property, plant and equipment |  | 2,133 |  |
Intangible assets |  | 3,000 |  |
Goodwill |  | 5,660 |  |
Accounts payable and accrued liabilities |  | (1,587) |  |
Total | $ | 10,876 |  |
2016 Asset Acquisition On June 24, 2016, we purchased property, plant and equipment from Pipe Jacking Unlimited, Inc., consisting of specialty directional drilling and tunneling equipment for $13.4 million in cash. We determined this purchase did not meet the definition of a business as defined under ASC 805, “Business Combinations”. The estimated fair value of the equipment was equal to the purchase price. We believe the purchase of the equipment will aid in our pipeline construction projects and enhance the work provided to our utility clients. Pipe Jacking equipment is included in the Pipeline segment. Supplemental Unaudited Pro Forma Information The following pro forma information for the twelve months ended December 31, 2018 and 2017 presents our results of operations as if the Willbros acquisition and the 2017 acquisitions of FGC and Coastal had occurred at the beginning of 2017. The supplemental pro forma information has been adjusted to include:
| · |  | the pro forma impact of amortization of intangible assets and depreciation of property, plant and equipment;
| · |  | the pro forma impact of the expense associated with the amortization of the discount for the fair value of the contingent consideration liability associated with the FGC acquisition;
| · |  | the pro forma impact of nonrecurring merger and related costs directly attributable to the acquisitions;
| · |  | the pro forma impact of interest expense relating to the acquisitions; and
| · |  | the pro forma tax effect of both the income before income taxes and the pro forma adjustments, calculated using a tax rate of 28.0% and 40.0% for the years ended December 31, 2018 and 2017, respectively.
The pro forma results are presented for illustrative purposes only and are not necessarily indicative of, or intended to represent, the results that would have been achieved had the various acquisitions been completed on January 1, 2017. For example, the pro forma results do not reflect any operating efficiencies and associated cost savings that we might have achieved with respect to the acquisitions (in thousands):
|  | Year Ended December 31, |
|  | 2018 |  | 2017 |
|  | (unaudited) |  | (unaudited) |
Revenue |  | $ | 3,265,690 |  | $ | 3,256,045 |
Income before provision for income taxes |  | $ | 107,657 |  | $ | 14,813 |
Net income attributable to Primoris |  | $ | 73,356 |  | $ | 18,072 |
Weighted average common shares outstanding: |  |  |  |  |  |  |
Basic |  |  | 51,350 |  |  | 51,481 |
Diluted |  |  | 51,670 |  |  | 51,741 |
Earnings per share: |  |  |  |  |  |  |
Basic |  | $ | 1.43 |  | $ | 0.35 |
Diluted |  | $ | 1.42 |  | $ | 0.35 |

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