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Acquisitions (Notes) | 9 Months Ended
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Mar. 31, 2017
Business Combinations [Abstract] |
Acquisitions | Note 2 – Acquisitions Purchase of Houston Interests, LLC On December 12, 2016, the Company completed the acquisition of Houston Interests, LLC ("Houston Interests"), a premier global solutions company that provides consulting, engineering, design, construction services and systems integration. Houston Interests brings expertise to the Company in natural gas processing; sulfur recovery, processing and handling; liquid terminals, silos and other bulk storage; process plant design; power generation environmental controls and material handling; industrial power distribution; electrical, instrumentation and controls; marine structures; material handling systems and terminals for cement, sulfur, fertilizer, coal and grain; and process heaters. The business has been included in our Matrix PDM Engineering, Inc. subsidiary, and its operating results have been allocated between the Oil Gas & Chemical and Industrial segments. The Company purchased all of the equity interests of Houston Interests for $40.8 million in cash, net of working capital adjustments and cash acquired. The consideration paid is as follows (in thousands):
Cash paid for equity interest | $ | 46,000 |
Cash paid for working capital | 5,150 |
Less: cash acquired | (10,331 | )
Net purchase price | $ | 40,819 |
The Company funded the equity interest portion of the consideration paid from borrowings under the Company's senior secured revolving credit facility (See Note 5). The purchase of working capital was paid with cash on hand. The net purchase price was allocated to the major categories of assets and liabilities based on their estimated fair value at the acquisition date. The following table summarizes the preliminary net purchase price allocation (in thousands):
Current assets | $ | 21,804 |
Property, plant and equipment | 942 |
Goodwill | 35,048 |
Other intangible assets | 10,220 |
Total assets acquired | 68,014 |
Current liabilities | 16,674 |
Other liabilities | 190 |
Net assets acquired | 51,150 |
Cash | 10,331 |
Net purchase price | $ | 40,819 |
The goodwill recognized from the acquisition is primarily attributable to the technical expertise of the acquired workforce and the complementary nature of Houston Interests' operations, which the Company believes will enable the combined entity to expand its service offerings and enter new markets. All of the goodwill recognized is deductible for income tax purposes. The fair value of the net assets acquired is preliminary pending the final valuation of those assets. As a result, goodwill is also preliminary since it has been recorded as the excess of the purchase price over the estimated fair value of the net assets acquired. The Company has agreed to pay the previous owners up to $2.6 million for any unused portion of acquired warranty obligations outstanding as of June 30, 2017. In addition, the sellers have agreed to reimburse the Company for any warranty costs incurred in connection with the acquired warranties in excess of $2.6 million. All acquired warranties will expire by June 30, 2017. Any amounts paid to or received from the seller will be accounted for as a working capital adjustment, which will be reflected as a change to the net purchase price. No payments have been made to the seller for any unused portion of acquired warranty obligations as of March 31, 2017. The Company incurred $0.1 million and $0.5 million of expenses related to closing the acquisition during the three and nine months ended March 31, 2017, which were included within selling, general and administrative expenses in the consolidated statements of income. During the three and nine months ended March 31, 2017, the acquired business contributed revenues of $14.1 million and $16.4 million, respectively, and operating losses of $0.1 million and $0.4 million, respectively. The unaudited financial information in the table below summarizes the combined results of operations of Matrix Service Company and Houston Interests for the three and nine months ended March 31, 2017 and 2016, on a pro forma basis, as though the companies had been combined as of July 1, 2015. The pro forma financial information presented in the table below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at July 1, 2015 nor should it be taken as indicative of future consolidated results of operations.
| Three Months Ended | Nine Months Ended
| March 31, 2017 | March 31, 2016 | March 31, 2017 | March 31, 2016
| (In thousands, except per share data)
Revenues | $ | 251,237 |  | $ | 334,228 |  | $ | 941,536 |  | $ | 1,047,246 |
Net income (loss) attributable to Matrix Service Company | $ | (13,202 | ) | $ | 4,113 |  | $ | 5,231 |  | $ | 22,623 |
Basic earnings (loss) per common share | $ | (0.50 | ) | $ | 0.15 |  | $ | 0.20 |  | $ | 0.85 |
Diluted earnings (loss) per common share | $ | (0.50 | ) | $ | 0.15 |  | $ | 0.19 |  | $ | 0.83 |
The pro forma financial information presented in the table above includes the following adjustments to the combined entities' historical financial statements:
• | The combined entities recorded approximately $0.4 million and $3.4 million of acquisition and integration expenses during the three and nine months ended March 31, 2017, respectively, which were transferred in the pro forma earnings to the nine months ended March 31, 2016 in order to report them as if they were incurred on July 1, 2015. Pro forma earnings were adjusted to include integration expenses that would have been recognized had the acquisition occurred on July 1, 2015 of $0.4 million and $1.1 million during the three and nine months ended March 31, 2017, respectively, and $0.3 million and $0.8 million during the three and nine months ended March 31, 2016, respectively.
• | Interest expense for the combined entities was increased by $0.7 million during the nine months ended March 31, 2017 and by $0.4 million and $1.0 million during the three and nine months ended March 31, 2016, respectively. The increase was attributable to the assumption that the Company's borrowings of $46.0 million used to fund a portion of the net purchase price had been outstanding as of July 1, 2015. This increase was partially offset by the assumption that Houston Interests' former debt was extinguished as of July 1, 2015.
• | Depreciation and intangible asset amortization expense for the combined entities was reduced by $0.6 million and $0.8 million during the three and nine months ended March 31, 2017, respectively, and was increased by $0.5 million and $1.4 million during the three and nine months ended March 31, 2016, respectively. These adjustments are primarily due to the recognition of amortizable intangible assets as part of the acquisition and the effect of fair value adjustments to acquired property, plant and equipment.
• | Pro forma earnings were adjusted to include additional income tax expense of $4.3 million during the nine months ended March 31, 2017. Income tax expense was reduced by $0.6 million during the three months ended March 31, 2016 and increased by $1.8 million during the nine months ended March 31, 2016. Houston Interests was previously an exempt entity and income taxes were not assessed in its historical financial information.
Purchase of Baillie Tank Equipment, Ltd. On February 1, 2016, the Company completed the acquisition of all outstanding stock of Baillie Tank Equipment, Ltd. (“BTE”), an internationally-based company with nearly 20 years of experience in the design and manufacture of products for use on aboveground storage tanks. Founded in 1998, BTE is a provider of tank products including geodesic domes, aluminum internal floating roofs, floating suction and skimmer systems, roof drain systems, and seals. BTE is headquartered in Sydney, Australia with a manufacturing facility in Seoul, South Korea. The Company acquired BTE to expand its service offerings of certain technical solutions for aboveground storage tanks. The business is now known as Matrix Applied Technologies, and its operating results are included in the Storage Solutions segment. The Company purchased BTE with cash on-hand for a net purchase price of $13.0 million. The Company paid $15.4 million when including the subsequent repayment of long-term debt acquired and the settlement of certain other liabilities acquired, and excluding the cash acquired and certain amounts owed to the former owners for working capital adjustments. The net purchase price was allocated to the major categories of assets and liabilities based on their estimated fair value at the acquisition date. The following table summarizes the final purchase price allocation (in thousands):
Current assets | $ | 5,574 |
Property, plant and equipment | 4,347 |
Goodwill | 7,030 |
Other intangible assets | 720 |
Other assets | 233 |
Total assets acquired | 17,904 |
Current liabilities | 1,669 |
Deferred income taxes | 329 |
Long-term debt | 1,858 |
Other liabilities | 407 |
Net assets acquired | 13,641 |
Cash acquired | 592 |
Net purchase price | $ | 13,049 |
The goodwill recognized from the acquisition is attributable to the synergies of combining our operations and the technical expertise of the acquired workforce. None of the goodwill recognized is deductible for income tax purposes. The Company incurred $0.8 million and $0.9 million of expenses related to the acquisition during the three and nine months ended March 31, 2016, which were included within selling, general and administrative expenses in the consolidated statements of income. The acquired business contributed revenues of $3.0 million and $5.8 million during the three and nine months ended March 31, 2017, respectively, and contributed break-even operating income during the three months ended March 31, 2017 and $0.3 million during the nine months ended March 31, 2017. The acquired business contributed revenues of $3.5 million and operating income of $0.7 million for the period February 1, 2016 to March 31, 2016.

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