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Acquisitions (Notes)
 6 Months Ended
Dec. 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 facilities; and process heaters. The business has been included in our Matrix PDM Engineering, Inc. subsidiary, and its operating results impact primarily the Oil Gas & Chemical and Industrial segments.
The Company purchased all of the equity interests of Houston Interests for $42.5 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
6,837

Less: cash acquired
(10,331
)
Net purchase price
$
42,506


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. Cash paid for acquisitions of $39.8 million for the six months ended December 31, 2016 does not reflect $1.0 million of working capital that was paid subsequent to December 31, 2016.
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 net purchase price allocation (in thousands):
Cash
$
10,331

Accounts receivable
10,273

Costs and estimated earnings in excess of billings on uncompleted contracts
746

Other current assets
454

Current assets
21,804

Property, plant and equipment
942

Goodwill
35,146

Other intangible assets
10,220

Total assets acquired
68,112

Accounts payable
962

Billings on uncompleted contracts in excess of costs and estimated earnings
11,648

Other accrued expenses
2,475

Current liabilities
15,085

Other liabilities
190

Net assets acquired
52,837

Less: cash acquired
10,331

Net purchase price
$
42,506


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 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. This agreement was settled for $1.7 million, which was paid in July 2017. This settlement was reflected as a decrease to the acquired current liabilities and an increase to the net purchase price.
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 six months ended December 31, 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
Six Months Ended

December 31, 2016
December 31, 2016

(In thousands, except per share data)
Revenues
$
329,523

$
690,485

Net income
$
7,884

$
18,763

Basic earnings per common share
$
0.30

$
0.71

Diluted earnings per common share
$
0.29

$
0.70


The pro forma financial information presented in the table above includes the following adjustments to the combined entities' historical financial statements:
•
Pro forma earnings were adjusted to include $0.4 million and $0.8 million of integration expenses during the three and six months ended December 31, 2016, respectively, that would have been recognized had the acquisition occurred on July 1, 2015.
•
Pro forma earnings were adjusted to include $0.3 million and $0.7 million of interest expense during the three and six months ended December 31, 2016, respectively. The interest was attributable to the assumption that the Company's borrowings of $46.0 million used to fund the net purchase price had been outstanding as of July 1, 2015. This interest was partially offset by the assumption that Houston Interests' former debt was extinguished as of July 1, 2015.
•
Pro forma earnings were adjusted to exclude $0.2 million and $0.3 million of depreciation and intangible asset amortization expense during the three and six months ended December 31, 2016, respectively. This adjustment is 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 income tax expense of $1.9 million and $3.3 million during the three and six months ended December 31, 2016, respectively. Houston Interests was previously an exempt entity and income taxes were not assessed in its historical financial information.