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Business Combinations
 6 Months Ended
Jun. 30, 2014
Business Combinations [Abstract]  
Business Combinations

5. BUSINESS COMBINATIONS

On May 29, 2014, the Company completed the acquisition of 2.5 million shares of common stock of Schuff, a steel fabrication and erection company and negotiated an agreement to purchase an additional 198,411 shares, representing an approximately 65% interest in Schuff. Schuff repurchased a portion of its outstanding common stock in June 2014, which had the effect of increasing the Company’s ownership interest to 70%. Schuff and its wholly-owned subsidiaries are primarily steel fabrication and erection contractors with headquarters in Phoenix, Arizona and operations in Arizona, Florida, Georgia, Texas, Kansas and California. Schuff’s construction projects are primarily in the aforementioned states. In addition, Schuff has construction projects in select international markets, primarily Panama. The Company acquired Schuff to diversify its portfolio of holdings and saw Schuff as an opportunity to enter the steel fabrication and erection market.

The transaction was accounted for using the acquisition method of accounting which requires, among other things, that assets acquired and liabilities assumed be recognized at their estimated fair values as of the acquisition date. Estimates of fair value included in the financial statements, in conformity with ASC No. 820, “Fair Value Measurements and Disclosures” (“ASC 820”), represent the Company’s best estimates and valuations developed with the assistance of independent appraisers and, where the following have not yet been completed or are not available, industry data and trends and by reference to relevant market rates and transactions. The following estimates and assumptions are inherently subject to significant uncertainties and contingencies beyond the control of the Company. Accordingly, the Company cannot provide assurance that the estimates, assumptions, and values reflected in the valuations will be realized, and actual results could vary materially. The table below summarizes the preliminary estimates of fair value of the Schuff assets acquired and liabilities assumed as of the acquisition date. Any changes to the initial estimates of the fair value of the assets and liabilities will be recorded as adjustments to those assets and liabilities and residual amounts will be allocated to goodwill. In accordance with ASC No. 805, “Business Combinations” (“ASC 805”), if additional information is obtained about these assets and liabilities within the measurement period (not to exceed one year from the date of acquisition), including finalization of asset appraisals, the Company will refine its estimates of fair value to allocate the purchase price more accurately. The purchase price of Schuff was valued at $31.50 per share which represented both the cash paid by the Company for its 65% interest, and the noncontrolling interest of 35%.

 

The preliminary purchase price allocation is as follows (in thousands):

 

Cash and cash equivalents

    $ (627 ) 

Investments

      1,714   

Accounts receivable

      130,622   

Costs and recognized earnings in excess of billings on uncompleted contracts

      27,126   

Prepaid expenses and other current assets

      3,079   

Inventories

      14,487   

Property and equipment, net

      85,662   

Goodwill

      24,533   

Trade names

      4,478   

Other assets

      1,826   
  

 

 

  

Total assets acquired

      292,900   

Accounts payable

      37,621   

Accrued payroll and employee benefits

      10,468   

Accrued expenses and other current liabilities

      12,532   

Billings in excess of costs and recognized earnings on uncompleted contracts

      65,985   

Accrued income taxes

      1,202   

Accrued interest

      76   

Current portion of long-term debt

      15,460   

Long-term debt

      4,375   

Deferred tax liability

      7,815   

Other liabilities

      604   

Noncontrolling interest

      4,365   
  

 

 

  

Total liabilities assumed

      160,503   
  

 

 

  

Enterprise value

      132,397   

Less fair value of noncontrolling interest

      53,647   
  

 

 

  

Purchase price attributable to controlling interest

    $ 78,750   
  

 

 

  

The acquisition of Schuff resulted in goodwill of approximately $24.5 million. Goodwill was the excess of the consideration transferred over the net assets recognized and represents the future economic benefits arising from other assets acquired that could not be individually identified and separately recognized. Goodwill was recognized as a new stand-alone reporting unit. Goodwill is not amortized and is not deductible for tax purposes.

The acquired amortizable intangible assets and the related estimated useful lives consist of the following (in thousands):

 

     Preliminary
Estimated Useful
Lives		      Preliminary
Estimated Value
May 29, 2014		  

Trade names

      15 years       $ 4,478   
     

 

 

  

Total intangible assets

       $ 4,478   
     

 

 

  

 

Pro Forma Adjusted Summary

The results of Schuff’s operations have been included in the condensed consolidated financial statements subsequent to the acquisition date. Under the acquisition method of accounting, the total purchase price was allocated to the tangible and intangible assets acquired on the basis of their respective estimated fair values at the date of acquisition. The valuation of the identifiable intangible assets and their useful lives acquired reflects management’s estimates.

The following schedule presents unaudited consolidated pro forma results of operations data as if the Schuff acquisition had occurred on January 1, 2013. This information does not purport to be indicative of the actual results that would have occurred if the acquisition had actually been completed on the date indicated, nor is it necessarily indicative of the future operating results or the financial position of the combined company (in thousands, except per share amounts):

 

     Three Months Ended June 30,  
           2014                 2013        

Net revenue

    $ 169,184      $ 158,080   

Net income (loss) from continuing operations

      (1,320 )      4,317   

Net income (loss) from discontinued operations

      4        (567 ) 

Gain (loss) from sale of discontinued operations

      —          135,045   
  

 

 

    

 

 

  

Net income (loss) attributable to HC2 Holdings, Inc.

    $ (1,316 )    $ 138,795   
  

 

 

    

 

 

  

Basic income (loss) per common share:

     

Income (loss) from continuing operations attributable to HC2 Holdings, Inc.

    $ (0.08 )    $ 0.31   

Income (loss) from discontinued operations

      —          (0.04 ) 

Gain (loss) from sale of discontinued operations

      —          9.67   
  

 

 

    

 

 

  

Net income (loss) attributable to HC2 Holdings, Inc.

    $ (0.08 )    $ 9.94   
  

 

 

    

 

 

  

Diluted income (loss) per common share:

     

Income (loss) from continuing operations attributable to HC2 Holdings, Inc.

    $ (0.08 )    $ 0.30   

Income (loss) from discontinued operations

      —          (0.04 ) 

Gain (loss) from sale of discontinued operations

      —          9.35   
  

 

 

    

 

 

  

Net income (loss) attributable to HC2 Holdings, Inc.

    $ (0.08 )    $ 9.61   
  

 

 

    

 

 

  

 

     Six Months Ended June 30,  
           2014                 2013        

Net revenue

    $ 317,681      $ 305,000   

Net income (loss) from continuing operations

      (3,416 )      (516 ) 

Net income (loss) from discontinued operations

      12        1,819   

Gain (loss) from sale of discontinued operations

      (784 )      135,045   
  

 

 

    

 

 

  

Net income (loss) attributable to HC2 Holdings, Inc.

    $ (4,188 )    $ 136,348   
  

 

 

    

 

 

  

Basic income (loss) per common share:

     

Income (loss) from continuing operations attributable to HC2 Holdings, Inc.

    $ (0.22 )    $ (0.04 ) 

Income (loss) from discontinued operations

      —          0.13   

Gain (loss) from sale of discontinued operations

      (0.05 )      9.69   
  

 

 

    

 

 

  

Net income (loss) attributable to HC2 Holdings, Inc.

    $ (0.27 )    $ 9.78   
  

 

 

    

 

 

  

Diluted income (loss) per common share:

     

Income (loss) from continuing operations attributable to HC2 Holdings, Inc.

    $ (0.22 )    $ (0.04 ) 

Income (loss) from discontinued operations

      —          0.13   

Gain (loss) from sale of discontinued operations

      (0.05 )      9.69   
  

 

 

    

 

 

  

Net income (loss) attributable to HC2 Holdings, Inc.

    $ (0.27 )    $ 9.78   
  

 

 

    

 

 

  

All expenditures incurred in connection with the Schuff acquisition were expensed and are included in selling, general and administrative expenses. Transaction costs incurred in connection with the Schuff acquisition were $0.3 million during the three months ended June 30, 2014. The results of operations for Schuff have been included in the condensed consolidated results of operations for the period May 29, 2014 through June 30, 2014. The Company recorded revenue of $54.5 million and net income of $2.5 million from Schuff for the three months ended June 30, 2014.