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EX-32.2 - EX-32.2 - Primoris Services Corpprim-20180630ex32264dbdb.htm
EX-32.1 - EX-32.1 - Primoris Services Corpprim-20180630ex321cb236c.htm
EX-31.2 - EX-31.2 - Primoris Services Corpprim-20180630ex3125478a3.htm
EX-31.1 - EX-31.1 - Primoris Services Corpprim-20180630ex31145e95e.htm
EX-10.2 - EX-10.2 - Primoris Services Corpprim-20180630ex102ef708b.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the quarterly period ended June 30, 2018

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

 

For the transition period from                    to                      .

 

Commission file number 0001-34145

 

Primoris Services Corporation

(Exact name of registrant as specified in its charter)

 

Delaware

    

20-4743916

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification No.)

 

 

 

2100 McKinney Avenue, Suite 1500

 

 

Dallas, Texas

 

75201

(Address of Principal Executive Offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (214) 740-5600

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒  No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

 

 

Large accelerated filer  ☒

    

Accelerated filer  ☐

 

 

 

Non-accelerated filer  ☐

 

Smaller reporting company  ☐

Do not check if a smaller reporting company.

 

 

 

 

Emerging growth company  ☐

 

      If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐  No ☒

 

At August 6, 2018, 51,540,664 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

 

 

 

 


 

PRIMORIS SERVICES CORPORATION

 

INDEX

 

 

 

 

 

    

Page No.

 

 

 

Part I. Financial Information 

 

 

 

 

 

Item 1. Financial Statements:

 

 

 

 

 

—Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017 (Unaudited) 

 

3

 

 

 

—Condensed Consolidated Statements of Income for the three and six months ended June 30, 2018 and 2017 (Unaudited) 

 

4

 

 

 

—Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2018 and 2017 (Unaudited) 

 

5

 

 

 

—Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018 and 2017 (Unaudited) 

 

6

 

 

 

—Notes to Condensed Consolidated Financial Statements (Unaudited) 

 

8

 

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 

 

31

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk 

 

49

 

 

 

Item 4. Controls and Procedures 

 

49

 

 

 

Part II. Other Information 

 

 

 

 

 

Item 1. Legal Proceedings 

 

50

 

 

 

Item 1A. Risk Factors 

 

50

 

 

 

Item 5. Other Information 

 

50

 

 

 

Item 6. Exhibits 

 

51

 

 

 

Signatures 

 

52

 

2


 

PART I.  FINANCIAL INFORMATION

 

ITEM 1.  FINANCIAL STATEMENTS

 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

June 30, 

 

 

December 31, 

 

 

    

2018

    

2017

 

ASSETS

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

Cash and cash equivalents ($38,750 and $60,256 related to VIEs. See Note 10)

 

$

139,404

 

$

170,385

 

Restricted cash

 

 

35,492

 

 

 —

 

Accounts receivable, net

 

 

375,763

 

 

291,589

 

Contract assets

 

 

360,710

 

 

265,902

 

Prepaid expenses and other current assets

 

 

40,103

 

 

15,338

 

Total current assets

 

 

951,472

 

 

743,214

 

Property and equipment, net

 

 

356,843

 

 

311,777

 

Deferred tax assets

 

 

8,887

 

 

 —

 

Intangible assets, net

 

 

94,089

 

 

44,800

 

Goodwill

 

 

197,071

 

 

153,374

 

Other long-term assets

 

 

5,639

 

 

2,575

 

Total assets

 

$

1,614,001

 

$

1,255,740

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

Accounts payable

 

$

219,180

 

$

140,943

 

Contract liabilities

 

 

195,326

 

 

169,377

 

Accrued liabilities

 

 

130,479

 

 

76,027

 

Dividends payable

 

 

3,092

 

 

3,087

 

Current portion of long-term debt

 

 

65,376

 

 

65,464

 

Total current liabilities

 

 

613,453

 

 

454,898

 

Long-term debt, net of current portion

 

 

354,910

 

 

193,351

 

Deferred tax liabilities

 

 

 —

 

 

13,571

 

Other long-term liabilities

 

 

68,451

 

 

31,737

 

Total liabilities

 

 

1,036,814

 

 

693,557

 

Commitments and contingencies (See Note 16)

 

 

 

 

 

 

 

Stockholders’ equity

 

 

 

 

 

 

 

Common stock—$.0001 par value; 90,000,000 shares authorized; 51,530,572 and 51,448,753 issued and outstanding at June 30, 2018 and December 31, 2017

 

 

 5

 

 

 5

 

Additional paid-in capital

 

 

162,928

 

 

160,502

 

Retained earnings

 

 

402,158

 

 

395,961

 

Accumulated other comprehensive income

 

 

377

 

 

 —

 

Noncontrolling interest

 

 

11,719

 

 

5,715

 

Total stockholders’ equity

 

 

577,187

 

 

562,183

 

Total liabilities and stockholders’ equity

 

$

1,614,001

 

$

1,255,740

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

3


 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Revenue

 

$

648,787

 

$

631,165

 

$

1,152,906

 

$

1,192,667

 

Cost of revenue

 

 

577,368

 

 

546,682

 

 

1,036,927

 

 

1,053,131

 

Gross profit

 

 

71,419

 

 

84,483

 

 

115,979

 

 

139,536

 

Selling, general and administrative expenses

 

 

43,489

 

 

44,881

 

 

80,445

 

 

84,514

 

Merger and related costs

 

 

7,668

 

 

1,096

 

 

9,363

 

 

1,317

 

Operating income

 

 

20,262

 

 

38,506

 

 

26,171

 

 

53,705

 

Other income (expense):

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign exchange gain

 

 

1,256

 

 

109

 

 

1,513

 

 

132

 

Other income (expense), net

 

 

(771)

 

 

(13)

 

 

(783)

 

 

(13)

 

Interest income

 

 

340

 

 

114

 

 

612

 

 

183

 

Interest expense

 

 

(3,191)

 

 

(2,145)

 

 

(5,189)

 

 

(4,407)

 

Income before provision for income taxes

 

 

17,896

 

 

36,571

 

 

22,324

 

 

49,600

 

Provision for income taxes

 

 

(3,705)

 

 

(14,175)

 

 

(3,917)

 

 

(18,692)

 

Net income

 

$

14,191

 

$

22,396

 

$

18,407

 

$

30,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less net income attributable to noncontrolling interests

 

 

(2,476)

 

 

(851)

 

$

(6,004)

 

$

(1,672)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income attributable to Primoris

 

$

11,715

 

$

21,545

 

$

12,403

 

$

29,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends per common share

 

$

0.060

 

$

0.055

 

$

0.120

 

$

0.110

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.23

 

$

0.42

 

$

0.24

 

$

0.57

 

Diluted

 

$

0.23

 

$

0.42

 

$

0.24

 

$

0.56

 

Weighted average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

51,531

 

 

51,437

 

 

51,505

 

 

51,515

 

Diluted

 

 

51,793

 

 

51,688

 

 

51,770

 

 

51,771

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

4


 

 

 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 

 

June 30, 

 

 

    

2018

    

2017

    

2018

    

2017

 

Net income

 

$

14,191

 

$

22,396

 

$

18,407

 

$

30,908

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency translation adjustments

 

 

377

 

 

 —

 

 

377

 

 

 —

 

Comprehensive income

 

 

14,568

 

 

22,396

 

 

18,784

 

 

30,908

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Less net income attributable to noncontrolling interests

 

 

(2,476)

 

 

(851)

 

 

(6,004)

 

 

(1,672)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to Primoris

 

$

12,092

 

$

21,545

 

$

12,780

 

$

29,236

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

5


 

 

 

 

 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended

 

 

 

June 30, 

 

 

    

2018

    

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net income

 

$

18,407

 

$

30,908

 

Adjustments to reconcile net income to net cash (used in) provided by operating activities (net of effect of acquisitions):

 

 

 

 

 

 

 

Depreciation

 

 

30,014

 

 

28,139

 

Amortization of intangible assets

 

 

5,161

 

 

3,611

 

Intangible asset impairment

 

 

 —

 

 

477

 

Stock-based compensation expense

 

 

430

 

 

690

 

Gain on sale of property and equipment

 

 

(1,580)

 

 

(3,208)

 

Other non-cash items

 

 

68

 

 

87

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

18,331

 

 

53,650

 

Contract assets

 

 

(64,074)

 

 

(22,627)

 

Other current assets

 

 

(6,036)

 

 

4,604

 

Other long-term assets

 

 

(499)

 

 

381

 

Accounts payable

 

 

2,115

 

 

(37,060)

 

Contract liabilities

 

 

(18,220)

 

 

45,647

 

Accrued liabilities

 

 

13,647

 

 

8,298

 

Other long-term liabilities

 

 

1,520

 

 

2,692

 

Net cash (used in) provided by operating activities

 

 

(716)

 

 

116,289

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchase of property and equipment

 

 

(46,107)

 

 

(44,697)

 

Issuance of a note receivable

 

 

(15,000)

 

 

 —

 

Proceeds from a note receivable

 

 

15,000

 

 

 —

 

Proceeds from sale of property and equipment

 

 

5,811

 

 

4,664

 

Cash paid for acquisitions, net of cash and restricted cash acquired

 

 

(111,030)

 

 

(66,205)

 

Net cash used in investing activities

 

 

(151,326)

 

 

(106,238)

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Borrowings under revolving line of credit

 

 

170,000

 

 

 —

 

Proceeds from issuance of long-term debt

 

 

19,467

 

 

 —

 

Repayment of long-term debt and capital leases

 

 

(28,048)

 

 

(24,679)

 

Proceeds from issuance of common stock purchased under a long-term incentive plan

 

 

1,498

 

 

1,148

 

Repurchase of common stock

 

 

 —

 

 

(4,999)

 

Dividends paid

 

 

(6,179)

 

 

(5,668)

 

Net cash provided by (used in) financing activities

 

 

156,738

 

 

(34,198)

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

(185)

 

 

 —

 

Net change in cash, cash equivalents and restricted cash

 

 

4,511

 

 

(24,147)

 

Cash, cash equivalents and restricted cash at beginning of the period

 

 

170,385

 

 

135,823

 

Cash, cash equivalents and restricted cash at end of the period

 

$

174,896

 

$

111,676

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

6


 

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

    

2018

    

2017

 

 

 

(Unaudited)

 

Cash paid:

 

 

 

 

 

 

 

Interest

 

$

4,191

 

$

4,663

 

 

 

 

 

 

 

 

 

Income taxes, net of refunds received

 

$

3,610

 

$

15,554

 

 

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

 

 

 

Six Months Ended June 30, 

 

 

    

2018

    

2017

 

 

 

(Unaudited)

 

Obligations incurred for the acquisition of property

 

$

 —

 

$

4,163

 

 

 

 

 

 

 

 

 

Dividends declared and not yet paid

 

$

3,092

 

$

2,829

 

 

 

See Accompanying Notes to Condensed Consolidated Financial Statements

 

7


 

PRIMORIS SERVICES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars In Thousands, Except Share and Per Share Amounts)

(Unaudited)

 

Note 1—Nature of Business

 

Organization and operations  Primoris Services Corporation is a holding company of various construction and product engineering subsidiaries. Our underground and directional drilling operations install, replace and repair natural gas, petroleum, telecommunications and water pipeline systems, including large diameter pipeline systems. Our industrial, civil and engineering operations build and provide maintenance services to industrial facilities including power plants, petrochemical facilities, and other processing plants; construct multi-level parking structures; and engage in the construction of highways, bridges and other environmental construction activities. Our transmission and distribution operations install, replace and repair gas and electric utility systems. We are incorporated in the state of Delaware, and our corporate headquarters are located at 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201. Unless specifically noted otherwise, as used throughout these condensed consolidated financial statements, “Primoris”, “the Company”, “we”, “our”, “us” or “its” refers to the business, operations and financial results of us and our wholly-owned subsidiaries.

 

Reportable Segments — We segregate our business into five reportable segments: the Power, Industrial and Engineering (“Power”) segment, the Pipeline and Underground (“Pipeline”) segment, the Utilities and Distribution (“Utilities”) segment, the Transmission and Distribution (“Transmission”) segment, which is a new reportable segment created in connection with the acquisition of Willbros Group, Inc. (“Willbros”), and the Civil segment.  See Note 17 – “Reportable Segments” for a brief description of the reportable segments and their operations.

 

The classification of revenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses were made.

 

Acquisition of Willbros Group, Inc. — On June 1, 2018, we completed our acquisition of Willbros for approximately $111.0 million, net of cash and restricted cash acquired. Willbros is a specialty energy infrastructure contractor serving the oil and gas and power industries through its utility transmission and distribution, oil and gas, and Canadian operations, which principally executes industrial and power projects. The utility transmission and distribution operations are included in the Transmission segment, the oil and gas operations are included in the Pipeline segment, and the Canadian operations are included in the Power segment. See Note 6— “Business Combinations”.

 

Other Acquisitions —  On May 26, 2017, we acquired the net assets of Florida Gas Contractors (“FGC”) for $37.7 million; on May 30, 2017, we acquired certain engineering assets for approximately $2.3 million; and on June 16, 2017, we acquired the net assets of Coastal Field Services (“Coastal”) for $27.5 million.  FGC operations are included in the Utilities segment, the engineering assets are included in the operations of the Power segment, and Coastal operations are included in the Pipeline segment.  See Note 6— “Business Combinations”.

 

Joint Ventures —We own a 50% interest in two separate joint ventures, both formed in 2015.  The Carlsbad Power Constructors joint venture (“Carlsbad”) is engineering and constructing a gas-fired power generation facility, and the ARB Inc. & B&M Engineering Co. joint venture (“Wilmington”) is also engineering and constructing a gas-fired power generation facility.  Both projects are located in Southern California.  The joint venture operations are included as part of the Power segment.  As a result of determining that we are the primary beneficiary of the two variable interest entities ("VIEs”), the results of the Carlsbad and Wilmington joint ventures are consolidated in our financial statements.  The Wilmington project was substantially complete as of December 31, 2017, and the Carlsbad project is expected to be completed in 2018.  Financial information for the joint ventures is presented in Note 10 – “Noncontrolling Interests”.

 

Note 2—Basis of Presentation

 

Interim consolidated financial statements  The interim condensed consolidated financial statements for the three and six month periods ended June 30, 2018 and 2017 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, certain disclosures, which would substantially duplicate the disclosures contained in our Annual Report on Form 10-K, filed on

8


 

February 26, 2018, which contains our audited consolidated financial statements for the year ended December 31, 2017, have been omitted. 

 

This Second Quarter 2018 Report on Form 10-Q should be read in concert with our most recent Annual Report on Form 10-K. The interim financial information is unaudited.  In the opinion of management, the interim information includes all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim financial information. 

 

Reclassification Certain previously reported amounts have been reclassified to conform to the current year presentation.

 

Restricted cash — Restricted cash consists of cash balances that are restricted as to withdrawal or usage. As a result of the Willbros acquisition, we acquired cash pledged to secure letters of credit, which is recorded as restricted cash at June 30, 2018. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the totals of such amounts shown in the Condensed Consolidated Statements of Cash Flows (in thousands).

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

    

2018

    

2017

Cash and cash equivalents

 

$

139,404

 

$

170,385

Restricted cash

 

 

35,492

 

 

 —

 

 

$

174,896

 

$

170,385

 

Customer concentration — We operate in multiple industry segments encompassing the construction of commercial, industrial and public works infrastructure assets primarily throughout the United States. Typically, the top ten customers in any one calendar year generate revenue in excess of 50% of total revenue; however, the group that comprises the top ten customers varies from year to year.

 

During the three and six months ended June 30, 2018, revenue generated by the top ten customers were approximately $322.6 million and $581.6 million, respectively, which represented 50.4% and 49.7%, respectively, of total revenue during the applicable period. During the three and six months ended June 30, 2018, a state department of transportation customer represented 9.4% and 9.3% of total revenue, respectively, and a California utility customer represented 8.7% and 9.0% of total revenue, respectively.

 

During the three and six months ended June 30, 2017, revenues generated by the top ten customers were approximately $330.2 million and $713.5 million, respectively, which represented 52.3% and 59.8%, respectively, of total revenues during the applicable period. During the three and six months ended June 30, 2017, two large pipeline projects represented 11.0% and 19.2% of total revenues, respectively and a state department of transportation customer represented 10.6% and 10.5% of total revenues, respectively.

 

At June 30, 2018, approximately 6.5% of our accounts receivable were due from one customer, and that customer provided 8.8% our revenue for the six months ended June 30, 2018. In addition, of total accounts receivable, approximately 5.1% are from one customer with whom we are currently engaged in a dispute resolution. See Note 16 – “Commitments and Contingencies”.

 

At June 30, 2017, approximately 11.7% of our accounts receivable were due from one customer, and that customer provided 8.8% of our revenue for the six months ended June 30, 2017. In addition, approximately 11.0% of total accounts receivable at June 30, 2017 were from one customer with whom we are currently engaged in a dispute resolution.

 

Multiemployer plans  Various of our subsidiaries are signatories to collective bargaining agreements. These agreements require that we participate in and contribute to a number of multiemployer benefit plans for our union employees at rates determined by the agreements. The trustees for each multiemployer plan determine the eligibility and allocations of contributions and benefit amounts, determine the types of benefits, and administer the plan. To the extent that any plans are underfunded, the Employee Retirement Income Security Act of 1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980, requires that if we were to withdraw from an agreement or if a plan is terminated, we may incur a withdrawal obligation. The potential withdrawal obligation may be significant. In accordance

9


 

with Generally Accepted Accounting Principles (“GAAP”), any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated. In November 2011, we withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer plan, as discussed in Note 16 — “Commitments and Contingencies”. We have no plans to withdraw from any other agreements.

.

Note 3—Recent Accounting Pronouncements

 

Recently adopted accounting pronouncements

 

In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, with several clarifying updates issued during 2016 and 2017. The new standard is effective for reporting periods beginning after December 15, 2017 and supersedes all prior revenue recognition standards including the guidance in ASC Topic 605, “Revenue Recognition”.  Under Topic 606, revenue recognition occurs when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled to in exchange for those goods or services. We adopted Topic 606 as of January 1, 2018 using the modified retrospective transition method. See Note 4 — “Revenue” for further details.

 

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230)”, which requires a reporting entity to include restricted cash and restricted cash equivalents in its cash and cash-equivalent balances presented in the entity’s statement of cash flows. A reconciliation between the statement of financial position and the statement of cash flows must be disclosed when the balance sheet includes more than one line item for cash, cash equivalents, restricted cash and restricted cash equivalents. Transfers between non-restricted and restricted cash should not be presented as cash flow activities in the statement of cash flows. Furthermore, an entity with a material restricted cash balance must disclose information regarding the nature of the restrictions. ASU 2016-18 is effective for annual periods beginning after December 15, 2017, including interim periods within those annual reporting periods. We adopted the ASU as of January 1, 2018. See our Condensed Consolidated Statements of Cash Flows for more information.

 

In January 2017, the FASB issued ASU 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business", which changes the definition of a business to assist entities with evaluating when a set of acquired assets and activities is a business. ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 is effective for interim and annual reporting periods beginning after December 15, 2017. We adopted the ASU as of January 1, 2018, and it did not impact the determination of our business combinations.

 

In May 2017, the FASB issued ASU 2017-09, “Compensation — Stock Compensation (Topic 718) — Scope of Modification Accounting”.  The ASU amends the scope of modification accounting for share-based payment arrangements.  The amendments in the ASU clarify when to account for a change in the terms or conditions of share-based payment awards as a modification under ASC 718, “Compensation — Stock Compensation”.  The ASU is effective for interim and annual reporting periods beginning after December 15, 2017.  We adopted the ASU as of January 1, 2018, and it did not have a material impact on our consolidated financial statements.

 

In March 2018, the FASB issued ASU No. 2018-05, “Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118”, to add various language issued by the Securities and Exchange Commission (“SEC”) in Staff Accounting Bulletin No. 118 (“SAB 118”) to ASC 740 “Income Taxes”.  SAB 118 was issued by the SEC in December 2017 to provide immediate guidance for accounting implications of U.S. tax reform under the Tax Cuts and Jobs Act (the “Tax Act”), which became effective for us on January 1, 2018. We have evaluated the potential impacts of SAB 118 and have applied this guidance to our consolidated financial statements and related disclosures beginning in the fourth quarter of our fiscal year 2017. See Note 13 — “Income Taxes for additional information on SAB 118 and the impacts of the Tax Act.

 

Recently issued accounting pronouncements not yet adopted

 

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”. In July 2018, the FASB issued two updates to ASU 2016-02, ASU 2018-10, “Codification Improvements to Topic 842, Leases”, and ASU 2018-11, “Leases (Topic 842): Targeted Improvements”. ASU 2016-02 will require recognition of operating leases with lease terms of more than twelve months on the balance sheet as both assets for the rights and liabilities for the obligations created by the leases. The ASU will require disclosures that provide qualitative and quantitative information for the lease

10


 

assets and liabilities recorded in the financial statements. The standard is effective for fiscal years beginning after December 15, 2018, and initially required a modified restrospective transition method where a company applies the new leases standard at the beginning of the earliest period presented in the financial statements. ASU 2018-11 added an optional transition method where a company applies the new leases standard at the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings. We have already revised our credit agreements to address the impact of ASU 2016-02 and continue to assess the effect the guidance will have on our existing accounting policies and consolidated financial statements. We expect there will be an increase in assets and liabilities on the Consolidated Balance Sheets at adoption due to the recording of right-of-use assets and corresponding lease liabilities. We are currently in the process of inventorying all lease obligations and associated right-of-use assets. We have also engaged a third party to assist us in the process, but have not yet determined the impact to our consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment". ASU 2017-04 removes the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively. We do not expect the adoption of ASU 2017-04 to have an impact on our financial position, results of operations or cash flows.

 

Note 4—Revenue

 

On January 1, 2018, we adopted Topic 606 using the modified retrospective method applied to those contracts that were not completed as of January 1, 2018. Adoption changed our accounting policy for revenue recognition. Results for periods prior to January 1, 2018 are not adjusted and continue to be reported in accordance with our historic accounting under ASC Topic 605. The cumulative impact of adopting Topic 606 was immaterial and did not require an adjustment to retained earnings. However, we have reclassified prior year balance sheet and cash flow amounts to conform to current year presentation.

 

We generate revenue under a range of contracting types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts. A substantial portion of our revenue is derived from contracts that are fixed-price or unit-price and is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). For time and material and cost reimbursable plus fee contracts, revenue is recognized primarily on an input basis, based on contract costs incurred as defined within the respective contracts. Costs to obtain contracts are generally not significant and are expensed in the period incurred.

 

We evaluate whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. Topic 606 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our evaluation requires significant judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. The majority of our contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, occasionally we have contracts with multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively our best estimate of the standalone selling price of each distinct performance obligation in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach for each performance obligation. 

 

As of June 30, 2018, we had $1.85 billion of remaining performance obligations. We expect to recognize approximately 84% of our remaining performance obligations as revenue during the next four quarters and the remaining balance thereafter.

 

Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. For long-term contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. Unforeseen events and circumstances can alter the estimate of the costs and potential profit

11


 

associated with a particular contract.  Total estimated costs, and thus contract revenue and income, can be impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment. Additionally, external factors such as weather, client needs, client delays in providing permits and approvals, labor availability, governmental regulation and politics may affect the progress of a project’s completion, and thus the timing of revenue recognition. To the extent that original cost estimates are modified, estimated costs to complete increase, delivery schedules are delayed, or progress under a contract is otherwise impeded, cash flow, revenue recognition and profitability from a particular contract may be adversely affected.

 

The nature of our contracts gives rise to several types of variable consideration, including contract modifications (change orders and claims), liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent we believe we have an enforceable right and it is probable that a significant reversal of cumulative revenue recognized will not occur. Our estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us.

 

Contract modifications result from changes in contract specifications or requirements. We consider unapproved change orders to be contract modifications for which customers have not agreed to both scope and price. We consider claims to be contract modifications for which we seek, or will seek, to collect from customers, or others, for customer-caused changes in contract specifications or design, or other customer-related causes of unanticipated additional contract costs on which there is no agreement with customers. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. Costs associated with contract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract.

 

As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. In the three and six months ended June 30, 2018, revenue recognized from performance obligations satisfied in previous periods was $3.7 million and $25.0 million, respectively. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full in the period it is identified and recognized as an “accrued loss provision” which is included in “Contract liabilities” on the Condensed Consolidated Balance Sheets. For contract revenue recognized over time, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods.

 

At June 30, 2018, we had approximately $85.3 million of unapproved contract modifications included in the aggregate transaction prices. These contract modifications were in the process of being negotiated in the normal course of business. Approximately $77.1 million of the contract modifications had been recognized as revenue on a cumulative catch-up basis through June 30, 2018.

 

In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs.  If we anticipate that there may be issues associated with the collectability of the full amount calculated as the transaction price, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. For example, when a cost reimbursable project exceeds the client’s expected budget amount, the client frequently requests an adjustment to the final amount. Similarly, some utility clients reserve the right to audit costs for significant periods after performance of the work.

 

The timing of when we bill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is a contract asset. Also, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is a contract liability.

12


 

 

The caption “Contract assets” in the Condensed Consolidated Balance Sheets represents the following:

 

·

unbilled revenue (formerly costs and estimated earnings in excess of billings), which arise when revenue has been recorded but the amount will not be billed until a later date;

 

·

retainage amounts for the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones; and

 

·

contract materials for certain job specific materials not yet installed, which are valued using the specific identification method relating the cost incurred to a specific project.

 

Contract assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2018

    

2017

 

Unbilled revenue

 

$

243,478

 

$

160,092

 

Retention receivable

 

 

84,623

 

 

66,586

 

Contract materials (not yet installed)

 

 

32,609

 

 

39,224

 

 

 

$

360,710

 

$

265,902

 

 

Contract assets increased by $94.8 million compared to December 31, 2017 due primarily to a $30.8 million increase from the acquisition of Willbros in the second quarter of 2018 and higher unbilled revenue.

 

The caption “Contract liabilities” in the Condensed Consolidated Balance Sheets represents deferred revenue (formerly billings in excess of costs and estimated earnings) on billings in excess of contract revenue recognized to date, and the accrued loss provision.

 

Contract liabilities consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

June 30, 

 

December 31, 

 

 

    

2018

    

2017

 

Deferred revenue

 

$

181,053

 

$

159,310

 

Accrued loss provision

 

 

14,273

 

 

10,067

 

 

 

$

195,326

 

$

169,377

 

 

Contract liabilities increased by $25.9 million compared to December 31, 2017 primarily due to a $44.3 million increase from the acquisition of Willbros in the second quarter of 2018, partially offset by lower deferred revenue.

 

Revenue recognized for the six months ended June 30, 2018, that was included in the contract liability balance at the beginning of the year was approximately $132.7 million.

 

The following tables present our revenue disaggregated into various categories.

 

Master Service Agreements (“MSA”) and Non-MSA revenue was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2018

 

Segment

 

MSA

 

Non-MSA

 

Total

 

Power

 

$

22,672

 

$

144,329

 

$

167,001

 

Pipeline

 

 

12,213

 

 

78,392

 

 

90,605

 

Utilities

 

 

168,336

 

 

60,516

 

 

228,852

 

Transmission

 

 

35,517

 

 

6,937

 

 

42,454

 

Civil

 

 

 —

 

 

119,875

 

 

119,875

 

Total

 

$

238,738

 

$

410,049

 

$

648,787

 

 

13


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2018

 

Segment

    

MSA

    

Non-MSA

    

Total

 

Power

 

$

42,070

 

$

291,486

 

$

333,556

 

Pipeline

 

 

19,493

 

 

128,695

 

 

148,188

 

Utilities

 

 

288,103

 

 

107,459

 

 

395,562

 

Transmission

 

 

35,517

 

 

6,937

 

 

42,454

 

Civil

 

 

 —

 

 

233,146

 

 

233,146

 

Total

 

$

385,183

 

$

767,723

 

$

1,152,906

 

 

Revenue by contract type was as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the three months ended June 30, 2018

 

Segment

 

Fixed-price

 

Unit-price

 

Cost reimbursable (1)

 

Total

 

Power

 

$

108,383

 

$

14,532

 

$

44,086

 

$

167,001

 

Pipeline

 

 

28,102

 

 

31,678

 

 

30,825

 

 

90,605

 

Utilities

 

 

41,299

 

 

127,863

 

 

59,690

 

 

228,852

 

Transmission

 

 

8,000

 

 

25,457

 

 

8,997

 

 

42,454

 

Civil

 

 

14,780

 

 

92,132

 

 

12,963

 

 

119,875

 

Total

 

$

200,564

 

$

291,662

 

$

156,561

 

$

648,787

 


(1)

Includes time and material and cost reimbursable plus fee contracts.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the six months ended June 30, 2018

 

Segment

    

Fixed-price

    

Unit-price

    

Cost reimbursable (1)

    

Total

 

Power

 

$

225,038

 

$

25,644

 

$

82,874

 

$

333,556

 

Pipeline

 

 

40,622

 

 

50,323

 

 

57,243

 

 

148,188

 

Utilities

 

 

105,363

 

 

194,614

 

 

95,585

 

 

395,562

 

Transmission

 

 

8,000

 

 

25,457

 

 

8,997

 

 

42,454

 

Civil

 

 

24,423

 

 

179,212

 

 

29,511

 

 

233,146

 

Total

 

$

403,446

 

$

475,250

 

$

274,210

 

$

1,152,906

 


(1)

Includes time and material and cost reimbursable plus fee contracts.

 

Each of these contract types presents advantages and disadvantages. Typically, we assume more risk with fixed-price contracts. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract. However, these types of contracts offer additional profits when we complete the work for less than originally estimated. Unit-price and cost reimbursable contracts generally subject us to lower risk. Accordingly, the associated base fees are usually lower than fees earned on fixed-price contracts. Under these contracts, our profit may vary if actual costs vary significantly from the negotiated rates.

 

 

Note 5—Fair Value Measurements

 

ASC Topic 820, “Fair Value Measurements and Disclosures”, defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements.  ASC Topic 820 addresses fair value GAAP for financial assets and financial liabilities that are re-measured and reported at fair value at each reporting period and for non-financial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis.

 

In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

 

14


 

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, our financial assets and liabilities that are required to be measured at fair value at June 30, 2018 and December 31, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements at Reporting Date

 

 

    

 

 

    

Significant

    

 

 

 

 

 

Quoted Prices

 

Other

 

Significant

 

 

 

in Active Markets

 

Observable

 

Unobservable

 

 

 

for Identical Assets

 

Inputs

 

Inputs

 

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets as of June 30, 2018:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

139,404

 

$

 —

 

$

 —

 

Restricted cash

 

 

35,492

 

 

 —

 

 

 —

 

Liabilities as of June 30, 2018: 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 —

 

$

 —

 

$

1,500

 

 

 

 

 

 

 

 

 

 

 

 

Assets as of December 31, 2017:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

170,385

 

$

 —

 

$

 —

 

Liabilities as of December 31, 2017: 

 

 

 

 

 

 

 

 

 

 

Contingent consideration

 

$

 —

 

$

 —

 

$

716

 

 

Other financial instruments not listed in the table consist of accounts receivable, accounts payable and certain accrued liabilities.  These financial instruments generally approximate fair value based on their short-term nature.  The carrying value of our long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities. 

 

The following table provides changes to our contingent consideration liability Level 3 fair value measurements during the six months ended June 30, 2018 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

Significant Unobservable Inputs

 

 

 

(Level 3)

 

Contingent Consideration Liability

    

2018

    

2017

 

Beginning balance, January 1,

 

$

716

 

$

 —

 

FGC acquisition

 

 

 —

 

 

1,200

 

Change in fair value of contingent consideration liability during year

 

 

784

 

 

13

 

Ending balance, June 30, 

 

$

1,500

 

$

1,213

 

 

On a quarterly basis, we assess the estimated fair value of the contractual obligation to pay the contingent consideration and any changes in estimated fair value are recorded as a non-operating charge in our Statement of Income.  Fluctuations in the fair value of contingent consideration are impacted by two unobservable inputs, management’s estimate of the probability (which has ranged from 33% to 100%) of the acquired company meeting the contractual operating performance target and the estimated discount rate (a rate that approximates our cost of capital). Significant changes in either of those inputs in isolation would result in a different fair value measurement.  Generally, a change in the assumption of the probability of meeting the performance target is accompanied by a directionally similar change in the fair value of contingent consideration liability, whereas a change in assumption of the estimated discount rate is accompanied by a directionally opposite change in the fair value of contingent consideration liability. Upon meeting the target, we reflect the full liability on the balance sheet and record a charge to “Other income (expense), net” for the change in the fair value of the liability from the prior period.

 

The May 2017 acquisition of FGC included an earnout of $1.5 million, contingent upon meeting certain performance targets.  The estimated fair value of the contingent consideration on the acquisition date was $1.2 million.  Under ASC 805, we are required to estimate the fair value of contingent consideration based on facts and circumstances that existed as of the acquisition date and remeasure to fair value at each reporting date until the contingency is resolved.  As a result of that remeasurement,  we increased the fair value of the contingent consideration in the second quarter of 2018 related to the FGC performance target contemplated in their purchase agreement, and increased the liability by $0.8 million with a corresponding increase in non-operating expense. We expect to pay the full $1.5 million liability in the third quarter of 2018.

 

 

 

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Note 6 — 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 $111.0 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. The final determination of fair value for certain assets and liabilities 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, identifiable intangible assets, contract assets and liabilities, 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

 

 

(53,728)

 

Net cash paid

 

 

111,030

 

 

 

 

 

 

 

Preliminary identifiable assets acquired and liabilities assumed (in thousands)

 

 

 

 

Cash and restricted cash

 

$

53,728

 

Accounts receivable

 

 

102,719

 

Contract assets

 

 

30,762

 

Other current assets

 

 

18,767

 

Property, plant and equipment

 

 

33,171

 

Intangible assets:

 

 

 

 

Customer relationships

 

 

52,650

 

Non-compete agreements

 

 

1,600

 

Tradename

 

 

200

 

Deferred income taxes

 

 

22,466

 

Other non-current assets

 

 

2,261

 

Accounts payable and accrued liabilities

 

 

(117,736)

 

Contract liabilities

 

 

(44,258)

 

Other non-current liabilities

 

 

(35,269)

 

Total identifiable net assets

 

 

121,061

 

Goodwill

 

 

43,697

 

Total purchase consideration

 

$

164,758

 

 

We separated the operations of Willbros among three of our segments. The utility transmission and distribution operations created the newly formed 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 $34.7 million of goodwill to the Transmission segment, $6.1 million to the Power segment, and $2.8 million to the Pipeline segment.  Based on the current tax treatment, goodwill is not expected to be deductible for income tax purposes.

 

For the period June 1, 2018, the acquisition date, to June 30, 2018, Willbros contributed revenue of $61.0 million and gross profit of $6.4 million.

16


 

 

Acquisition related costs were $7.7 million and $9.3 million for the three and six months ended June 30, 2018, respectively, related to the acquisition of Willbros and are included in “Merger and related costs” on the Condensed Consolidated Statements of Income. Such costs primarily consisted of severance and retention bonus costs for certain employees of Willbros and professional fees paid to advisors.

 

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 as of 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 three and six months ended June 30, 2018, FGC contributed revenue of $8.4 million and $16.0 million, respectively, and gross profit of $2.8 million and $5.0 million, respectively. For the period May 26, 2017, the acquisition date, to June 30, 2017, FGC contributed revenue of $2.2 million and gross profit of $0.5 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 allocation of the total purchase price 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 separately the amounts of revenue and gross profit included in the Condensed 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.  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 three and six months ended June 30, 2018, Coastal contributed revenue of $4.2 million and $9.2 million, respectively, and gross profit of $0.6 million and $1.0 million, respectively. For the period June 16, 2017, the acquisition date, to June 30, 2017, Coastal contributed revenue of $1.0 million and gross profit of $0.4 million.

 

17


 

Supplemental Unaudited Pro Forma Information for the three and six months ended June 30, 2018 and 2017

 

The following pro forma information for the three and six months ended June 30, 2018 and 2017 presents our results of operations as if the acquisitions of Willbros, 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, based on the purchase price allocations;

 

·

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 income before income taxes, and the pro forma adjustments, calculated using a tax rate of 28.0% and 40.0% for the three and six months ended June 30, 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended June 30, 

 

Six Months Ended June 30, 

 

 

 

2018

    

2017

    

2018

    

2017

 

 

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

(unaudited)

 

Revenue

 

$

774,018

 

$

869,039

 

$

1,479,118

 

$

1,610,081