Note 4—Business Combinations

2015 Acquisitions

On February 28, 2015, the Company acquired the net assets of Aevenia, Inc. for $22.3 million in cash, and established a new entity, Primoris Aevenia, Inc. (“Aevenia”), which operates as part of the Company’s Energy segment. The acquisition provides electrical construction expertise for the Company and provides a greater presence and convenient access to the central plans area of the United States.

The purchase was accounted for using the acquisition method of accounting. The assets were purchased for their estimated fair value and included current assets, current liabilities, plant and equipment, intangible assets and goodwill.

Since the acquisition date through December 31, 2015, Aevenia contributed revenues of $23,695 and gross margin of $2,378. Costs related to the Aevenia acquisition in the amount of $151 were expensed in 2015.

2014 Acquisitions

In May 2014, the Company created a wholly-owned subsidiary, Vadnais Trenchless Services, Inc., a California corporation (“Vadnais”) and on June 5, 2014, the Company purchased certain assets from Vadnais Corporation, a general contractor specializing in micro-tunneling based in California. The assets were purchased for their estimated fair value of $6,355 in cash and included equipment, building and land. In addition, upon meeting certain operating targets, the sellers could receive a contingent earnout of $900 over a two-year period. The estimated fair value of the potential contingent consideration on the acquisition date was $679. The purchase was accounted for using the acquisition method of accounting. See Note 14 — “Contingent Consideration”.

During the third quarter 2014, the Company made three small acquisitions totaling $8,244 acquiring the net assets of Surber, Ram-Fab, and Williams (the “Third Quarter 2014 Acquisitions”). Surber and Ram-Fab operate as divisions of PES in the Energy segment, and Williams is a division of Cardinal Contractors, Inc. in the East segment. Surber provides general oil and gas related construction activities in Texas; Ram-Fab is a fabricator of custom piping systems located in Arkansas; and Williams provides construction services related to sewer pipeline maintenance, rehabilitation and integrity testing in the Florida market. The Surber purchase provided for a contingent earnout amount of up to $1,800 over a 3-year period, based on meeting certain operating targets, which had an estimated fair value of $955 on the acquisition date. The Ram-Fab purchase included a $200 contingent earnout based on estimated earnings of a six-month operating project, which had an estimated fair value of $200 on the acquisition date. All of the purchases were accounted for using the acquisition method of accounting. See Note 14 — “Contingent Consideration”.

From the acquisition dates for the Vadnais acquisition and the Third Quarter 2014 Acquisitions through December 31, 2014, their first partial year, they contributed revenues of $9,300 and gross loss of $45. Acquisition costs related to these 2014 acquisitions of $355 were expensed in 2014.

The fair value of the assets acquired and the liabilities assumed for the 2015 and 2014 acquisitions is detailed in the section below “Schedule of Assets Acquired and Liabilities Assumed for 2015 and 2014 Acquisitions”.

Summary of Cash Paid for Acquisitions for the years ended December 31, 2015 and 2014

The following table summarizes the cash paid for acquisitions for the years ended December 31, 2015 and 2014.

	Year ended December 31,
	2015		2014

Aevenia — purchased February 28, 2015	22,302		—
Vadnais — purchased June 5, 2014	—		6,355
Surber — purchased July 28, 2014	—		3,642
Ram-Fab — purchased August 29, 2014	—		3,569
Williams — purchased September 19, 2014	—		1,030

Cash paid	$	22,302	$	14,596

Schedule of Assets Acquired and Liabilities Assumed for 2015 and 2014 Acquisitions

The following table summarizes the fair value of the assets acquired and the liabilities assumed at the acquisition date:

	Year ended December 31,
	2015 Acquisition			2014 Acquisitions

Cash	—			3
Accounts receivable	2,734			2,768
Inventory and other assets	1,154			711
Prepaid expenses	322			57
Property, plant and equipment	11,173			11,802
Other assets	—			4
Intangible assets	3,850			1,779
Goodwill	5,152			784
Accounts payable	(743		)	(570		)
Accrued expenses	(1,340		)	(905		)

Total	$	22,302		$	16,433

Identifiable Tangible Assets. For each of the acquisitions, significant identifiable tangible assets acquired include accounts receivable, inventory and fixed assets, consisting primarily of construction equipment. The Company determined that the recorded value of accounts receivable and inventory reflect fair value of those assets. The Company estimated the fair value of fixed assets on the effective dates of the acquisitions using a market approach, based on comparable market values for similar equipment of similar condition and age.

Identifiable Intangible Assets. The Company estimated and used the assistance of an independent third party valuation specialist to determine the fair value of the intangible assets acquired for the acquisitions. The fair value measurements of the intangible assets were based primarily on significant unobservable inputs and thus represent a Level 3 measurement as defined in Note 3 — “Fair Value Measurements”. Based on the Company’s assessment, the acquired intangible asset categories, fair value and average amortization periods, generally on a straight-line basis, are as follows:

	Amortization Period	2015 Fair Value		2014 Fair Value

Tradename	3 to 10 years	$	—	$	650
Non-compete agreements	2 to 5 years	1,350		250
Customer relationships	5 to 10 years	2,500		879

Total		$	3,850	$	1,779

The fair value of the tradename was determined based on the “relief from royalty” method. A royalty rate was selected based on consideration of several factors, including external research of third party trade name licensing agreements and their royalty rate levels, and management estimates. The useful life was estimated at ten years for the Third Quarter 2014 Acquisitions based on management’s expectation for continuing value of the tradename in the future.

The fair value for the non-compete agreements was valued based on a discounted “income approach” model, including estimated financial results with and without the non-compete agreements in place. The agreements were analyzed based on the potential impact of competition that certain individuals could have on the financial results, assuming the agreements were not in place. An estimate of the probability of competition was applied and the results were compared to a similar model assuming the agreements were in place.

The customer relationships were valued utilizing the “excess earnings method” of the income approach. The estimated discounted cash flows associated with existing customers and projects were based on historical and market participant data. Such discounted cash flows were net of fair market returns on the various tangible and intangible assets that are necessary to realize the potential cash flows.

Goodwill. Goodwill for Aevenia largely consists of expected benefits from providing electrical construction expertise for the Company and the greater presence and convenient access to the central plains area of the United States. Goodwill attributable to Surber consists largely for the expected benefits from the geographic expansion into the growing Midland/Permian Basin area of Texas and to the expansion of offerings for the Energy segment to include more pipeline and station work and a greater presence and convenient access to south Texas, the Houston ship channel and Louisiana. Goodwill also includes the value of the assembled workforce of the various acquired businesses.

Based on the current tax treatment of the acquisitions, the goodwill and other intangible assets associated with them are deductible for income tax purposes over a fifteen-year period.

Supplemental Unaudited Pro Forma Information

In accordance with ASC 805, the following pro forma information for the twelve months ended December 31, 2015 and 2014 presents the results of operations of the Company as if the Aevenia acquisition, the Vadnais acquisition and the Third Quarter 2014 Acquisitions had all occurred at the beginning of 2014. 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 fair values assigned to the purchased assets;
		the pro forma impact of the expense associated with the amortization of the discount for the fair value of the contingent consideration (related to the Third Quarter 2014 Acquisitions) for potential earnout liabilities that may be achieved during the years 2015 through 2017; and
		the pro forma tax effect of both the income before income taxes and the pro forma adjustments, calculated using a tax rate of 39.0% for the years ended 2015 and 2014.

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, 2014. For example, the pro forma results do not reflect any operating efficiencies and associated cost savings that the Company might have achieved with respect to the acquisitions.

	2015		2014
	(unaudited)		(unaudited)
Revenues	$	1,932,413	$	2,154,440
Income before provision for income taxes	$	59,309	$	104,745
Net income attributable to Primoris	$	35,781	$	64,631

Weighted average common shares outstanding:
Basic	51,647		51,607
Diluted	51,798		51,747

Earnings per share attributable to Primoris:
Basic	$	0.69	$	1.25
Diluted	$	0.69	$	1.25