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. Significant changes since our initial estimates reported in the second quarter of 2018 primarily relate to fair value adjustments to our acquired contracts, which resulted in an increase to contract liabilities of $16.7 million. In addition, fair value adjustments to our acquired lease obligations reduced our liabilities assumed by approximately $8.0 million. As a result of these and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill increased by approximately $11.1 million since the second quarter of 2018. Adjustments recorded to the estimated fair values of the assets acquired and liabilities assumed are recognized in the period in which the adjustments are determined and calculated as if the accounting had been completed as of the acquisition date.

The final determination of fair value for certain assets and liabilities is subject to further change and 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, 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		17,914
Property, plant and equipment		31,286
Intangible assets:
Customer relationships		47,500
Non-compete agreements		1,600
Tradename		200
Deferred income taxes		27,014
Other non-current assets		2,261
Accounts payable and accrued liabilities		(116,321)
Contract liabilities		(61,004)
Other non-current liabilities		(27,657)
Total identifiable net assets		110,002
Goodwill		54,756
Total purchase consideration	$	164,758

We separated the operations of Willbros among two of our segments, and created a new segment for the utility transmission and distribution operations. The utility transmission and distribution operations formed the 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 $43.5 million of goodwill to the Transmission segment, $7.6 million to the Power segment, and $3.6 million to the Pipeline segment. Based on the current tax treatment, goodwill is not expected to be deductible for income tax purposes.

As part of the Willbros acquisition, we acquired approximately $40.2 million of restricted cash that was pledged by Willbros to secure letters of credit. Subsequent to the acquisition, we issued new letters of credit under our Credit Facility to replace the Willbros letters of credit secured by the restricted cash. As of September 30, 2018, substantially all of the restricted cash had been released.

For the three months ended September 30, 2018, Willbros contributed revenue of $175.8 million and gross profit of $18.6 million. For the period June 1, 2018, the acquisition date, to September 30, 2018, Willbros contributed revenue of $236.8 million and gross profit of $25.4 million.

Acquisition related costs were $3.8 million and $13.1 million for the three and nine months ended September 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, professional fees paid to advisors, and exiting or impairing certain duplicate facilities.

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 nine months ended September 30, 2018, FGC contributed revenue of $8.1 million and $24.1 million, respectively, and gross profit of $1.6 million and $6.6 million, respectively. For the three months ended September 30, 2017, FGC contributed revenue of $6.1 million and gross profit of $1.5 million. For the period May 26, 2017, the acquisition date, to September 30, 2017, FGC contributed revenue of $8.3 million and gross profit of $2.0 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 nine months ended September 30, 2018, Coastal contributed revenue of $2.8 million and $12.0 million, respectively, and gross profit of $0.3 million and $1.3 million, respectively. For the three months ended September 30, 2017, Coastal contributed revenue of $7.6 million and gross profit of $1.1 million. For the period June 16, 2017, the acquisition date, to September 30, 2017, Coastal contributed revenue of $8.6 million and gross profit of $1.5 million.

Supplemental Unaudited Pro Forma Information for the three and nine months ended September 30, 2018 and 2017

The following pro forma information for the three and nine months ended September 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 nine months ended September 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 September 30,				Nine Months Ended September 30,
	2018		2017		2018		2017
	(unaudited)		(unaudited)		(unaudited)		(unaudited)
Revenue	$	908,902	$	849,084	$	2,388,020	$	2,218,392
Income before provision for income taxes	$	45,521	$	3,487	$	61,709	$	68,254
Net income attributable to Primoris	$	32,691	$	3,438	$	40,676	$	41,774

Weighted average common shares outstanding:
Basic		51,403		51,441		51,471		51,491
Diluted		51,735		51,707		51,760		51,751

Earnings per share:
Basic	$	0.64	$	0.07	$	0.79	$	0.81
Diluted	$	0.63	$	0.07	$	0.79	$	0.81