10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2014

OR

oTRANSITION 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 x  No o

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  x No o

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

Large accelerated filer  x	Accelerated filer  o
Non-accelerated filer  o	Smaller reporting company  o
Do not check if a smaller reporting company.

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

At May 5, 2014, 51,655,224 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 March 31, 2014 and December 31, 2013	3
—Condensed Consolidated Statements of Income for the three months ended March 31, 2014 and 2013	4
— Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013	5
—Notes to Condensed Consolidated Financial Statements	7
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3. Quantitative and Qualitative Disclosures About Market Risk	33
Item 4. Controls and Procedures	33
Part II. Other Information
Item 1. Legal Proceedings	34
Item 1A. Risk Factors	34
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	34
Item 3. Defaults Upon Senior Securities	34
Item 4. (Removed and Reserved)	34
Item 5. Other Information	34
Item 6. Exhibits	35
Signatures	36

2

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

(Unaudited)

	March 31, 2014		December 31, 2013
ASSETS
Current assets:
Cash and cash equivalents	$	149,620	$	196,077
Short-term investments	17,326		18,686
Customer retention deposits and restricted cash	55		5,304
Accounts receivable, net	289,124		304,955
Costs and estimated earnings in excess of billings	75,067		57,146
Inventory and uninstalled contract materials	58,681		51,829
Deferred tax assets	13,133		13,133
Prepaid expenses and other current assets	12,610		12,654
Total current assets	615,616		659,784
Property and equipment, net	228,834		226,512
Intangible assets, net	43,460		45,303
Goodwill	118,626		118,626
Other long-term assets	416		468
Total assets	$	1,006,952	$	1,050,693
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	119,089	$	127,302
Billings in excess of costs and estimated earnings	147,301		173,365
Accrued expenses and other current liabilities	91,559		91,079
Dividends payable	1,808		1,805
Current portion of capital leases	2,681		3,288
Current portion of long-term debt	27,559		28,475
Current portion of contingent earnout liabilities	4,347		5,000
Total current liabilities	394,344		430,314
Long-term capital leases, net of current portion	1,823		2,295
Long-term debt, net of current portion	180,653		191,051
Deferred tax liabilities	10,092		10,092
Long-term contingent earnout liabilities, net of current portion	—		4,233
Other long-term liabilities	10,405		14,260
Total liabilities	597,317		652,245
Commitments and contingencies
Stockholders’ equity
Common stock—$.0001 par value, 90,000,000 shares authorized, 51,655,224 and 51,571,394 issued and outstanding at March 31, 2014 and December 31, 2013	5		5
Additional paid-in capital	162,050		159,196
Retained earnings	247,242		238,216
Noncontrolling interests	338		1,031
Total stockholders’ equity	409,635		398,448
Total liabilities and stockholders’ equity	$	1,006,952	$	1,050,693

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

	Three months ended March 31,
	2014			2013
Revenues	$	470,074		$	409,995
Cost of revenues	420,317			363,899
Gross profit	49,757			46,096
Selling, general and administrative expenses	29,712			28,619
Operating income	20,045			17,477
Other income (expense):
Income from non-consolidated entities	14			269
Foreign exchange gain (loss)	26			(59		)
Other expense	(114		)	(56		)
Interest income	52			40
Interest expense	(1,668		)	(1,424		)
Income before provision for income taxes	18,355			16,247
Provision for income taxes	(7,090		)	(6,207		)
Net income	$	11,265		$	10,040
Less net income attributable to noncontrolling interests	$	(432	)	$	(270	)
Net income attributable to Primoris	$	10,833		$	9,770
Earnings per share:
Basic	$	0.21		$	0.19
Diluted	$	0.21		$	0.19
Weighted average common shares outstanding:
Basic	51,610			51,456
Diluted	51,714			51,467

See Accompanying Notes to Condensed Consolidated Financial Statements

4

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

	Three months Ended
	March 31,
	2014			2013
Cash flows from operating activities:
Net income	$	11,265		$	10,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	11,709			9,490
Amortization of intangible assets	1,843			1,794
Loss (gain) on sale of property and equipment	(355		)	48
Income from non-consolidated entities	(14		)	(269		)
Stock—based compensation expense	137			—
Changes in assets and liabilities:
Customer retention deposits and restricted cash	5,249			8,006
Accounts receivable	15,831			18,174
Costs and estimated earnings in excess of billings	(17,921		)	(6,463		)
Other current assets	(7,938		)	(232		)
Other long-term assets	—			(381		)
Accounts payable	(8,213		)	(46,557		)
Billings in excess of costs and estimated earnings	(26,064		)	2,052
Contingent earnout liabilities	(4,886		)	356
Accrued expenses and other current liabilities	1,534			(99		)
Other long-term liabilities	(3,855		)	(3,240		)
Net cash used in operating activities	(21,678		)	(7,281		)
Cash flows from investing activities:
Purchase of property and equipment	(15,067		)	(19,550		)
Proceeds from sale of property and equipment	1,391			1,222
Purchase of short-term investments	(586		)	(2,939		)
Sale of short-term investments	1,946			3,201
Cash received for the sale of Alvah minority interest	1,189			—
Cash paid for acquisitions	—			(1,025		)
Net cash used in investing activities	(11,127		)	(19,091		)
Cash flows from financing activities:
Proceeds from issuance of long-term debt	—			16,116
Repayment of capital leases	(1,079		)	(1,002		)
Repayment of long-term debt	(11,314		)	(6,221		)
Proceeds from issuance of common stock purchased under a long-term incentive plan	1,671			1,455
Dividends paid	(1,805		)	—
Cash distribution to non-controlling interest holder	(1,125		)	—
Net cash provided by (used in) financing activities	(13,652		)	10,348
Net change in cash and cash equivalents	(46,457		)	(16,024		)
Cash and cash equivalents at beginning of the period	196,077			157,551
Cash and cash equivalents at end of the period	$	149,620		$	141,527

See Accompanying Notes to Condensed Consolidated Financial Statements

5

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

	Three months Ended
	March 31,
	2014		2013
	(Unaudited)
Cash paid during the period for:
Interest	$	1,508	$	1,259
Income taxes, net of refunds received	$	2,341	$	802

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

	Three months Ended
	March 31,
	2014		2013
	(Unaudited)
Obligations incurred for the acquisition of property and equipment	$	—	$	1,180
Dividends declared and not yet paid	1,808		$	1,547

See Accompanying Notes to Condensed Consolidated Financial Statements

6

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. The Company’s underground and directional drilling operations install, replace and repair natural gas, petroleum, telecommunications and water pipeline systems, including large diameter pipeline systems. The Company’s 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. The Company is incorporated in the State of Delaware, and its corporate headquarters are located at 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201.

The following table lists the Company’s primary operating subsidiaries and their reportable operating segment:

Subsidiary	Operating Segment
ARB, Inc. (“ARB”)	West Construction Services
ARB Structures, Inc.	West Construction Services
Q3 Contracting, Inc. (“Q3C”); acquired 2012	West Construction Services
Rockford Corporation (“Rockford”)	West Construction Services
Stellaris, LLC.	West Construction Services
OnQuest, Inc.	Engineering
OnQuest, Canada, ULC (Born Heaters Canada, ULC prior to 2013)	Engineering
Cardinal Contractors, Inc.	East Construction Services
James Construction Group, LLC (“JCG”)	East Construction Services
Silva Group (“Silva”); acquired 2012	East Construction Services
Primoris Energy Services Corporation (“PES”)	East Construction Services

Sprint Pipeline Services, L.P. (“Sprint”) was purchased by PES in 2012.  PES has operated using the Sprint name as a DBA during 2012 and 2013.  PES acquired two subsidiaries, The Saxon Group (“Saxon”) in 2012 and Force Specialty Services, Inc. (“FSSI”) in 2013. On January 1, 2014, the two subsidiaries were merged into PES.  Additionally, the Industrial division of JCG was merged into PES.  In this Quarterly Report on Form 10-Q for the three months ended March 31, 2014 (the “First Quarter 2014 Report), references to Sprint, FSSI, Saxon and James Industrial are to the divisions of PES, while the references are to the entities or divisions for periods prior to 2014.

The Company owns 50% of the Blythe Power Constructors joint venture (“Blythe”) for the installation of a parabolic trough solar field and steam generation system in California and its operations are included as part of the West Construction Services segment.

In January 2014, the Company created a wholly owned subsidiary, BW Primoris, LLC, a Texas limited liability company (“BWP”).  BWP’s goal is to develop water projects, primarily in Texas, that will need the Company’s construction services to construct a water treatment system and pipeline.  On January 22, 2014, BWP entered into an agreement to purchase the assets of Blaus Wasser, LLC, a Wyoming limited liability company for approximately $5 million.  During the 2014 first quarter, BWP entered into an intercompany construction contract with Cardinal Contractors, Inc. to build a small water treatment facility in West Texas; intercompany revenue and profit of the project is eliminated in consolidation.

Unless specifically noted otherwise, as used throughout these consolidated financial statements, “Primoris”, “the Company”, “we”, “our”, “us” or “its” refers to the business, operations and financial results of the Company and its wholly-owned subsidiaries.

Note 2—Basis of Presentation

Interim consolidated financial statements — The interim condensed consolidated financial statements for the three-month period ended March 31, 2014 and 2013 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 the Company’s Annual Report on Form 10-K, filed on March 3, 2014, which contains the Company’s audited consolidated financial statements for the year ended December 31, 2013, have been omitted.

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This First Quarter 2014 Report should be read in concert with the Company’s 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.

Revenue recognition

Fixed-price contracts — Historically, a substantial portion of the Company’s revenue has been generated under fixed-price contracts. Fixed price contracts generally provide that the Company will perform all of the work required by the contract for a stated price.  For fixed-price contracts, the Company recognizes revenues using the percentage-of-completion method, which may result in uneven and irregular results. In the percentage-of-completion method, estimated revenues and resulting contract income are calculated based on the total costs incurred to date as a percentage of total estimated costs.

Unit-price contracts — A unit-price contract provides performance of a specific project at a specific price for each unit of output.  These contracts are commonly associated with road building.

For fixed-price and unit-price contracts, if an estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full at the time of the estimate.  The loss amount is recognized as an “accrued loss provision” and is included in the accrued expenses and other liabilities amount on the consolidated balance sheet.  Because the full loss has been recognized, any future revenues that are generated will result in the accrued loss provision being changed and the gross profit of the contract in future periods will be zero.

Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract.  Total estimated costs, and thus contract revenues 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.

Other contract forms — The Company also uses time and material and cost reimbursable plus fee contracts.  For these jobs, revenue is recognized based on contractual terms.  For example, time and material contract revenues are recognized based on purchasing and employee time records.

For all of its contracts, the Company includes any provision for estimated losses on uncompleted contracts in accrued expenses. Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and income. These revisions are recognized in the period in which the revisions are identified.

The Company considers unapproved change orders to be contract variations for which it has customer approval for a change in scope but for which it does not have an agreed upon price change.  Costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are treated as project costs as incurred. The Company recognizes revenue equal to costs incurred on unapproved change orders when realization of price approval is probable.  Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in future reporting periods to reflect changes in estimates or final agreements with customers.

The Company considers claims to be amounts it seeks, 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 on both scope and price changes. Claims are included in the calculation of revenues when realization is probable and amounts can be reliably determined. Revenues in excess of contract costs incurred on claims are recognized when the amounts have been agreed upon with the customer.  Revenue in excess of contract costs from claims is recognized when an agreement is reached with customers as to the value of the claims, which in some instances may not occur until after completion of work under the contract. Costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred.

The caption “Costs and estimated earnings in excess of billings” in the consolidated balance sheet represents unbilled receivables which arise when revenues have been recorded but the amount will not be billed until a later date.  Balances represent:  (a) unbilled amounts arising from the use of the percentage-of-completion method of accounting which may not be billed under the terms of the contract until a later date, (b) incurred costs to be billed under cost reimbursement type contracts, (c) amounts arising from routine lags in billing, or (d) the revenue associated with unapproved change orders or claims when realization is probable and amounts can be reliably determined.  For those contracts in which billings exceed contract revenues recognized to date, the excess amounts are included in the caption “Billings in excess of costs and estimated earnings”.

8

In accordance with applicable terms of certain construction contracts, retainage amounts may be withheld by customers until completion and acceptance of the project.  Some payments of the retainage may not be received for a significant period after completion of our portion of a project.  In some jurisdictions, retainage amounts are deposited into an escrow account.

Significant revision in contract estimate — As previously discussed, revenue recognition is based on the percentage-of-completion method for firm fixed-price contracts. Under this method, the costs incurred to date as a percentage of total estimated costs are used to calculate revenue. Total estimated costs, and thus contract revenues and margin, are impacted by many factors which can cause significant changes in estimates during the life cycle of a project.

For projects that were in process in the prior year, but are either completed or continue to be in process during the current year, there can be a difference in revenues and profits recognized to the prior year, had current year estimates of costs to complete been known in the prior year.

Customer Concentration — The Company operates in multiple industry segments encompassing the construction of industrial and public works infrastructure assets throughout primarily the United States. Typically, the top ten customers in any one calendar year generate revenues in excess of 50% of total revenues; however in most years a different group make up the top ten customers.

During the three months ending March 31, 2014, revenues generated by the top ten customers were $283 million, which represented 60.1% of total revenues during the period.  During that period, a large solar electric plant represented 12.7% of total revenues and TX DOT represented 9.3% of total revenues.

During the three months ending March 31, 2013, revenues generated by the top ten customers were $227 million, which represented 55.4% of total revenues during the period.  During that period, a large gas and electric utility represented 8.5% of total revenues and a large pipeline company represented 7.3% of total revenues.

At March 31, 2014, approximately 12.7% of the Company’s accounts receivable were due from one customer, and that customer provided 12.7% of the Company’s revenues for the three months ended March 31, 2014.  At March 31, 2013, approximately 8.2% of the Company’s accounts receivable were due from one customer, and that customer provided 7.3% of the Company’s revenues for the three months ended March 31, 2013.

Multiemployer Plans — Various subsidiaries in the West Construction Services segment are signatories to collective bargaining agreements.  These agreements require that the Company participate in and contribute to a number of multiemployer benefit plans for its 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.  Federal law requires that if the Company were to withdraw from an agreement, it will incur a withdrawal obligation.  The potential withdrawal obligation may be significant.  Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with generally accepted accounting principles (“GAAP”).  In November 2011, the Company withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan.  The Company has no plans to withdraw from any other agreements.  See Note 19 — “Commitments and Contingencies”.

Inventory and uninstalled contract materials — Inventory consists of expendable construction materials and small tools that will be used in construction projects and is valued at the lower of cost, using first-in, first-out method, or market.  Uninstalled contract materials include certain job specific materials not yet installed which are valued using the specific identification method relating the inventory cost to a specific project.

Note 3—Recent Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)”  (“ASU 2013-04”).  ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This ASU is an update to FASB ASC Topic 405, “Liabilities”.  The Company adopted this guidance as of January 1, 2014 which did not have a material impact on the Company’s consolidated financial statements.

9

Note 4—Fair Value Measurements

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

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, the Company’s financial assets and liabilities that are required to be measured at fair value at March 31, 2014 and December 31, 2013:

			Fair Value Measurements at Reporting Date
	Amount Recorded on Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets as of March 31, 2014:
Cash and cash equivalents	$	149,620	$	149,620	—	—
Short-term investments	$	17,326	$	17,326	—	—
Liabilities as of March 31, 2014:
Contingent consideration	$	4,347	—		—	$	4,347
Assets as of December 31, 2013:
Cash and cash equivalents	$	196,077	$	196,077	—	—
Short-term investments	$	18,686	$	18,686	—	—
Liabilities as of December 31, 2013:
Contingent consideration	$	9,233	—		—	$	9,233

Short-term investments consist primarily of Certificates of Deposit (“CDs”) and U.S. Treasury bills with various financial institutions that are backed by the federal government.

Other financial instruments of the Company 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 the Company’s 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 the Company’s contingent consideration liability Level 3 fair value measurements during the three months ended March 31, 2014:

Contingent Consideration
Balance at December 31, 2013	$	9,233
Additions:
Change in fair value of contingent consideration	114
Reductions:
Payment to Q3C sellers	(5,000		)
Balance at March 31, 2014	$	4,347

On a quarterly basis, the Company assesses the estimated fair value of the contractual obligation to pay the contingent consideration and any changes in estimated fair value are recorded as other non-operating expense or income in the Company’s consolidated statement of operations.  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 the Company’s cost of capital). Significant changes in either of those inputs in isolation would result in a significantly 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.

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Note 5—Accounts Receivable

The following is a summary of the Company’s accounts receivable:

	March 31, 2014		December 31, 2013
Contracts receivable, net of allowance for doubtful accounts of $672 at March 31, 2014 and $692 at December 31, 2013	$	233,932	$	257,354
Retention receivable	54,850		47,054
	288,782		304,408
Other accounts receivable	342		547
	$	289,124	$	304,955

Note 6—Costs and Estimated Earnings on Uncompleted Contracts

Costs and estimated earnings on uncompleted contracts consist of the following:

	March 31, 2014			December 31, 2013
Costs incurred on uncompleted contracts	$	3,722,890		$	4,741,249
Gross profit recognized	432,568			582,430
	4,155,458			5,323,679
Less: billings to date	(4,227,692		)	(5,439,898		)
	$	(72,234	)	$	(116,219	)

This amount is included in the accompanying consolidated balance sheets under the following captions:

	March 31, 2014			December 31, 2013
Costs and estimated earnings in excess of billings	$	75,067		$	57,146
Billings in excess of costs and estimated earnings	(147,301		)	(173,365		)
	$	(72,234	)	$	(116,219	)

Note 7—Equity Method Investments

WesPac Energy LLC and WesPac Midstream LLC

On July 1, 2010, the Company acquired a 50% membership interest in WesPac Energy LLC (“WPE”), a Nevada limited liability company, from Kealine Holdings, LLC (“Kealine”), a Nevada limited liability company, with Kealine retaining a remaining 50% membership interest. WPE develops pipeline and terminal projects, primarily for the oil and gas industry.

On September 30, 2013, WPE, Kealine and the Company entered into an agreement (the “Midstream Agreement”) with Highstar Capital IV, LP (“Highstar”), to form a new entity, WesPac Midstream LLC, a Delaware limited liability company (“Midstream”), with WPE contributing project assets to Midstream and Highstar investing $6,082 in cash.  The Midstream Agreement provides for potential bonus payments of up to $5,750 each for Kealine and the Company based on attainment of milestones for two projects; however, the amount of these potential bonus payments will be reduced to $4,500 each if certain milestones are not achieved by July 1, 2014.

The Midstream agreement requires that Highstar fund Midstream’s overhead operations for up to two years. To maintain its equity position, the Company will be required to fund its pro rata share of Midstream’s projects.

The Company has accounted for the investment using the equity method of accounting and recorded its proportionate share of operating expenses.  During the fourth quarter 2013, the Company recorded non-cash impairment charges and wrote-off the value of its equity investment.  As a consequence, in accordance with ASC Topic 323, the Company has suspended the equity method of accounting and the Company’s proportionate share of losses will not be recognized unless the Company committed to a further investment.

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The following is a summary of the financial position and results as of and for the periods ended:

	March 31, 2014		December 31, 2013
Balance sheet data
Assets	$	24,928	$	19,142
Liabilities	852		1,023
Net assets	$	24,076	$	18,119
Company’s equity investment in venture	$	—	$	—

	Three months ended March 31,
	2014			2013
Earnings data:
Revenue	$	3		$	39
Expenses	$	190		$	231
Earnings before taxes	$	(187	)	$	(192	)
Company’s equity in earnings	$	—		$	(96	)

Alvah, Inc.

As part of its acquisition of Q3C, the Company acquired a 49% membership interest in Alvah, Inc., a California corporation (“Alvah”).  Alvah is engaged in electrical contracting activities, primarily in Northern California and has worked as a subcontractor for ARB both prior to and subsequent to the Q3C acquisition.  During the three months ending March 31, 2014, payments made by ARB to Alvah were $1,336 and there were no payments made by Q3C.  For the same period in the prior year, ARB made payments of $1,486 and Q3C made payments of $1,245.

On February 5, 2014, the majority owner of Alvah, in accordance with the original investment agreement, elected to purchase the Company’s minority interest effective January 1, 2014 for a cash payment of $1,189.  At the time of the transaction, the Company recorded income adjustments of $14 related to the final sale in the first quarter 2014.

Note 8 — Business Combinations

The Company purchased the assets of FSSI on March 11, 2013.  The fair value of the consideration was $2,377, which consisted of a cash payments and three future potential payments to a key employee, contingent upon FSSI meeting certain performance targets for the remainder of calendar year 2013 and for calendar years 2014 and 2015.

The contingent consideration was defined as:  (1) a payment of $500 in cash for the achievement of pretax income of at least $553 for the remainder of the year ending December 31, 2013; (2) a payment of $500 in cash if pretax income for the year 2014 is at least $2,502; and (3), a payment of $500 in cash if pretax income for the year 2015 is at least $4,227.  The estimated fair value of the potential contingent consideration on the acquisition date was $702.  At December 31, 2013, the Company determined that the operations of FSSI had not met the 2013 performance target nor was it probable that FSSI would meet any of the future targets; therefore, the full amount of the accrued contingent consideration was credited to non-operating income at December 31, 2013.

The purchase agreement also included a provision of an initial payment of $1,000 for a five-year employment, non-competition and non-solicitation agreement with the key employee.  The agreement provided that if the employee terminated his employment or violated the agreement prior to the end of the five-year period, he would be required to repay the unamortized amount of the initial payment.  This agreement was accounted for as a prepaid asset and was being amortized equally over a five-year period.

Because the operating performance of FSSI did not meet expected targets, the Company made changes in FSSI management which resulted in adjustments to the value of certain FSSI assets (including the write-down of the unamortized portion of the prepaid employment asset) and liabilities as of December 31, 2013.

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Supplemental Unaudited Pro Forma Information for the three months ended March 31, 2014 and 2013

In accordance with ASC Topic 805 we are combining the pro forma information for the FSSI acquisition.  The following pro forma information for the three months ended March 31, 2014 and 2013 presents the results of operations of the Company as if the FSSI acquisition had occurred at the beginning of 2013. 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 for potential earnout liabilities that may be achieved in 2013 and 2014 for the FSSI acquisition;

·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 three months ended March 31, 2014 and the same period in 2013; and

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 FSSI acquisition been completed on January 1, 2013.  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 FSSI acquisition.

	Three months ended March 31,
	2014		2013
Revenues	470,074		412,794
Income before provision for income taxes	18,355		16,132
Net income attributable to Primoris	10,833		9,700
Weighted average common shares outstanding:
Basic	51,610		51,456
Diluted	51,714		51,467
Earnings per share:
Basic	$	0.21	$	0.19
Diluted	$	0.21	$	0.19

Note 9—Intangible Assets

At March 31, 2014 and December 31, 2013, intangible assets totaled $43,460 and $45,303, respectively, net of amortization.  The table below summarizes the intangible asset categories, amounts and the average amortization periods, which are generally on a straight-line basis, as follows:

	Amortization	March 31,		December 31,
	Period	2014		2013
Tradename	3 to 10 years	$	20,041	$	21,023
Non-compete agreements	2 to 5 years	$	2,093	$	2,575
Customer relationships	5 to 15 years	$	21,326	$	21,705
Total		$	43,460	$	45,303

Amortization expense of intangible assets was $1,844 and $1,794 for the three months ended March 31, 2014 and 2013, respectively.  Estimated future amortization expense for intangible assets is as follows:

For the Years Ending December 31,	Estimated Intangible Amortization Expense
2014 (remaining nine months)	$	5,899
2015	5,921
2016	5,451
2017	5,386
2018	5,307
Thereafter	15,496
	$	43,460

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Note 10—Accounts Payable and Accrued Liabilities

At March 31, 2014 and December 31, 2013, accounts payable included retention amounts of approximately $6,233 and $5,602, respectively.  These amounts are due to subcontractors have been retained pending contract completion and customer acceptance of jobs.

The following is a summary of accrued expenses and other current liabilities at:

	March 31, 2014		December 31, 2013
Payroll and related employee benefits	$	35,618	$	36,556
Insurance, including self-insurance reserves	35,405		33,880
Reserve for estimated losses on uncompleted contracts	274		1,392
Corporate income taxes and other taxes	14,783		13,305
Accrued overhead cost	759		1,165
Other	4,720		4,781
	$	91,559	$	91,079

Note 11—Credit Arrangements

Revolving Credit Facility

As of March 31, 2014, the Company had a revolving credit facility (the “Credit Agreement”) with The PrivateBank and Trust Company, as administrative agent (the “Administrative Agent”) and co-lead arranger, The Bank of the West, as co-lead arranger, and IBERIABANK Corporation (the “Lenders”). The Credit Agreement is a $75 million revolving credit facility whereby the Lenders agree to make loans on a revolving basis from time to time and to issue letters of credit for up to the $75 million committed amount. The Credit Agreement also provides for an incremental facility of up to $50 million. The termination date of the Credit Agreement is December 28, 2017.

The principal amount of any loans under the Credit Agreement will bear interest at either: (i) LIBOR plus an applicable margin as specified in the Credit Agreement (based on the Company’s senior debt to EBITDA ratio as that term is defined in the Credit Agreement), or (ii) the Base Rate (which is the greater of (a) the Federal Funds Rate plus 0.5% or (b) the prime rate as announced by the Administrative Agent). Quarterly non-use fees, letter of credit fees and administrative agent fees are payable at rates specified in the Credit Agreement.

The principal amount of any loan drawn under the Credit Agreement may be prepaid in whole or in part, with a minimum prepayment of $5 million, at any time, potentially subject to make-whole provisions.

The Credit Agreement includes customary restrictive covenants for facilities of this type, as discussed below.

Commercial letters of credit were $4,808 at March 31, 2014 and $5,074 at December 31, 2013.  Other than commercial letters of credit, there were no borrowings under this line of credit during the three months ended March 31, 2014, leaving available borrowing capacity at $70,192 at March 31, 2014.

Senior Secured Notes and Shelf Agreement

On December 28, 2012, the Company entered into a $50 million Senior Secured Notes purchase (“Senior Notes”) and a $25 million private shelf agreement (the “Notes Agreement”) by and among the Company, The Prudential Investment Management, Inc. and certain Prudential affiliates (the “Noteholders”).

The Senior Notes amount was funded on December 28, 2012. The Senior Notes are due December 28, 2022 and bear interest at an annual rate of 3.65%, paid quarterly in arrears. Annual principal payments of $7.1 million are required from December 28, 2016 through December 28, 2021 with a final payment due on December 28, 2022. The principal amount may be prepaid, with a minimum prepayment of $5 million, at any time, subject to make-whole provisions.

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On July 25, 2013, the Company drew the full $25 million available under the Notes Agreement.  The notes are due July 25, 2023 and bear interest at an annual rate of 3.85% paid quarterly in arrears.  Seven annual principal payments of $3.6 million are required from July 25, 2017 with a final payment due on July 25, 2023.

Loans made under both the Credit Agreement and the Notes Agreement are secured by our assets, including, among others, our cash, inventory, goods, equipment (excluding equipment subject to permitted liens) and accounts receivable. All of our domestic subsidiaries have issued joint and several guaranties in favor of the Lenders and Noteholders for all amounts under the Credit Agreement and Notes Agreement.

Both the Credit Agreement and the Notes Agreement contain various restrictive and financial covenants including among others, minimum tangible net worth, senior debt/EBITDA ratio, debt service coverage requirements and a minimum balance for unencumbered net book value for fixed assets. In addition, the agreements include restrictions on investments, change of control provisions and provisions in the event the Company disposes more than 20% of its total assets.

The Company was in compliance with the covenants for the Credit Agreement and Notes Agreement at March 31, 2014.

Canadian Credit Facility

The Company has a credit facility for $8,000 in Canadian dollars with a Canadian bank for purposes of issuing commercial letters of credit in Canada.  The credit facility has an annual renewal and provides for the issuance of commercial letters of credit for a term of up to five years. The facility provides for an annual fee of 1% for any issued and outstanding commercial letters of credit. Letters of credit can be denominated in either Canadian or U.S. dollars. At March 31, 2014 and December 31, 2013, letters of credit outstanding totaled $3,079 and $2,788 in Canadian dollars, respectively.  At March 31, 2014, the available borrowing capacity was $4,921 in Canadian dollars.  The credit facility contains a working capital restrictive covenant for our Canadian subsidiary, OnQuest Canada, ULC.  At March 31, 2014, OnQuest Canada, ULC was in compliance with the covenant.

Note 12 — Noncontrolling Interests

The Company applies the provisions of ASC Topic 810-10-45, which establishes accounting and reporting standards for ownership interests of parties other than the Company in subsidiaries, such as joint ventures and partnerships.

The Company determined that the Blythe joint venture was a variable interest entity (“VIE”) and that the Company was the primary beneficiary as a result of its significant influence over the joint venture operations.

The Blythe joint venture operating activities are included in the Company’s consolidated statements of income as follows for the three months ended March 31:

	March 31,2014		March 31,2013
Revenues	$	940	$	16,272
Net income attributable to noncontrolling interests	432		270

Since Blythe is a partnership, no tax effect was recognized for the income.  Blythe made a $1,125 distribution to the non-controlling interests and a $1,125 distribution to the Company during the three months ended March 31, 2014.  There were no distributions made during the three months ended March 31, 2013.  There were no capital contributions made during the year ended December 31, 2013 or through the three months ended March 31, 2014.

The carrying value of the assets and liabilities associated with the operations of the Blythe joint venture are included in the Company’s consolidated balance sheets as follows:

	March 31,2014		December 31,2013
Cash	$	1,088	$	3,025
Accounts receivable	—		1,085
Current liabilities	405		2,041

The net assets of the joint venture are restricted for use by the project and are not available for general operations of the Company.

15

Note 13 — Contingent Earnout Liabilities

As part of the Rockford acquisition in November 2010, the Company agreed to issue additional cash and common stock to the sellers, contingent upon Rockford meeting certain operating performance targets The final contingent earnout for 2012 was achieved, and in April 2013, the Company made a $6,900 cash payment.

A contingent earnout payment of $4,000 was made in April 2013 to the sellers of Sprint for achieving certain operating performance targets in 2012.  The operations of Sprint did not meet the 2013 performance target.

Saxon’s operations did not meet the performance target for the 2013 year and no payment was made.

In March 2014, the Company paid $5,000 to the sellers of Q3C based on achievement of the 2013 operating performance targets.  The sellers will be paid up to an additional $5,000 in 2015, contingent upon meeting certain performance targets for the calendar year 2014.  The estimated fair value at March 31, 2014 of the remaining contingent earnout was $4,347.

Note 14—Related Party Transactions

Primoris has entered into leasing transactions with Stockdale Investment Group, Inc. (“SIGI”).  Brian Pratt, our Chief Executive Officer, President and Chairman of the Board of Directors and our largest stockholder, holds a majority interest and is the chairman, president and chief executive officer and a director of SIGI.  John M. Perisich, our Executive Vice President and General Counsel, is secretary of SIGI.

Primoris leases properties from SIGI at the following locations:

1.Bakersfield, California (lease expires October 2022)

2.Pittsburg, California (lease expires April 2023)

3.San Dimas, California (lease expires March 2019)

4.Pasadena, Texas (leases expire in July 2019 and 2021)

During the three months ended March 31, 2014 and 2013, the Company paid $219 and $235, respectively, in lease payments to SIGI for the use of these properties.

Primoris leases a property from Roger Newnham, a former owner and manager of our subsidiary, OnQuest Canada, ULC. The property is located in Calgary, Canada. During the three months ended March 31, 2014 and 2013, Primoris paid $72 and $75, respectively, in lease payments.  The current term of the lease is through December 31, 2014.

Primoris leases a property from Lemmie Rockford, one of the Rockford sellers, which commenced November 1, 2011.  The property is located in Toledo, Washington.  During the three months ended March 31, 2014 and 2013, Primoris paid $23 and $23, respectively, in lease payments.  The lease expires in January 2015.

Primoris leases a property from Quality RE Partners, owned by three of the Q3C selling shareholders, of whom two are current employees, including Jay Osborn, President of Q3C.  The property is located in Little Canada, Minnesota.  During the three months ended March 31, 2014 and 2013, the Company paid $66 and $66, respectively, in lease payments to Quality RE Partners.  The lease expires in October 2022.

As discussed in Note 7— “Equity Method Investments”, the Company owns several non-consolidated investments and has recognized revenues on work performed by the Company for those joint ventures.

Note 15—Stock-Based Compensation

On May 3, 2013, the Board of Directors granted 100,000 Restricted Stock Units (“Units”) to an executive under the 2013 Long-term Incentive Equity Plan (the “Equity Plan”).  Commencing annually on May 10, 2014 and ending April 30, 2017, the Units will vest in four equal installments subject to continuing employment of the executive.  On March 24, 2014, the Board of Directors granted 48,512 Units to another executive under the Equity Plan.  The Units will vest 50% on September 23, 2015 and the remaining 50% on March 23, 2017 subject to continuing employment of the executive.  Vesting in both grants is also subject to earlier acceleration, termination, cancellation or forfeiture as provided in the underlying Primoris Restricted Stock Unit agreement (“RSU Award Agreement”).  Each Unit represents the right to receive one share of the Company’s common stock when vested.

16

Under guidance of ASC Topic 718 “Compensation — Stock Compensation”, stock-based compensation cost is measured at the date of grant (utilizing the prior-day closing price), based on the calculated fair value of the stock-based award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the award).

The fair value of the Units was based on the closing market price of our common stock on the day prior to the date of the grant.  Stock compensation expense for the Units is being amortized using the straight-line method over the service period.  For the three months ended March 31, 2014, the Company recognized $137 in compensation expense.  At March 31, 2014, approximately $3.19 million of unrecognized compensation expense remains for the Units which will be recognized over the next 3.1 years through April 30, 2017.

Vested Units accrue “Dividend Equivalents” (as defined in the Equity Plan) which will be accrued as additional Units.  At March 31, 2014, there were no accrued Dividend Equivalent Units.

Note 16—Income Taxes

The effective tax rate on income before taxes and noncontrolling interests for the three months ended March 31, 2014 is 38.17%.  The effective tax rate for income attributable to Primoris is 39.56%. The rate differs from the U.S. federal statutory rate of 35% due primarily to state income taxes, the “Domestic Production Activity Deduction” and nondeductible meals and incidental per diems common in the construction industry.

To determine its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rate from quarter to quarter.  The Company recognizes interest and penalties related to uncertain tax positions, if any, as an income tax expense.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment date.

In September 2012, the Internal Revenue Service (“IRS”) concluded an examination of our federal income tax returns for 2008 and 2009, which did not have a material impact on our financial statements.  In the third quarter of 2013, the IRS initiated an examination of our federal income tax returns for 2011 and 2012.  The tax years 2010 through 2012 remain open to examination by the IRS.  The statute of limitations of state and foreign jurisdictions vary generally between 3 to 5 years.  Accordingly, the tax years 2008 through 2012 generally remain open to examination by the other taxing jurisdictions in which the Company operates.

Note 17—Dividends and Earnings Per Share

The Company has paid or declared cash dividends during 2014 as follows:

·On October 30, 2013, the Company declared a cash dividend of $0.035 per common share, payable to stockholders of record on December 31, 2013.  The dividend, totaling $1,805, was paid on January 15, 2014.

·On February 26, 2014, the Company declared a cash dividend of $0.035 per common share, payable to stockholders of record on March 31, 2014.  The dividend, totaling $1,808, was paid on April 15, 2014.

17

The table below presents the computation of basic and diluted earnings per share for the three months ended March 31, 2014 and 2013:

	Three months ended March 31,
	2014		2013
Numerator:
Net income attributable to Primoris	$	10,833	$	9,770
Denominator:
Weighted average shares for computation of basic earnings per share	51,610		51,456
Dilutive effect of shares issued to independent directors	—		9
Dilutive effect of unvested restricted stock units (1)	104		—
Dilutive effect of shares to be issued to Q3C sellers (2)	—		2
Weighted average shares for computation of diluted earnings per share	51,714		51,467
Earnings per share:
Basic	$	0.21	$	0.19
Diluted	$	0.21	$	0.19

(1)Represents the dilutive effect of a grant for 100,000 shares of Units on May 3, 2013 and 48,512 shares of Units on March 24, 2014.

(2)Represents the dilutive effect of 29,273 unregistered shares of common stock provided in January 2013 as part of the purchase consideration for the Q3C acquisition.

Note 18—Stockholders’ Equity

Common stock — In March 2014, the Company received $1,671 for 77,455 shares of common stock purchased under a long-term incentive plan.  The Company’s Long-Term Retention Plan (“LTR Plan”) for managers and executives allows participants to use a portion of their annual bonus amount to purchase Company common stock at a discount from the market price. The shares purchased in March 2014 were for bonus amounts earned in 2013 and the number of shares was calculated at 75% of the average market closing price of December 2013.  In March 2013, the Company received $1,455 for 131,989 shares of common stock issued under the LTR Plan for bonus amounts earned in the prior year.

In March 2014 and 2013, the Company issued 6,375 shares and 12,480 shares of common stock, respectively, as part of the quarterly compensation of the non-employee members of the Board of Directors.

As part of the acquisition of Q3C, the Company issued 29,273 unregistered shares of stock on January 7, 2013.  The shares were issued based on the average December 2012 closing prices, or $14.69 per share for a total value of $430.

As discussed in Note 15 — “Stock Based Compensation”, the Board of Directors has granted a total of 148,512 shares of Units under the Equity Plan.

In February 2014, the Company’s Board of Directors authorized a share repurchase program under which the Company, from time to time and depending on market conditions, share price and other factors, may acquire shares of its common stock on the open market or in privately negotiated transactions up to an aggregate purchase price of $23 million.  During the three months ending March 31, 2014, the Company did not purchase any shares of stock.  The share repurchase program expires December 31, 2014.

Note 19—Commitments and Contingencies

Leases — The Company leases certain property and equipment under non-cancellable operating leases which expire at various dates through 2019. The leases require the Company to pay all taxes, insurance, maintenance and utilities and are classified as operating leases in accordance with ASC Topic 840 “Leases”.

Total lease expense during the three months ended March 31, 2014 and 2013 was $3,637 and $3,845, respectively, including amounts paid to related parties of $380 and $399, respectively.

Letters of credit — At March 31, 2014, the Company had letters of credit outstanding of $7,595 and at December 31, 2013, the Company had letters of credit outstanding of $7,696.  The outstanding amounts include the U.S. dollar equivalents for letters of credit issued in Canadian dollars.

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Litigation — On February 7, 2012, the Company was sued in an action entitled North Texas Tollway Authority, Plaintiff v. James Construction Group, LLC, and KBR, Inc., Defendants, v. Reinforced Earth Company, Third-Party Defendant (the “Lawsuit”). The Lawsuit was brought in the District Court of Collin County, Texas, 401st Judicial District, Cause No. 401-01747-2012.  In the Lawsuit, the North Texas Tollway Authority (“NTTA”) is alleging damages to a road and retaining wall that were constructed in 1999 on the George Bush Turnpike near Dallas, Texas, due to negligent construction by JCG.  The Lawsuit claims that the cost to repair the retaining wall was approximately $5,400.  The NTTA also alleges that six other walls constructed on the project by JCG could have the same potential exposure to failure.  The Company has denied any liability, has tendered the claim to its insurance carriers and has cross-complained against its engineering subcontractor for potential design liability.  The extent of insurance coverage by the carriers of the Company and its subcontractor is undetermined at this time.  The Company is investigating all potential causes of the alleged loss, including design liabilities of the owner, owner’s engineers and/or the Company’s subcontractor.  The Company will vigorously defend the claims.  After discussion with our legal counsel, we have recorded loss contingencies which have not been material to the financial statements, to reflect the best estimate of the Company’s portion of the NTTA claim.  At this time, management does not believe it is possible to make a reasonably probable estimate of additional loss or a range of loss.

The Company is subject to other claims and legal proceedings arising out of its business. The Company provides for costs related to contingencies when a loss from such claims is probable and the amount is reasonably determinable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, the Company reviews and evaluates its litigation and regulatory matters on a quarterly basis in light of potentially relevant factual and legal developments. If we determine an unfavorable outcome is not probable or reasonably estimable, we do not accrue for a potential litigation loss. Management is unable to ascertain the ultimate outcome of other claims and legal proceedings; however, after review and consultation with counsel and taking into consideration relevant insurance coverage and related deductibles/self-insurance retention, management believes that it has meritorious defense to the claims and believes that the reasonably possible outcome of such claims will not, individually or in the aggregate, have a materially adverse effect on the consolidated results of operations, financial condition or cash flows of the Company.

Bonding— At March 31, 2014 and December 31, 2013, the Company had bid and completion bonds issued and outstanding totaling approximately $1,336,007 and $1,458,744, respectively.

Withdrawal liability for multiemployer pension plan — In November 2011, Rockford and ARB, along with other members of the Pipe Line Contractors Association (“PLCA”), withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan (the “Plan”).  The Company withdrew from the Plan in order to mitigate its liability in connection with the Plan, which is significantly underfunded.  The Company recorded a liability of $7,500 based on information provided by the Plan. However, the Plan has asserted that the PLCA members did not affect a proper withdrawal in 2011. The Company believes that a legally effective withdrawal occurred in November 2011 and has recorded the withdrawal liability on that basis. If the Plan were to prevail in its assertion and the withdrawal of the Company were deemed to occur after 2011, the amount of any withdrawal liability could increase.

Prior to the Company’s acquisition, Q3C had also withdrawn from the Plan.  In November 2012, Q3C estimated a withdrawal liability of $85.  In the first quarter of 2013, the Plan asserted that the liability was $119.  Without agreeing to the amount, Q3C has made monthly payments totaling $19 as of March 31, 2014.

Contingent Consideration — Earnouts related to acquisitions are discussed in Note 13 — “Contingent Earnout Liabilities”.

Note 20—Reportable Operating Segments

The Company segregates its business into three operating segments: the East Construction Services (“East”) segment, the West Construction Services (“West”) segment and the Engineering segment.

The East segment includes the JCG and PES construction business, located primarily in the southeastern United States and in the Gulf Coast region of the United States.  Cardinal Contractors, Inc. is included in this segment.

The West segment includes the construction services performed by ARB, ARB Structures, Inc., Rockford, Alaska Continental Pipeline, Inc., Q3C, Primoris Renewables, LLC, Juniper Rock Corporation and Stellaris, LLC.  Most of the entities perform work primarily in California; however, Rockford operates throughout the United States and Q3C operates in the upper Midwest United States.  The Blythe joint venture is also included as a part of the segment.

The Engineering segment includes the results of OnQuest, Inc. and OnQuest Canada, ULC.

All intersegment revenues and gross profit, which were immaterial, have been eliminated in the following tables.

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Segment Revenues

Revenue by segment for the three months ended March 31, 2014 and 2013 were as follows:

	For the three months ended March 31,
	2014				2013
Segment	Revenue		% of Segment Revenue		Revenue		% of Segment Revenue
East	$	223,072	47.5	%	$	190,211	46.4	%
West	234,026		49.7	%	207,686		50.6	%
Engineering	12,976		2.8	%	12,098		3.0	%
Total	$	470,074	100.0	%	$	409,995	100.0	%

Segment Gross Profit

Gross profit by segment for the three months ended March 31, 2014 and 2013 were as follows:

	For the three months ended March 31,
	2014				2013
Segment	Gross Profit		% of Segment Revenue		Gross Profit		% of Segment Revenue
East	$	16,017	7.2	%	$	14,995	7.9	%
West	31,673		13.5	%	28,749		13.8	%
Engineering	2,067		15.9	%	2,352		19.4	%
Total	$	49,757	10.6	%	$	46,096	11.2	%

Segment Goodwill

The following presents the amount of goodwill recorded by segment at March 31, 2014 and at December 31, 2013.

Segment	March 31, 2014		December 31, 2013
East	$	70,946	$	70,946
West	45,239		45,239
Engineering	2,441		2,441
Total	$	118,626	$	118,626

Geographic Region — Revenues and Total Assets

Revenue and total assets by geographic area were as follows:

	External Revenues
	For the three months ended March 31,
	2014				2013				Total Assets
Country:	Revenue		% of Revenue		Revenue		% of Revenue		March 31, 2014		December 31, 2013
United States	$	465,244	99.0	%	$	405,163	98.8	%	$	996,055	$	1,039,322
Non-United States	4,830		1.0		4,832		1.2		10,897		11,371
Total	$	470,074	100.0	%	$	409,995	100.0	%	$	1,006,952	$	1,050,693

All non-United States revenue was generated in the Engineering segment.  For the table above, revenues generated by OnQuest Canada, ULC, were used to determine non-United States revenues.

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PRIMORIS SERVICES CORPORATION

MANAGEMENT’S DISCUSSION AND ANALYSIS

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

Forward Looking Statements

This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2014 (“First Quarter 2014 Report”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which are subject to the “safe harbor” created by those sections. Forward-looking statements include information concerning our possible or assumed future results of operations, business strategies, financing plans, competitive position, industry environment, potential growth opportunities, the effects of regulation and the economy, generally. Forward-looking statements include all statements that are not historical facts and can be identified by terms such as “anticipates”, “believes”, “could”, “estimates”, “expects”, “intends”, “may”, “plans”, “potential”, “predicts”, “projects”, “should”, “will”, “would” or similar expressions.

Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. We discuss many of these risks in detail in Part I, Item 1A “Risk Factors” of our Annual Report on Form 10-K for the year ended December 31, 2013 and our other filings with the Securities and Exchange Commission (“SEC”). Also, forward-looking statements represent our management’s beliefs and assumptions only as of the date of this First Quarter 2014 Report. You should read this First Quarter 2014 Report, our Annual Report on Form 10-K for the year ended December 31, 2013 and our other filings with the SEC completely and with the understanding that our actual future results may be materially different from what we expect.

Given these uncertainties, you should not place undue reliance on these forward-looking statements. We assume no obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in any forward-looking statements, even if new information becomes available.

The following discussion and analysis should be read in conjunction with the unaudited financial statements and the accompanying notes included in Part 1, Item 1 of this First Quarter 2014 Report and our Annual Report on Form 10-K for the year ended December 31, 2013.

Introduction

Primoris is a holding company of various subsidiaries, which form one of the larger publicly traded specialty contractors and infrastructure companies in the United States.  Serving diverse end-markets, we provide a wide range of construction, fabrication, maintenance, replacement, water and wastewater, and engineering services to major public utilities, petrochemical companies, energy companies, municipalities, state departments of transportation and other customers. We install, replace, repair and rehabilitate natural gas, refined product, water and wastewater pipeline systems; large diameter gas and liquid pipeline facilities; and heavy civil projects, earthwork and site development. We also construct mechanical facilities and other structures, including power plants, petrochemical facilities, refineries, water and wastewater treatment facilities and parking structures. Finally, we provide specialized process and product engineering services.

Historically, we have longstanding relationships with major utility, refining, petrochemical, power and engineering companies. We have completed major underground and industrial projects for a number of large natural gas transmission and petrochemical companies in the western United States, as well as significant projects for our engineering customers.  We enter into a large number of contracts each year and the projects can vary in length — from several weeks, to as long as 48 months for completion on larger projects. Although we have not been dependent upon any one customer in any year, a small number of customers tend to constitute a substantial portion of our total revenues.

We recognize revenues and profitability on our contracts depending on the type of contract.  For our fixed price, or lump sum, contracts, we record revenue as the work progresses on a percentage-of-completion basis which means that we recognize revenue based on the percentage of costs incurred to date in proportion to the total estimated costs expected to complete the contract.  Fixed price contracts may include retainage provisions under which customers withhold a percentage of the contract price until the project is complete.  For our unit price contracts, we recognize revenue as units are completed.  For our time and material and cost reimbursable contracts, we recognize revenue as services are performed.

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We report our results in three reporting segments:  East Construction Services (“East”), West Construction Services (“West”) and Engineering.  This reporting structure is focused on the location of the entities performing the work.  For some end markets we perform the same services in both the East and West segments, while for other end markets, such as poured-in-place parking structures or turn-around services, only one of our segments currently serves the market.  The following table shows the approximate percentage of revenues derived from our major end-markets for the years listed:

	Twelve Months Ended March 2014		Twelve Months Ended December 2013		Twelve Months Ended March 2013
Underground capital projects	23	%	23	%	16	%
Utility services	27	%	29	%	27	%
Industrial	24	%	22	%	22	%
Heavy Civil	20	%	20	%	26	%
Engineering	2	%	2	%	3	%
Other	4	%	4	%	5	%
Total	100	%	100	%	100	%

The East segment provides highway and bridge construction services to public agencies in Texas, Louisiana and Mississippi, and provides services for the construction of energy and petrochemical processing facilities and mine and maintenance services for potash mines.  The segment also provides underground pipeline services to utilities and energy companies in Texas and Louisiana and water and wastewater facility and pipeline construction services primarily in Florida and Texas.  The segment includes construction capabilities for gas plants and the ability to provide turn-around services to refineries.

The West segment provides underground construction and maintenance services to utilities and construction services for underground pipeline capital projects.  The segment also constructs gas fired power plants and alternative energy facilities as well as other industrial construction, including poured-in-place parking structures.

The Engineering segment specializes in designing, supplying, and installing high-performance furnaces, heaters, burner management systems, and related combustion and process technologies for clients in the oil refining, petrochemical, and power generation industries. It furnishes turnkey project management with technical expertise and the ability to deliver custom engineering solutions worldwide.

The following table shows our major operating subsidiaries and their reporting segment:

Subsidiary	Operating Segment
ARB, Inc. (“ARB”)	West Construction Services
ARB Structures, Inc.	West Construction Services
Q3 Contracting, Inc. (“Q3C”); acquired 2012	West Construction Services
Rockford Corporation (“Rockford”)	West Construction Services
Stellaris, LLC	West Construction Services
OnQuest, Inc.	Engineering
OnQuest, Canada, ULC (Born Heaters Canada, ULC prior to 2013)	Engineering
Cardinal Contractors, Inc.	East Construction Services
James Construction Group, LLC (“JCG”)	East Construction Services
Silva Group (“Silva”); acquired 2012	East Construction Services
Primoris Energy Services Corporation (“PES”),	East Construction Services

Sprint Pipeline Services, L.P. (“Sprint”) was purchased by PES in 2012.  PES operated using the Sprint name as a DBA during 2012 and 2013.  PES acquired two subsidiaries, The Saxon Group (“Saxon”) in 2012 and Force Specialty Services, Inc. (“FSSI”) in 2013. On January 1, 2014, the two subsidiaries were merged into PES.  Additionally, the Industrial division of JCG was merged into the PES.  In this Quarterly Report on Form 10-Q for the three months ended March 31, 2014 (the “First Quarter 2014 Report”), references to Sprint, FSSI, Saxon and James Industrial are to the divisions of PES, while the references are to the entities or divisions for periods prior to 2014.

In January 2014, the Company created a wholly owned subsidiary, BW Primoris, LLC, a Texas limited liability company (“BWP”).  BWP’s goal is to develop water projects, primarily in Texas, that will need the Company’s construction services.  On January 22, 2014, BWP entered into an agreement to purchase the assets and business of Blaus Wasser, LLC, a Wyoming limited liability company for approximately $5 million.  During the 2014 first quarter, BWP entered into an intercompany construction contract with Cardinal Contractors, Inc. to build a small water treatment facility in West Texas; intercompany revenue and profit of the project is eliminated.

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Material trends and uncertainties

We generate our revenue from both large and small construction and engineering projects. The award of these contracts is dependent on a number of factors, many of which are not within our control. Business in the construction industry is cyclical. We depend in part on spending by companies in the energy and oil and gas industries, the gas utility industry, as well as municipal water and wastewater customers. Over the past several years, each segment has benefited from demand for more efficient and more environmentally friendly energy and power facilities, local highway and bridge needs and from the strength of the oil and gas industry; however, each of these industries and the government agencies periodically are adversely affected by macroeconomic conditions. Economic factors outside of our control may affect the amount and size of contracts we are awarded in any particular period.

We closely monitor our customers to assess the effect that changes in economic, market and regulatory conditions may have on them. We have experienced reduced spending by some of our customers over the last several years, which we attribute to negative economic and market conditions, and we anticipate that these negative conditions may continue to affect demand for our services in the near-term.  Fluctuations in market prices of oil, gas and other fuel sources can affect demand for our services.  The continuing changes in the regulatory environment also can affect the demand for our services, either by increasing our work or delaying projects.  We believe that most of our customers, some of whom are regulated utilities, remain financially stable in general and will be able to continue with their business plans over the long-term period.

During 2013, several owners announced the potential of several large petrochemical and natural gas projects in the Gulf Coast area.  The potential projects have led to industry concerns about potential labor shortages, especially shortages of qualified craft persons.  To date in 2014, we have not seen the awarding of a large number of contracts nor have we seen a shortage of qualified labor.  However, we continue to discuss with our clients and potential clients possible ways to mitigate any shortages that may occur.

Seasonality and cyclicality

Our results of operations are subject to quarterly variations. Some of the variation is the result of weather, particularly rain and snow, which can impact our ability to perform construction services. While the majority of the Company’s work is in the southern half of the United States, these seasonal impacts affect revenues and profitability since gas and other utilities defer routine replacement and repair during their period of peak demand.  Any quarter can be affected either negatively or positively by atypical weather patterns in any part of the country.  In addition, demand for new projects tends to be lower during the early part of the year due to clients’ internal budget cycles.  As a result, the Company usually experiences higher revenues and earnings in the third and fourth quarters of the year as compared to the first two quarters.

The Company is also dependent on large construction projects which tend not to be seasonal, but can fluctuate from year to year based on general economic conditions.  Our business may be affected by declines or delays in new projects or by client project schedules.  Because of the cyclical nature of our business, the financial results for any period may fluctuate from prior periods, and the Company’s financial condition and operating results may vary from quarter-to-quarter.  Results from one quarter may not be indicative of its financial condition or operating results for any other quarter or for an entire year.

Critical Accounting Policies and Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the financial statements and also affect the amounts of revenues and expenses reported for each period. These estimates and assumptions must be made because certain information that is used in the preparation of our financial statements cannot be calculated with a high degree of precision from data available, is dependent on future events, or is not capable of being readily calculated based on generally accepted methodologies. Often, these estimates are particularly difficult to determine, and we must exercise significant judgment. We use estimates in our assessments of revenue recognition under percentage-of-completion accounting, the allowance for doubtful accounts, useful lives of property and equipment, fair value assumptions in analyzing goodwill and long-lived asset impairments, self-insured claims liabilities and deferred income taxes.  Actual results could differ significantly from our estimates, and our estimates could change if there were made under different assumptions or conditions.

As described in our Annual Report on Form 10-K for the year ended December 31, 2013, our critical accounting policies relate primarily to revenue recognition for fixed and unit  price contracts, income taxes, goodwill, long-lived assets, reserves for uninsured risks and litigation and contingencies.  There have been no material changes to our critical accounting policies since December 31, 2013.

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Results of operations

Revenues, gross profit, operating income and net income for the three months ended March 31, 2014 and 2013 were as follows:

	Three Months Ended March 31,
	2014					2013
	(Thousands)			% of Revenue		(Thousands)			% of Revenue
Revenues	$	470,074		100.0	%	$	409,995		100.0	%
Gross profit	49,757			10.6	%	46,096			11.2	%
Selling, general and administrative expense	29,712			6.3	%	28,619			6.9	%
Operating income	20,045			4.3	%	17,477			4.3	%
Other income (expense)	(1,690		)	(0.4	)%	(1,230		)	(0.3	)%
Income before income taxes	18,355			3.9	%	16,247			4.0	%
Income tax provision	(7,090		)	(1.5	)%	(6,207		)	(1.5	)%
Net income	$	11,265		2.4	%	$	10,040		2.5	%
Net income attributable to noncontrolling interests	(432		)	(0.1	)%	(270		)	(0.1	)%
Net income attributable to Primoris	$	10,833		2.3	%	$	9,770		2.4	%

Revenues

Revenues for the three months ended March 31, 2014 increased by $60.1 million, or 14.7%, compared to the same period in 2013. As discussed in the Segment Results section below, revenues increased at each of our segments

From an end-market perspective, our industrial end-market revenues increased by $56.9 million, our heavy civil end-market revenues increased by $10.6 million while our other end-market (primarily our parking structure business) declined by $8.7 million compared to the first quarter of 2013.  Compared to the three months ended March 31, 2013, our underground capital projects business increased by $7.6 million, our utility services business decreased by $7.2 million and our engineering business increased by $0.9 million.

Gross Profit

Gross profit increased by $3.7 million, or 8.0%, for the three months ended March 31, 2014 compared to the same period in 2013, primarily due to the revenue increase.  Gross profit as a percentage of revenue declined 0.6% from 11.2% to 10.6% due to lower profit margins on our industrial revenue in both the East and West segments, as detailed in the Segment Results section below.

Selling, general and administrative expenses

Selling, general and administrative expenses (“SG&A”) increased $1.1 million, or 3.8%, for the three months ended March 31, 2014, compared to the same period in 2013. Of the increase $0.5 million was from the acquisition of FSSI, with the remaining increase primarily from normal increases in compensation and compensation-related expenses.

SG&A as a percentage of revenue decreased to 6.3% for the three months ended March 31, 2014, compared to 6.9% for the corresponding period in 2013 as a result of the increased revenues for the quarter.

Other income and expense

Non-operating income and expense items for the three months ended March 31, 2014 and 2013 were as follows:

	Three Months Ended March 31,
	2014			2013
	(Thousands)
Income from non-consolidated investments	$	14		$	269
Foreign exchange gain (loss)	26			(59		)
Other expense	(114		)	(56		)
Interest income	52			40
Interest expense	(1,668		)	(1,424		)
Total other income (expense)	$	(1,690	)	$	(1,230	)

For the three months ended March 31, 2014, income from non-consolidated investments was due to minor adjustments of the final sale price of the Alvah investment effective December 31, 2013.  The income for 2013 was due to the contributions from the Alvah investment offset by expenses associated with the WesPac investment.

The foreign exchange gain for 2014 and the exchange loss for 2013 reflect currency exchange fluctuations of the United States dollar compared to the Canadian dollar.  Our contracts in Calgary, Canada are sold based on United States dollars, but a portion of the work is paid for with Canadian dollars creating a currency exchange difference.

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Other expense for 2014 represents the increase in the estimated fair value of the contingent earn-out liabilities of Q3C.  For 2013 the amount included increases in all earn-out liabilities reduced by $0.3 million for collection of a 2009 note receivable.

For the three months ended March 31, 2014, interest expense was $1.7 million, compared to $1.4 million for the same period in 2013.  The increases were due primarily to interest on the additional $25 million 3.85% Senior Secured Notes, dated July 25, 2013.

Provision for income taxes

Our provision for income taxes increased $0.9 million for the three months ended March 31, 2014 to $7.1 million compared to $6.2 million in the same period in 2013 primarily as a result of higher income before taxes and due to a higher effective tax rate, which contributed to the increase by $0.8 million and $0.1 million, respectively. The tax rate applied to income attributable to Primoris in the three months ended March 31, 2014 was 39.56%, compared to 38.85% for the same period in 2013.  The 0.71% increase in the effective tax rate results primarily from the variability of state taxes and the partial non-deductibility of meals and incidental per diem expenses.

To determine our quarterly provision for income taxes, we use an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which we operate. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rate from quarter to quarter.

Segment results

East Segment

Revenue and gross profit for the East Construction Services segment for the three months ended March 31, 2014 and 2013 were as follows:

	Three Months Ended March 31,
	2014				2013
	(Thousands)		% of Revenue		(Thousands)		% of Revenue
East Construction Services
Revenue	$	223,072			$	190,211
Gross profit	16,017		7.2	%	14,995		7.9	%

East Construction Services segment revenue increased by $32.9 million, or 17.3 % for the three months ended March 31, 2014 compared to the same period in 2013. Revenue at the PES Sprint Pipeline division increased by $9.4 million from pipeline projects in south Texas and at the PES James Industrial Contractors division revenue increased $8.2 million from petrochemical projects in Louisiana, and PES Saxon Construction division revenue increased by $3.8 million from air separation projects in Texas and Arkansas.  JCG’s Heavy Civil division revenue increased by $12.5 million as increases of $16.1 million from TX DOT projects and $12.8 million from Mississippi projects were offset by a decrease of $16.0 million from LA DOT projects.  Revenue at the JCG Infrastructure & Maintenance division decreased by $2.2 million.

Gross profit increased by $1.0 million or 6.8% for the three months ended March 31, 2014.  The gross profit increase was primarily at the PES Sprint Pipeline division, which increased $1.1 million.  For the other companies and divisions of the segment, inefficiencies and costs associated with the unusual weather in the Gulf Coast region during the first quarter of 2014, especially lengthy periods of below freezing temperature, offset the benefit of the increase in revenue.

Gross Profit as a percent of revenues decreased to 7.2% during the three months ended March 31, 2014 from 7.9% in the prior year quarter reflecting decreased margin percentages realized on heavy civil projects, primarily the startup of the I-35 projects in Texas and the Mississippi projects and the inefficiencies associated with wet weather.  Also, decreased margin for the Sprint Pipeline Group projects was due to delays by clients in obtaining permits.

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West Segment

Revenue and gross profit for the West segment for the three months ended March 31, 2014 and 2013 were as follows:

	Three Months Ended March 31,
	2014				2013
	(Thousands)		% of Revenue		(Thousands)		% of Revenue
Revenue	$	234,026			$	207,686
Gross profit	31,673		13.5	%	28,749		13.8	%

Revenue for the West segment increased by $26.3 million, or 12.7%, for the three months ended March 31, 2014, compared to the same period in 2013. Increases in revenue of $44.7 million at the ARB Industrial division, primarily from a solar plant project, and of $11.3 million at Q3C were partially offset by decreases at Rockford of $5.9 million, at the ARB Underground division of $17.6 million and in parking structure projects of $6.0 million. The ARB Underground division was impacted primarily by a reduction in revenue from its large northern California utility customer from whom revenue decreased by $11.4 million to $21.2 million for the quarter.

Gross profit for the West segment increased by $2.9 million, or 10.2%, during the three months ended March 31, 2014, compared to the same period in 2013.  The increase in gross profit at Q3C was $5.2 million, gross profit at Rockford increased by $2.2 million and gross profit increased by $1.2 million at the ARB Industrial division.  Offsetting these increases was a decrease in gross profit of $5.7 million resulting from the decrease in revenues for the ARB Underground division.

Gross profit as a percentage of revenue decreased to 13.5% during the three months ended March 31, 2014, from 13.8 % in the same period in 2013 as a result of the reduction in MSA revenues at the ARB Underground division and lower margins at the ARB Industrial division due to a high level of contingencies for a large solar project compared to the prior year.

Engineering Segment

Revenue and gross profit for the Engineering segment for the three months ended March 31, 2014 and 2013 were as follows:

	Three Months Ended March 31,
	2014				2013
	(Thousands)		% of Revenue		(Thousands)		% of Revenue
Revenue	$	12,976			$	12,098
Gross profit	2,067		15.9	%	2,352		19.4	%

Revenue for the Engineering segment increased by $0.9 million, or 7.3%, for the three months ended March 31, 2014, compared to the same periods in 2013. The increase is mainly due to the increase in revenues from new LNG plant projects.

Gross profit for the Engineering segment for the three months ended March 31, 2014 decreased by $0.3 million or 12.1%, compared to the same period in 2013. This decrease results from several projects that are in their lower margin beginning stages.

Geographic area financial information

Revenue by geographic area for the three months ended March 31, 2014 and 2013 was as follows:

	Three months Ended March 31,
	2014				2013
	(Thousands)		% of Revenue		(Thousands)		% of Revenue
Country:
United States	$	465,244	99.0	%	$	405,163	98.8	%
Non—United States	4,830		1.0	%	4,832		1.2	%
Total revenues	$	470,074	100.0	%	$	409,995	100.0	%

All non-United States revenue was generated in the Engineering Segment.  For the table above, we use revenues generated by OnQuest’s Canadian subsidiary, OnQuest Canada, ULC, to estimate non-United States revenues.  Traditionally, much of that work was done in the Far East and Australia.

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Backlog

For companies in the construction industry, backlog can be an indicator of future revenue streams.  Different companies define and calculate backlog in different manners.  For the Company, backlog is defined as a combination of: (1) anticipated revenue from the uncompleted portions of existing contracts for which we have known revenue amounts for fixed price and fixed unit price contracts (“Fixed Backlog”), and (2) the estimated revenues on master service agreements (“MSA”) for the next four quarters (“MSA Backlog”).  We do not include time-and-equipment, time-and-materials and cost reimbursable plus fee contracts in the calculation of backlog, since their ultimate revenue amount is difficult to estimate in advance..

The two components of backlog, Fixed Backlog and MSA Backlog, are detailed below.

Fixed Backlog

Fixed Backlog by operating segment for Fixed Backlog for the periods ending December 31, 2013 and March 31, 2014 and the changes in Fixed Backlog for the three months ended March 31, 2014 (in thousands):

Segment	Beginning Fixed Backlog at December 31, 2013		Contract Additions to Fixed Backlog		Revenue Recognized from Fixed Backlog		Ending Fixed Backlog at March 31, 2014		Revenue Recognized from Non-Fixed Backlog Projects		Total Revenue for three months ended March 31, 2014
East	$	1,196,083	$	145,701	$	200,735	$	1,141,049	$	22,337	$	223,072
West	224,603		111,162		177,530,		158,235		56,496		234,026
Engineering	62,322		4,671		12,976		54,017		—		12,976
Total	$	1,483,008	$	261,534	$	391,241	$	1,353,301	$	78,833	$	470,074

Revenues recognized from non-Fixed Backlog projects shown above are generated by MSA projects and projects completed under time-and-equipment, time-and-materials and cost-reimbursable-plus-fee contracts.

As of March 31, 2014, our total Fixed Backlog was $1.35 billion representing a decrease of $129.7 million, or 8.7%, from $1.48 billion as of December 31, 2013.  We expect that approximately 46% of the total Fixed Backlog at March 31, 2014, will be recognized as revenue over the next four quarters, with approximately $427 million expected for the East Construction Services segment, $145 million for the West Construction Services segment and $48 million for the Engineering segment.

MSA and Total Backlog

The following table outlines historical MSA revenues for the past five quarters ($ in thousands):

	2014		2013
First Quarter	$	77,165	$	98,113
Second Quarter	N/A		123,340
Third Quarter	N/A		130,744
Fourth Quarter	N/A		110,336

MSA Backlog includes anticipated MSA revenues for the next twelve months.  We determined estimated MSA revenues based on historical trends, anticipated seasonal impacts and estimates of customer demand based on communications with our customers.

The following table shows the makeup of total backlog, both Fixed Backlog and MSA Backlog, by operating segment at March 31, 2014 (in thousands).

Segment:	Fixed Backlog at March 31, 2014		MSA Backlog at March 31, 2014		Total Backlog at March 31, 2014
East	$	1,141,049	$	111,127	$	1,252,176
West	158,235		384,855		543,090
Engineering	54,017		—		54,017
Total	$	1,353,301	$	495,982	$	1,849,283

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We expect that during the next four quarters, we will recognize as revenue approximately 43% of the East total backlog at March 31, 2014; approximately 98% of the West backlog and approximately 90% of the Engineering backlog.

Backlog should not be considered a comprehensive indicator of future revenues, as a percentage of our revenues are derived from projects that are not part of a backlog calculation.  The backlog estimates include amounts from estimated MSA revenues, but our customers are not contractually obligated to purchase an amount of services from us under the MSAs.  Any of our contracts, MSA, fixed price or fixed unit price, may be terminated by our customers on relatively short notice. In the event of a project cancellation, we may be reimbursed for certain costs, but typically we have no contractual right to the total revenues reflected in backlog.  Projects may remain in backlog for extended periods of time as a result of customer delays, regulatory requirements or project specific issues.  Future revenues from projects completed under time-and-equipment, time-and-materials and cost-reimbursable-plus-fee contracts are not included in our estimated backlog amount.

Liquidity and Capital Resources

Cash Needs

Liquidity represents our ability to pay our liabilities when they become due, fund business operations and meet our contractual obligations and execute our business plan.  Our primary sources of liquidity are our cash balances at the beginning of each period and our net cash flow.  If needed, we have availability under our lines of credit to augment liquidity needs.  In order to maintain sufficient liquidity, we evaluate our working capital requirements on a regular basis.  We may elect to raise additional capital by issuing common stock, convertible notes, term debt or increasing our credit facility as necessary to fund our operations or to fund the acquisition of new businesses.

Our cash and cash equivalents and short-term investments totaled $166.9 million at March 31, 2014 compared to $214.8 million at December 31, 2013. We anticipate that our cash and investments on hand, existing borrowing capacity under our credit facility and our future cash flows from operations will provide sufficient funds to enable us to meet our operating needs, our planned capital expenditures and our ability to grow for at least the next twelve months.

Cash Flows

Cash flows during the three months ended March 31, 2014 and 2013 are summarized as follows:

	Three months Ended March 31,
	2014			2013
	(Thousands)
Change in cash:
Net cash (used in) provided by operating activities	$	(21,678	)	$	(7,281	)
Net cash (used in) provided by investing activities	(11,127		)	(19,091		)
Net cash provided by (used in) financing activities	(13,652		)	10,348
Net change in cash and cash equivalents	$	(46,457	)	$	(16,024	)

The first quarter of each calendar year tends to be the lowest for cash generation reflecting the overall lower work activities.  Of the $30.4 million reduction in cash flow for the first quarter of 2014 compared to the first quarter of 2013, $16.1 million was the result of a timing difference.  We entered into a long-term debt note in the first quarter 2013, and we expect to enter into a note for a similar amount in the second quarter of 2014.  The remaining $14.3 million decrease in cash flow was the result of a decrease in cash flow from operating activities as discussed below.

Operating Activities

The source of our cash flow from operating activities and the use of that cash in our operations for the three months ended March 31, 2014 and 2013 were as follows:

	Three months Ended
	March 31,
	2014			2013			Change
	(Thousands)
Operating Activities:
Operating income	$	20,045		$	17,477		$	2,568
Depreciation and amortization	13,552			11,284			2,268
Stock-based compensation expense	137			—			137
Loss (gain) on sale of property and equipment	(355		)	48			(403		)
Changes in assets and liabilities	(46,263		)	(28,384		)	(17,879		)
Net other income (expense) and tax provision	(8,794		)	(7,706		)	(1,088		)
Net cash used by operating activities	$	(21,678	)	$	(7,281	)	$	(14,397	)

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Net cash used by operating activities for the three months ended March 31, 2014 of $21.7 million increased by $14.4 million compared to the same period in the prior year as increases in operating income, depreciation and amortization were more than offset by changes in balance sheet assets and liabilities.

As shown in the table above, the largest use of cash was due to the net change in assets and liabilities of $17.9 million.  This change is outlined below:

·The increased use of cash relating to construction projects, which include the growth in accounts receivable, customer retention deposits, costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings amount to $44.7 million.  This increase in the use of cash is primarily due to the increased revenues of $60.1 million for the three months ended March 31, 2014 compared to the same period in 2013.

·Uninstalled inventory increased by $7.8 million more in the first quarter of 2014 compared to the first quarter of 2013;

·The earn-out liability decreased by $5.2 million more in the first quarter of 2014 compared to the first quarter of 2013 as the total earn-out liability has decreased; and

·The decrease in accounts payable for the first quarter 2014 was $38.3 million less than the decrease in the first quarter of 2013.

Net cash used by operating activities for the three months ended March 31, 2014 was $21.7 million.  The single largest use of cash for the period was the result of the net changes in assets and liabilities of $46.3 million.  The major components of the $46.3 million change are summarized as follows:

·a decrease of $5.2 million in customer retention deposits representing normal retention payments;

·a decrease of $15.8 million in accounts receivable reflecting the traditionally lower revenues in the first quarter of 2014 compared to the fourth quarter of 2013.  At March 31, 2014 accounts receivable represented 28.7% of our total assets compared to 29.0% at the end of 2013.  We continue to maintain an excellent collection history, and we have certain lien rights that can provide additional security for collections;

·an increase of $17.9 million in costs and estimated earnings in excess of billings. The larger increases associated with the time lag from when revenues were earned until the customer can be billed were approximately $14.2 million for ARB and $2.3 million for Q3C.

·an increase in inventory and other current assets of $7.9 million primarily as a result of an increase in uninstalled inventory and prepaid expenses;

·accounts payable decreased by $8.2 million as a result of the decrease in operating activity compared to the fourth quarter of 2013;

·a net decrease of $26.1 million in billings in excess of costs and estimated earnings reflecting the completion of work paid for in advance; and

·a decrease of $4.9 million in contingent earn-out liabilities, primarily as a result of a March 2014 payment of $5.0 million to the Q3C sellers.

During the three months ended March 31, 2014, we paid $2.3 million for income taxes compared to $0.8 million in the same period of the previous year, as a result of taxes on increased income for the period ended March 31, 2014, compared to the same period in the prior year.

Investing activities

	Three months Ended March 31,
	2014		2013
	(Thousands)
Capital expenditures — cash	$	15,067	$	19,550
Capital expenditures — financed	—		1,180
Total capital expenditures	$	15,067	$	20,730

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During the three months ended March 31, 2014, we purchased property and equipment for $10.1 million in cash and $5.0 million for the purchase of the BWP assets, for a total of $15.1 million, compared to $20.7 million during the same period in the prior year.  We believe that ownership of equipment is generally preferable to renting equipment on a project-by-project basis, as ownership helps to ensure the equipment is available for our workloads when needed. In addition, ownership has historically resulted in lower overall equipment costs.

Historically, we have invested an amount that approximated the sum of depreciation and amortization expenses plus proceeds from equipment sales.  For the three months ended March 31, 2014, capital expenditures were approximately $15.1 million which was at our historical level.  In the first quarter of 2013, we paid $19.6 million in cash and financed $1.2 million through capital leases.  The prior year purchases were higher than our historical pattern as we funded new equipment for Q3C. Equipment purchases for 2014 are expected to be at around $55 million to $65 million.

We periodically sell and acquire equipment, typically to update our fleet. We received proceeds from the sale of used equipment of $1.4 million during the three months ending March 31, 2014 and $1.2 million during the same period in 2013.  For the past few years, we have been able to rent major equipment not used for our own projects to third parties, but for the first quarters of both 2014 and 2013, equipment rentals were minimal.

On February 5, 2014, the majority owner of Alvah elected to purchase the Company’s minority interest, effective January 1, 2014, for a cash payment of $1.19 million, as provided for in the initial investment agreement.

As part of our cash management program, we invested $0.6 million and $2.9 million during the three months ended March 31, 2014 and 2013, respectively, in short-term investments, and sold short-term investments of $1.9 million and $3.2 million during the three months ended March 31, 2014 and 2013, respectively.  Short-term investments consist primarily of CDs and CDs purchased through the CDARS (Certificate of Deposit Account Registry Service) process and U.S. Treasury bills with various financial institutions that are backed by the federal government.

We used $1.7 million in cash for the FSSI acquisition in 2013 and made no acquisitions during the three months ended March 31, 2014.

Financing activities

Financing activities used cash of 13.7 million for the three months ended March 31, 2014.  Significant transactions impacting cash flows from financing activities included:

·$11.3 million in repayment of long-term debt and the repayment of $1.1 million in capital leases;

·$1.1 million in payment of accumulated earnings to a non-controlling interest holder;

·Dividend payments of $1.8 million to our stockholders during the three months ended March 31, 2014; and

·$1.7 million in proceeds from the issuance of 77,455 shares of common stock purchased by the participants in the Primoris Long-term Retention Plan.

Debt Activities

For a description of our credit agreements, see Note 11 — “Credit Agreements” in Item 1, Financial Statements of this First Quarter 2014 Report.

Related party transactions

Primoris has entered into leasing transactions with Stockdale Investment Group, Inc. (“SIGI”).  Brian Pratt, our Chief Executive Officer, President and Chairman of the Board of Directors and our largest stockholder, holds a majority interest and is the chairman, president and chief executive officer and a director of SIGI.  John M. Perisich, our Executive Vice President and General Counsel, is secretary of SIGI.

Primoris leases properties from SIGI at the following locations:

1.         Bakersfield, California (lease expires October 2022)

2.         Pittsburg, California (lease expires April 2023)

3.         San Dimas, California (lease expires March 2019)

4.         Pasadena, Texas (leases expire in July 2019 and 2021)

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During the three months ended March 31, 2014 and 2013, the Company paid $219,000 and $235,000, respectively, in lease payments to SIGI for the use of these properties.

Primoris leases a property from Roger Newnham, a former owner and current manager of our subsidiary, OnQuest Canada, ULC. The property is located in Calgary, Canada. During the three months ended March 31, 2014 and 2013, Primoris paid $72,000 and $75,000, respectively, in lease payments.  The current term of the lease is through December 31, 2014.

Primoris leases a property from Lemmie Rockford, one of the Rockford sellers, which commenced November 1, 2011.  The property is located in Toledo, Washington.  During the three months ended March 31, 2014 and 2013, Primoris paid $23,000 and $23,000, respectively, in lease payments.  The lease expires in January 2015.

Primoris leases a property from Quality RE Partners, owned by three of the Q3C selling shareholders, of whom two are current employees, including Jay Osborn, President of Q3C.  The property is located in Little Canada, Minnesota.  During the three months ended March 31, 2014 and 2013, the Company paid $66,000 and $66,000, respectively, in lease payments to Quality RE Partners.  The lease expires in October 2022.

Common stock

For a discussion of items affecting our common stock, please see Note 18 — “Stockholders’ Equity” in Item 1, Financial Statements of this First Quarter 2014 Report.

Contractual Obligations

As of March 31, 2014, we had $212.7 million of outstanding long-term debt and capital lease obligations and there were no short-term borrowings.

A summary of contractual obligations as of March 31, 2014 were as follows:

	Total		1 Year		2 - 3 Years		4 - 5 Years		After 5 Years
	(In Thousands)
Long-term debt and capital lease obligations	$	212,716	$	30,240	$	63,037	$	55,245	$	64,194
Interest on long-term debt (1)	25,241		5,644		9,192		6,011		4,394
Equipment operating leases	8,120		3,518		4,445		157		—
Contingent consideration obligations	4,347		4,347		—		—		—
Real property leases	12,253		3,059		4,419		3,434		1,341
Real property leases—related parties	7,928		1,459		2,047		2,000		2,422
	$	270,605	$	48,267	$	83,140	$	66,847	$	72,351
Letters of credit	$	7,595	$	6,455	$	1,140	$	—	—

(1)The interest amount represents interest payments for our fixed rate debt assuming that principal payments are made as originally scheduled.

The table does not include obligations under multi-employer pension plans in which some of our employees participate.  Our multi-employer pension plan contribution rates are generally specified in our collective bargaining agreements, and contributions are made to the plans based on employee payrolls.  Our obligations for future periods cannot be determined because we cannot predict the number of employees that we will employ at any given time nor the plans in which they may participate.

We may also be required to make additional contributions to multi-employer pension plans if they become underfunded, and these contributions will be determined based on our union payroll.  The Pension Protection Act of 2006 added special funding and operational rules for multi-employer plans that are classified as “endangered,” “seriously endangered” or “critical” status.  Plans in these classifications must adopt measures to improve their funded status through a funding improvement or rehabilitation plan, which may require additional contributions from employers.  The amounts of additional funds that we may be obligated to contribute cannot be reasonably estimated and is not included in the table above.

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In 2011, several of our subsidiaries withdrew from the Central States, Southeast and Southwest Areas Pension Plan (“Plan”), and we have recognized a withdrawal liability of approximately $7.5 million.  The withdrawal liability that we recorded was based on estimates received from the Plan during 2011 for a complete withdrawal from the Plan.  We are in dispute with the Plan regarding the effective date of our withdrawal.  We expect to receive an assessment of the withdrawal liability which we may challenge or seek to further negotiate.  As a result, the final withdrawal liability cannot be determined, and it could be materially higher than the amount that we have recognized.  Following the formal assessment, we will be required to pay the assessed amount over a period of years, although the number of years is not certain and we may also negotiate a lump-sum settlement.  As a result, we have not included the estimated withdrawal liability in the table above.  Furthermore, we have excluded the payments associated with the contested withdrawal liability of Q3C based on its minimal value of approximately $15 thousand per year for the next seven years.  See Note 19 — “Commitments and Contingencies” in Item 1, Financial Statements of this First Quarter 2014 Report.

We have also excluded from the table any interest and fees associated with letters of credit and commitment fees under our credit facility since these amounts are variable.

Off-balance sheet transactions

As is common in our industry, we enter into certain off-balance sheet arrangements in the ordinary course of business that result in risks not directly reflected on our balance sheet.  We have no off-balance sheet financing arrangement with variable interest entities.  The following represent transactions, obligations or relationships that could be considered material off-balance sheet arrangements.

·Letters of credit issued under our lines of credit. At March 31, 2014, we had letters of credit outstanding of $7.6 million, primarily for international projects in our Engineering segment and for providing security to our insurance carriers.  These letters of credit are used by some of our vendors to ensure reimbursement for amounts that they are disbursing on our behalf, such as beneficiaries under our self-funded insurance program.  In addition, from time to time, certain customers require us to post a letter of credit to ensure payments to our subcontractors or guarantee performance under our contracts.  Letters of credit reduce our borrowing availability under our Credit Agreement and Canadian Credit Facility.  If these letters of credit were drawn on by the beneficiary, we would be required to reimburse the issuer of the letter of credit, and we may be required to record a charge to earnings for the reimbursement.  We do not believe that it is likely that any material claims will be made under a letter of credit.

·We enter into non-cancellable operating leases for some of our facilities, equipment and vehicles, including leases with related parties.  At March 31, 2014, equipment operating leases had a remaining commitment of $8.1 million and facility rental commitments were $20.2 million.

·Employment agreements which provide for compensation and benefits under certain circumstances and which may contain a change of control clause.  We may be obligated to make payments under the terms of these agreements.

·In the ordinary course of our business, we may be required by our customers to post surety bid or completion bonds in connection with services that we provide. At March 31, 2014, we had $1.3 billion in outstanding bonds.  We do not believe that it is likely that we would have to fund material claims under our surety arrangements.

·Certain of our subsidiaries are parties to collective bargaining agreements with unions.  In most instances, these agreements require that we contribute to multi-employer pension and health and welfare plans.  For many plans, the contributions are determined annually and required future contributions cannot be determined since contribution rates depend on the total number of union employees and actuarial calculations based on the demographics of all participants.  The Employee Retirement Income Security Act of 1974 (ERISA), as amended by the Multi-Employer Pension Amendments Act of 1980, subject employers to potential liabilities in the event of an employer’s complete or partial withdrawal of an underfunded multi-employer pension plan.  The Pension Protection Act of 2006 added new funding rules for plan years after 2007 for multi-employer plans that are classified as “endangered”, “seriously endangered”, or “critical” status.  As discussed in Note 19 — “Commitments and Contingencies” in Item 1, Financial Statements of this First Quarter 2014 Report, we have recognized a withdrawal liability for one plan.  We currently do not anticipate withdrawal from any other multi-employer pension plans.  Withdrawal liabilities or requirements for increased future contributions could negatively impact our results of operations and liquidity; and

·Other guarantees that we make from time to time, such as guaranteeing the obligations of our subsidiaries.

Effects of Inflation and Changing Prices

Our operations are affected by increases in prices, whether caused by inflation or other economic factors. We attempt to recover anticipated increases in the cost of labor, equipment, fuel and materials through price escalation provisions in certain major contracts or by considering the estimated effect of such increases when bidding or pricing new work or by entering into back-to-back contracts with suppliers and subcontractors.

32

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

In the ordinary course of business, we are exposed to risks related to market conditions. These risks primarily include fluctuations in foreign currency exchange rates, interest rates and commodity prices. We may seek to manage these risks through the use of financial derivative instruments. These instruments may include foreign currency exchange contracts and interest rate swaps.

We do not execute transactions or use financial derivative instruments for trading or speculative purposes. We enter into transactions with counter parties that are generally financial institutions in a matter to limit significant exposure with any one party.

The carrying amounts for cash and cash equivalents, accounts receivable, short term investments, short-term debt, accounts payable and accrued liabilities shown in the consolidated balance sheets approximate fair value at March 31, 2014 and December 31, 2013, due to the generally short maturities of these items. At March 31, 2014 and December 31, 2013, we held short term investments which were primarily in four to six month certificates of deposits (“CDs”) and CDs purchased through the CDARS (Certificate of Deposit Account Registry Service) process and U.S. Treasury bills with various financial institutions that are backed by the federal government.  We expect to hold our investments to maturity.

At March 31, 2014, all of our long-term debt was subject to fixed interest rates.

At March 31, 2014, we had no derivative financial instruments.

Item 4.  Controls and Procedures

Disclosure Controls and Procedures

As of March 31, 2014, we carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer (“CEO”) and chief financial officer (“CFO”), of the effectiveness of the design and operation of our “disclosure controls and procedures”, as such term is defined under Exchange Act Rules 13a-15(e) and 15d-15(e).

Based on this evaluation, our CEO and CFO concluded that, at March 31, 2014, the disclosure controls and procedures were effective at the reasonable assurance level to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.

In designing and evaluating the disclosure controls and procedures, our management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives and in reaching a reasonable level of assurance our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.  The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives.

Changes in Internal Control Over Financial Reporting

During the fiscal quarter ended March 31, 2014, there were no changes to our internal control over financial reporting practices or processes that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

33

Part II. Other Information

Item 1.  Legal Proceedings

On February 7, 2012, the Company was sued in an action entitled North Texas Tollway Authority, Plaintiff v. James Construction Group, LLC, and KBR, Inc., Defendants, v. Reinforced Earth Company, Third-Party Defendant (the “Lawsuit”). The Lawsuit was brought in the District Court of Collin County, Texas, 401st Judicial District, Cause No. 401-01747-2012. In the Lawsuit, the North Texas Tollway Authority (“NTTA”) is alleging damages to a road and retaining wall that were constructed in 1999 on the George Bush Turnpike near Dallas, Texas, due to negligent construction by JCG. The Lawsuit claims that the cost to repair the retaining wall was approximately $5.4 million. The NTTA also alleges that six other walls constructed on the project by JCG could have the same potential exposure to failure. The Company has denied any liability, has tendered the claim to its insurance carriers and has cross-complained against its engineering subcontractor for potential design liability. The extent of insurance coverage by the carriers of the Company and its subcontractor are undetermined at this time. The Company is investigating all potential causes of the alleged loss, including design liabilities of the owner, owner’s engineers and/or the Company’s subcontractor. The Company will vigorously defend the claims. After discussion with our legal counsel, we recorded a loss contingency, which was not material to the financial statements, to reflect the best estimate of the Company’s portion of the NTTA claim. At this time, management does not believe that it is possible to make a reasonably probable estimate of additional loss or a range of loss.

The Company is subject to other claims and legal proceedings arising out of its business. The Company provides for costs related to contingencies when a loss from such claims is probable and the amount is reasonably determinable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, the Company reviews and evaluates its litigation and regulatory matters on a quarterly basis in light of potentially relevant factual and legal developments. If we determine an unfavorable outcome is not probable or reasonably estimable, we do not accrue for a potential litigation loss. Management is unable to ascertain the ultimate outcome of other claims and legal proceedings; however, after review and consultation with counsel and taking into consideration relevant insurance coverage and related deductibles/self-insurance retention, management believes that it has meritorious defense to the claims and believes that the reasonably possible outcome of such claims will not, individually or in the aggregate, have a materially adverse effect on the consolidated results of operations, financial condition or cash flows of the Company.

Item 1A.  Risk Factors.

In addition to the information set forth in this Report, you should carefully consider the factors discussed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013, which to our knowledge have not materially changed. Those risks, which could materially affect our business, financial condition or future results, are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds.

None

Item 3.  Defaults Upon Senior Securities.

None.

Item 4.  (Removed and Reserved).

Item 5.  Other Information.

None.

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Item 6.  Exhibits.

The following exhibits are filed as part of this Quarterly Report on Form 10-Q.

Exhibit Number	Description
10.1	Loan and Security Agreement dated April 28, 2014, between Rockford Corporation, Q3 Contracting, ARB, Inc., Stellaris LLC and BMO Harris Equipment Finance Company (*)
31.1	Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s Chief Executive Officer (*)
31.2	Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s Chief Financial Officer (*)
32.1	Section 1350 Certification by the Registrant’s Chief Executive Officer (*)
32.2	Section 1350 Certification by the Registrant’s Chief Financial Officer (*)
101 INS	XBRL Instance Document (**)
101 SCH	XBRL Taxonomy Extension Schema Document (**)
101 CAL	XBRL Taxonomy Extension Calculation Linkbase Document (**)
101 LAB	XBRL Taxonomy Extension Label Linkbase Document (**)
101 PRE	XBRL Taxonomy Extension Presentation Linkbase Document (**)
101 DEF	XBRL Taxonomy Extension Definition Linkbase Document (**)

(*)

Filed herewith

(**)

Furnished with this Quarterly Report on Form 10-Q and included in Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language):  i) the Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2013, ii) the Condensed Consolidated Statements of Income for the three months ended March 31, 2014 and 2013 and iii) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013.  Users of the XBRL data are advised that pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and therefore is not subject to liability under these sections.

35

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	PRIMORIS SERVICES CORPORATION
Date:  May 6, 2014	/s/ PETER J. MOERBEEK
	Peter J. Moerbeek
	Executive Vice President, Chief Financial Officer (Principal Financial and Accounting Officer)

36

EXHIBITS ATTACHED TO THIS QUARTERLY REPORT ON FORM 10-Q

Exhibit Number	Description
10.1	Loan and Security Agreement dated April 28, 2014, between Rockford Corporation, Q3 Contracting, ARB, Inc., Stellaris LLC and BMO Harris Equipment Finance Company (*)
31.1	Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s Chief Executive Officer (*)
31.2	Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s Chief Financial Officer (*)
32.1	Section 1350 Certification by the Registrant’s Chief Executive Officer (*)
32.2	Section 1350 Certification by the Registrant’s Chief Financial Officer (*)
101 INS	XBRL Instance Document (**)
101 SCH	XBRL Taxonomy Extension Schema Document (**)
101 CAL	XBRL Taxonomy Extension Calculation Linkbase Document (**)
101 LAB	XBRL Taxonomy Extension Label Linkbase Document (**)
101 PRE	XBRL Taxonomy Extension Presentation Linkbase Document (**)
101 DEF	XBRL Taxonomy Extension Definition Linkbase Document (**)

(*)

Filed herewith

(**)

Furnished with this Quarterly Report on Form 10-Q and included in Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language):  i) the Condensed Consolidated Balance Sheets as of March 31, 2014 and December 31, 2014, ii) the Condensed Consolidated Statements of Income for the three months ended March 31, 2014 and 2013 and iii) the Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2014 and 2013.  Users of the XBRL data are advised that pursuant to Rule 406T of Regulation S-T, this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and therefore is not subject to liability under these sections.

37

EX-10.1

Exhibit 10.1

Note: # 30278

LOAN AND SECURITY AGREEMENT

Between

BMO HARRIS EQUIPMENT FINANCE COMPANY, as Lender

And

ROCKFORD CORPORATION, as Borrower

Q3 CONTRACTING, INC.

ARB, INC.

STELLARIS LLC

as Co-Borrower(s)

Dated as of April 28, 2014

Confidential

BMO Harris Equipment Finance Company

LOAN AND SECURITY AGREEMENT

THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) is made as of the 28th day of April, 2014 by and between BMO Harris Equipment Finance Company, a Wisconsin corporation (“Lender”), and Rockford Corporation (“Borrower”) And Q3 Contracting, Inc., ARB, Inc., Stellaris LLC as (‘‘Co-Borrowers’’).

Borrower has requested a loan from Lender in order to finance the purchase of the equipment described on Schedule A hereto, and Lender has agreed to make such loan to Borrower on the terms and conditions set forth herein.

Capitalized terms used herein without definition shall have the meanings assigned to them in Schedule B attached hereto.

NOW, THEREFORE, in consideration of the mutual covenants contained herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

SECTION 1.ADVANCE OF LOAN.

Section 1.1.Loan.  On the terms and conditions hereinafter set forth, the parties agree that Lender shall lend to Borrower the principal sum of $15,400,000.00 (the “Loan”).  The principal amount of the Loan shall be limited to 100.00% of Borrower’s cost of acquiring the Equipment and other related property with respect to which such Loan is to be made.  Amounts borrowed and repaid hereunder may not be redrawn.

Section 1.2.Promissory Note.  The obligation to repay the Loan shall be evidenced by a promissory note payable by Borrower to the order of Lender in the form agreed to by Lender and executed and delivered by Borrower on the Closing Date (the “Promissory Note”).

Section 1.3.Interest and Maturity; Rate Adjustment.  The Promissory Note shall bear interest, be payable and mature as set forth therein.  The annual interest rate on the Promissory Note shall be computed on an actual days elapsed/360 basis; that is, by applying the ratio of the annual interest rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding compounded on a monthly basis.  All interest payable under this Note is computed using this method.  If Borrower fails to fully execute and return the Loan Documents within 5 business days of the original date of this Agreement, Lender shall have the right to adjust the interest rate applicable to the Promissory Note to reflect any increase in the LIBOR Swap Rate as of the date Borrower does, in fact, execute the Loan Documents over the LIBOR Swap Rate originally used in setting the interest rate applicable to the Promissory Note.

SECTION 2.PAYMENTS AND PREPAYMENTS.

Section 2.1.Scheduled Payments Borrower shall make the scheduled payments on the dates (each a “Payment Date”) set forth in the Promissory Note.  Payments will be credited on the date actually received and applied as provided herein.  All principal, interest and other amounts due under the Promissory Note, this Agreement and the other Loan Documents which remain unpaid shall become due on the Maturity Date.

Section 2.2.Optional Prepayments Borrower shall have the right on any Payment Date, upon ten (10) days’ prior written notice to Lender, to prepay the Loan (in whole or in part).  Such notice to Lender shall specify the Payment Date on which such prepayment shall occur and the amount to be prepaid.  If Borrower exercises its right of prepayment or the Loans become due and payable pursuant to Section 8, Borrower shall pay to Lender the specified principal amount, all accrued interest thereon to the date of prepayment, plus a prepayment premium equal to the applicable percentage of the principal amount prepaid set forth below (the “Prepayment Premium”):

1

IF PREPAID DURING THE PERIOD:	PERCENTAGE OF PRINCIPAL AMOUNT PREPAID:
From the date of the Promissory Note to the first anniversary	2.00	%
After the first anniversary to the second anniversary	1.00	%
Anytime after the second anniversary of the Promissory Note	0.00	%

Section 2.3.Payments upon Casualty.  Borrower shall promptly notify Lender of the theft, loss, destruction or irreparable damage of or to the Collateral or any material portion thereof.  Any amounts received by Borrower which constitute payment as a result of such theft, loss, destruction or irreparable damage of or to the Collateral, or other event or circumstance resulting in the payment of amounts with respect to the Collateral out of the ordinary course, shall, at the option of Lender in its sole and absolute discretion (i) be retained by Borrower to repair or replace the applicable Collateral, or (ii) be remitted to Lender for application to the prepayment (in whole or in part, as applicable) of the principal of the Promissory Note, and the remaining payments due under such Promissory Note shall be reduced pro rata to reflect any such partial prepayment.  For the avoidance of doubt, the theft, loss, destruction or irreparable damage of or to the Collateral shall not relieve Borrower from any Obligation under this Agreement or the Promissory Note, except as expressly provided for herein.  Borrower assumes and shall bear the entire risk of the theft, loss, destruction or damage to the Collateral from any cause, whether or not insured.

Section 2.4.Application of Payments.

(a)Payments in the Ordinary Course.  Provided that no Default or Event of Default has occurred and is continuing, the amounts from time to time received by Lender from Borrower with respect to the Promissory Note shall be applied: first, to any unpaid costs or expenses of Lender incurred pursuant to this Agreement; second, to unpaid late charges and Prepayment Charges due from Borrower; third, to interest then due and payable on such Promissory Note; fourth, to principal in accordance with the terms of such Promissory Note; fifth, to any other amounts then due and owing hereunder.

(b)Payments Following an Event of Default.  If an Event of Default has occurred and is continuing, any amounts received by Lender from Borrower may, at Lender’s discretion, be applied: first, to the payment of all expenses and charges, including the expenses of any sale, lease or other disposition of the Collateral, attorneys’ fees, court costs and any other expenses incurred or advances made by Lender in the exercise of its rights and remedies; second, to the payment of the Obligations in such order as Lender shall determine in its sole discretion; and third, to the payment of any surplus thereafter remaining to Borrower or to whosoever may be entitled thereto.

SECTION 3.SECURITY.

Section 3.1.Grant of Security Interest.  To secure the prompt and complete payment of all indebtedness owing at any time by Borrower to Lender and the observance and performance of each covenant, condition or obligation of whatsoever nature to be performed or observed by Borrower under this Agreement, the Promissory Note and each of the other Loan Documents, including in respect of any and all loans or other financial accommodations made at any time by Lender (collectively, the “Obligations”), Borrower hereby grants Lender a first priority security interest in and to all right, title and interest of Borrower, whether now owned or existing or hereafter created, acquired or arising, and wherever located in the following (collectively, the “Collateral”):

(a)the equipment as more specifically identified on Schedule A hereto, as amended from time to time, and all accessions, substitutions, attachments, accessories, tools, parts, supplies, replacements of and additions to each of such items described on said Schedule A, whether added now or later (collectively, the “Equipment”);

(b)all products and produce of any of the Equipment described herein;

(c)all accounts, chattel paper, general intangibles, instruments, rents, monies, payments, and all other rights, arising out of a sale, lease, consignment or other disposition of any of the Equipment described herein;

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(d)all proceeds, cash and non-cash (including insurance proceeds), from the sale, destruction, loss, or other disposition of any of the Equipment described herein, and sums due from a third party who has damaged or destroyed the Equipment or from that party’s insurer, whether due to judgment, settlement or other process; and

(e)all records and data, operating manuals, warranties and similar rights relating to any of the Equipment described herein, whether in the form of a writing, photograph, microfilm, microfiche, or electronic media, together with all of Borrower’s right, title, licenses and interests in and to all computer software required to utilize, create, maintain, and process any such records or data on electronic media.

Borrower agrees that this Agreement shall create a continuing security interest in the Collateral, which shall remain in effect until the indefeasible payment in full of the Promissory Note and payment and performance in full of all of the Obligations.  Borrower agrees to take whatever actions are requested by Lender to perfect and continue Lender’s security interest in the Collateral.  Borrower agrees that, with respect to the Collateral, Lender shall have all of the rights and remedies of a secured party under the applicable Uniform Commercial Code.  Borrower hereby authorizes Lender, without the consent or signature of Borrower, to amend Schedule A hereto in connection with any change in the Collateral and to file at any time and from time to time UCC financing statements and any amendments thereto describing the Collateral.

Section 3.2.Right of Setoff.  To the extent permitted by Applicable Law, Lender reserves a right of setoff in all of Borrower’s accounts with Lender (whether checking, savings, or some other account).  This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future (excluding any IRA or Keogh accounts, or any trust accounts for which setoff is prohibited by law).  Borrower authorizes Lender, to the extent permitted by Applicable Law, to charge or setoff all sums owing on the Obligations against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.  Borrower agrees that for purposes of this Section 3.2, the term “Lender” includes BMO Harris Bank N.A., its subsidiaries and Affiliates.

Section 3.3.Notices to Lender.  Borrower will promptly notify Lender in writing at Lender’s address shown on the signature page hereof (or such other address as Lender may designate from time to time) prior to any (a) change in Borrower’s name; (b) change in Borrower’s assumed business name(s); (c) change in the management of the Borrower; (d) change in the authorized signer(s); (e) change in Borrower’s principal office address; (f) change in Borrower’s state of organization;  (g) conversion of Borrower to a new or different type of business entity; or (h) change in any other aspect of Borrower that directly or indirectly relates to any agreements between Borrower and Lender.  No change in Borrower’s name or state of organization will take effect until after Lender has received notice.

Section 3.4.Enforceability of Collateral.  To the extent the Collateral consists of accounts, chattel paper, or general intangibles, as defined by the applicable Uniform Commercial Code, the Collateral is enforceable in accordance with its terms, is genuine, and fully complies with all applicable laws and regulations concerning form, content and manner of preparation and execution, and all persons appearing to be obligated on the Collateral have authority and capacity to contract and are in fact obligated as they appear to be on the Collateral.  At the time any account becomes subject to a security interest in favor of Lender, the account shall be a good and valid account representing an undisputed, bona fide indebtedness incurred by the account debtor, for merchandise held subject to delivery instructions or previously shipped or delivered pursuant to a contract of sale, or for services previously performed by Borrower with or for the account debtor.  So long as this Agreement remains in effect, Borrower shall not, without Lender’s prior written consent, compromise, settle, adjust, or extend payment under or with regard to any such accounts.  There shall be no setoffs or counterclaims against any of the Collateral, and no agreement shall have been made under which any deductions or discounts may be claimed concerning the Collateral except those disclosed to Lender in writing.

Section 3.5.Location of Collateral.  Except for vehicles, and except otherwise in the ordinary course of Borrower’s business, Borrower agrees to keep the Collateral (or to the extent the Collateral consists of intangible property such as accounts or general intangibles, the records concerning the Collateral) at Borrower’s address shown on the signature page hereof or at such other locations as are acceptable to Lender.  With respect to Collateral consisting of vehicles, Borrower will keep the Collateral at such address or other locations except for routine travel.  Upon Lender’s request, Borrower will deliver to Lender in form satisfactory to Lender a schedule of real properties and Collateral locations relating to Borrower’s operations, including without limitation the following:  (a) all real property Borrower owns or is purchasing; (b) all real property Borrower is renting or leasing; (c) all storage facilities Borrower owns, rents, leases, or uses; and (d) all other properties where Collateral is or may be located.  Borrower is strictly prohibited from allowing any Collateral to cross the U.S./Mexican border into Mexico or be located in Mexico.

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Section 3.6.Removal of Collateral.  Except in the ordinary course of Borrower’s business, Borrower shall not remove the Collateral from its existing location without Lender’s prior written consent.  To the extent the Collateral consists of vehicles or other titled property, Borrower shall not take or permit any action to re-title such vehicles or other titled property in any state or jurisdiction other than the state in which such vehicle or property was initially titled without Lender’s prior consent and without duly noting Lender’s lien on the certificate of title and making such filings, if any, prescribed by law to perfect Lender’s Lien.  Borrower shall, whenever requested, advise Lender of the exact location of the Collateral.

Section 3.7.Transactions Involving Collateral.  Except for inventory sold or accounts collected in the ordinary course of Borrower’s business, or as otherwise provided for in this Agreement, Borrower shall not sell, offer to sell, or otherwise transfer or dispose of the Collateral.  So long as no Event of Default has occurred under this Agreement, Grantor may sell inventory, but only in the ordinary course of its business and only to buyers who qualify as a buyer in the ordinary course of business.  A sale in the ordinary course of Borrower’s business does not include a transfer in partial or total satisfaction of a debt or any bulk sale.  Borrower shall not pledge, mortgage, encumber or otherwise permit the Collateral to be subject to any lien, security interest, encumbrance, or charge, other than the security interest provided for in this Agreement, without the prior written consent of Lender.  This includes security interests even if junior in right to the security interests granted under this Agreement.  Unless waived by Lender, all proceeds (cash and non-cash) from any disposition of the Collateral (for whatever reason) shall be held in trust for Lender and shall not be commingled with any other funds; provided however, this requirement shall not constitute consent by Lender to any sale or other disposition.  Upon receipt, Borrower shall immediately deliver any such proceeds to Lender.

Section 3.8.Fixtures.  Except as disclosed to Lender in writing, no portion of the Collateral is or will be attached to real estate in such a manner that the same may become a fixture as defined in the applicable Uniform Commercial Code.

Section 3.9.Borrower’s Right to Possession and to Collect Accounts.  So long as no Event of Default has occurred and is continuing, the Borrower, and the Borrower only, may have possession and beneficial use of the Equipment and other tangible personal property constituting the Collateral and may use it in any lawful manner not inconsistent with this Agreement or the other Loan Documents, provided that Borrower’s right to possession and beneficial use shall not apply to any Collateral where possession of the Collateral by Lender is required by law to perfect Lender’s security interest in such Collateral.  At any time and even though no Event of Default exists, Lender may, to the extent applicable, exercise its rights to collect the accounts and to notify account debtors to make payments directly to Lender for application to the Obligations.  If Lender at any time has possession of any Collateral, whether before or after an Event of Default, Lender shall be deemed to have exercised reasonable care in the custody and preservation of the Collateral if Lender takes such action for that purpose as Borrower shall request or as Lender, in Lender’s sole discretion, shall deem appropriate under the circumstances, but failure to honor any request by Borrower shall not of itself be deemed to be a failure to exercise reasonable care.  Lender shall not be required to take any steps necessary to preserve any rights in the Collateral against prior parties, nor to protect, preserve or maintain any security interest given to secure the Obligations.

Section 3.10.Lender Expenditures.  If any action or proceeding is commenced that would materially affect Lender’s interest in the Collateral or if Borrower fails to comply with any provision of this Agreement, the Promissory Note or any Loan Documents, Lender on Borrower’s behalf may (but shall not be obligated to) take any action that Lender deems appropriate in order to protect the Collateral, including but not limited to discharging or paying all taxes, liens, security interests, encumbrances and other claims, at any time levied or placed on the Collateral and paying all costs for insuring, maintaining and preserving the Collateral.  All such expenditures incurred or paid by Lender for such purposes will bear interest at the rate charged under the Promissory Note from the date incurred or paid by Lender to the date of repayment by Borrower.  All such expenses will become a part of the Obligations secured hereby and, at Lender’s option, will (A) be payable on demand; (B) be added to the balance of the Promissory Note and be apportioned among and be payable with any installment payments to become due during either (1) the term of any applicable insurance policy; or (2) the remaining term of the Promissory Note; or (C) be treated as a balloon payment which will be due and payable at the Promissory Note’s maturity.  Such right shall be in addition to all other rights and remedies to which Lender may be entitled upon the occurrence of an Event of Default.

SECTION 4.CONDITIONS PRECEDENT.

Section 4.1.Conditions to Making Loan.  The obligation of Lender to make the Loan as set forth in Section 1.1 hereof is expressly conditioned upon Borrower causing to be done or providing to Lender, in a manner satisfactory to Lender, the following on or prior to the date on which Lender is to advance the Loan hereunder:

(a)resolutions of the board of directors or other governing body or validly authorized committee of Borrower, certified by the Secretary or an Assistant Secretary of Borrower, duly authorizing the borrowing of funds hereunder, the grant

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of security, and the execution, delivery and performance of this Agreement, the Promissory Note and the other Loan Documents;

(b)the Promissory Note in the amount of such Loan, duly executed on behalf of Borrower;

(c)evidence satisfactory to Lender as to due compliance with the insurance provisions of Section 6.4 hereof;

(d)UCC financing statements (as required), duly filed in the office of the Secretary of State of the appropriate state with respect to the Collateral;

(e)to the extent requested by Lender, a landlord waiver or collateral access agreement in a form acceptable to Lender with respect to the real property where the Collateral is located allowing Lender access to the Collateral on such property; and

(f)such other documents and instruments and other actions, and such filings to perfect a valid, first priority security interest granted by Borrower to Lender with respect to the Collateral, shall have been made and taken as may be reasonably required by Lender and its counsel.

SECTION 5.REPRESENTATIONS AND WARRANTIES.

Borrower hereby represents and warrants that:

Section 5.1.Business Status and Information.  Borrower has the form of business organization specified on the signature page hereof, and is duly organized, validly existing and in good standing under the laws of its state of formation and is duly qualified and authorized to transact business as a foreign person in good standing in each other state in which the failure to so qualify would have Material Adverse Effect.  The exact legal name, jurisdiction of organization, Federal Employer Identification Number and Organizational Number of Borrower specified on the signature page hereof are true and correct.

Section 5.2.Power and Authority.  Borrower has the power and authority to enter into and perform its obligations under this Agreement and the other Loan Documents.  The acquisition of the Equipment, the borrowing hereunder and the execution, delivery and performance of this Agreement, the Promissory Note and the other Loan Documents (a) have been duly authorized by all necessary action on the part of Borrower; (b) do not require the approval or consent of any stockholder, partner, member, trustee or holder of any indebtedness or obligations of Borrower except such as have been duly obtained; (c) do not and will not contravene any law, governmental rule, regulation or order now binding on Borrower, or the organizational documents of Borrower, or contravene the provisions of, or constitute a default under, or result in the creation of any lien or encumbrance upon the property of Borrower under any material agreement for borrowed money to which Borrower is a party or by which it or its property is bound, and (d) do not and will not require the consent or approval of, the giving of notice to, the registration with, or the taking of any other action in respect of, any Federal, state or foreign governmental authority or agency by or with respect to Borrower, except as provided herein.

Section 5.3.Enforceability.  This Agreement and the Promissory Note constitute, and all other Loan Documents when entered into will constitute, the legal, valid and binding obligations of Borrower enforceable against Borrower in accordance with the terms hereof and thereof, except as limited by applicable bankruptcy, insolvency, reorganization, moratorium or similar laws or equitable principles relating to or affecting the enforcement of creditors’ rights generally.

Section 5.4.No Actions.  There is no action or proceeding before any court, arbitrator, administrative agency or other governmental authority pending or threatened against or affecting Borrower that, if adversely determined, could have a Material Adverse Effect.

Section 5.5.Title to Collateral.  Borrower holds good and marketable title to the Collateral, free and clear of all liens and encumbrances except for the lien of this Agreement.  No financing statement covering any of the Collateral is on file in any public office other than those which reflect the security interest created by this Agreement or to which Lender has specifically consented.  Upon the filing in the appropriate public offices of a Uniform Commercial Code financing statement naming Borrower as debtor, and

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Lender as secured party, and describing the Collateral, Lender will have a valid, perfected first priority security interest in the Collateral.  Borrower shall defend Lender’s rights in the Collateral against the claims and demands of all other Persons.

Section 5.6.Full Disclosure; No Material Adverse Effect.  No information contained in any Loan Document, the financial statements provided to Lender by Borrower or any other written statement furnished by or on behalf of Borrower under any Loan Document, or to induce Lender to execute the Loan Documents, contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made.  Since the date of the last financial statements delivered by Borrower to Lender no event has occurred which could have a Material Adverse Effect.  No Default or Event of Default has occurred and is continuing.

Section 5.7.No Violation of Law.  Borrower is not in violation of any Applicable Law, and Borrower has obtained all licenses, permits, franchises or other governmental authorizations necessary for the ownership of its properties and the conduct of its business.

Section 5.8.Environmental Compliance.  The Collateral has not been, and will not be so long as the Collateral remains subject to the lien of this Agreement, used in violation of any federal, state and local statutes, regulations, rules or ordinances relating to the protection of human health or the environment (“Environmental Laws”).

SECTION 6.COVENANTS OF BORROWER.

Borrower covenants and agrees as follows:

Section 6.1.Maintenance of Business.  Borrower shall preserve and keep in full force and effect its existence, rights (charter or statutory), franchises, and licenses necessary for the proper conduct of its business.

Section 6.2.Maintenance of Properties.  Borrower shall, and shall cause others to, maintain, preserve and keep its property, plant and equipment (including the Equipment) in good repair, working order and condition (ordinary wear and tear excepted), eligible for manufacturer’s certification, as applicable, and shall from time to time make all needed and proper repairs, renewals, replacements and additions thereto so that at all times the efficiency thereof shall be fully preserved and maintained.

Section 6.3.Liens.  Without the prior written consent of Lender, Borrower shall not permit or cause to exist against the Collateral any liens, encumbrances or claims (“Liens”) other than the Lien created by this Agreement and the other Loan Documents.  Borrower shall notify Lender immediately upon receipt by a responsible officer of Borrower of written notice of any lien, attachment or judicial proceeding affecting the Collateral in whole or in part.  If the Collateral is subjected to a lien which is not discharged within fifteen (15) days, Borrower shall deposit with Lender cash, a sufficient corporate surety bond or other security satisfactory to Lender in an amount adequate to provide for the discharge of the lien plus any interest, costs, Borrower fees or other charges that could accrue as a result of foreclosure or sale of the Collateral.  In any contest Borrower shall defend itself and Lender and shall satisfy any final adverse judgment before enforcement against the Collateral.  Borrower shall name Lender as an additional obligee under any surety bond furnished in the contest proceedings.

Section 6.4Insurance.  So long as any of the Obligations remain outstanding, Borrower shall at its own expense and in a form approved by Lender (a) obtain and maintain a Special Form, “all risks” policy of Property Insurance for the full replacement cost of the Collateral and as determined by Lender, said policy to identify Lender as an additional insured; (b) maintain Commercial General Liability Insurance, specifying Lender as a named additional insured (but without any responsibility to pay premiums)  including coverage for bodily injury, property damage, products/completed operations and broad form contractual liability for all obligations undertaken under this Agreement and insuring against all claims, demands or actions arising out of or in connection with the use, operation or maintenance of the Collateral and covering the full operation thereof, with the limits of such policy or policies to be in an amount not less than $2,000,000 per occurrence and $2,000,000 in the aggregate, unless other limits are agreed to in writing.  In the event that the Borrower has less than the above stated limits for Commercial General Liability Insurance, but has an umbrella policy covering the same risks and providing coverage in excess of the above stated limits either alone or in combination with the amount of coverage provided under Borrower’s Commercial General Liability Insurance policy, Borrower may, as an alternative, add Lender as a named additional insured on the umbrella policy; (c) if requested by Lender, procure and maintain such other insurance, including products liability insurance in such an amount as shall be required by Lender, and procure and maintain in full force and effect at all times worker’s compensation insurance which shall cover any and all Claims for injury to any worker, employee, or agent of Borrower arising out of use, operation or maintenance of the Collateral.  (d)  Additional insurance requirements: (i) each insurer

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shall waive any right of set-off against Lender, and any rights of subrogation against Lender or any other deduction, whether by attachment or otherwise, in respect of any liability of Borrower; (ii) each insurer shall agree, by endorsement upon the policy or policies issued by it or by independent instrument furnished to Lender, that it will give Lender thirty (30) days’ written notice before the policy in question shall lapse or be altered or cancelled; (iii) Borrower shall furnish Lender with certificates or other satisfactory evidence of maintenance of the insurance required hereunder and with respect to any renewal policy or policies shall furnish certificates evidencing such renewal not less than 30 days prior to the expiration date of the original policy or renewal policies; (iv) as to Lender’s interest in such insurance, no act or omission of Borrower or any of its officers, agents, employees or representatives shall affect the obligations of the insurer to pay the full amount of any loss; (v)  Borrower hereby appoints Lender as Borrower’s attorney-in-fact to make claim for, receive payment of, and execute and endorse all documents, checks or drafts for loss or damage or returned or unearned premiums under any insurance policy relating to the Collateral.  (e)  The proceeds of insurance shall, at the option of Lender be applied: (i) toward the replacement, restoration or repair of the Collateral; or (ii) toward payment of the obligations of Borrower under this Agreement and the Promissory Note.  (f)  Lender’s Right to Procure Insurance: In case of failure of Borrower to procure or maintain insurance as herein specified, Lender shall have the right, but shall not be obligated, to effect such insurance, and in such event, the cost thereof shall be repaid to Lender with the next installment of principal and interest due under this Agreement, and failure to repay the same shall carry with it the same consequence, including the applicable late charge and Default Rate interest provided in the Promissory Note.

Section 6.5.Further Assurance.  Borrower shall promptly execute and deliver to Lender such further documents, instruments and assurances and take such further action as Lender may from time to time reasonably request in order to carry out the intent and purpose of this Agreement and to establish and protect the rights and remedies created or intended to be created in favor of Lender hereunder; including, without limitation, the execution and delivery of any document reasonably required and payment of all necessary costs (including recording fees, title transfer fees, documentary or stamp taxes and all other costs or fees), to perfect and maintain the validity, effectiveness and priority of the Liens created or intended to be created by this Agreement and any Loan Document.  Borrower irrevocably appoints Lender to execute documents necessary to transfer title if there is an Event of Default.

Section 6.6.Notices.  Borrower shall provide written notice to Lender, promptly, and in any event within five (5) days, after the occurrence of (a) any Default or Event of Default, and (b) any event or circumstance that could have a Material Adverse Effect.

Section 6.7.Financial Statements.  Borrower agrees that for so long as the Loan is outstanding, Borrower shall deliver or cause to be delivered to Lender (a) as soon as practicable, and in any event within 45 days after the end of each quarterly period (other than the fourth quarterly period) for each fiscal year of Borrower, the balance sheet of Borrower as of the end of such quarterly period together with the related statements of income and expenses for such quarterly period, all in reasonable detail and prepared in accordance with generally accepted accounting principles consistently applied throughout the period involved, and certified by Borrower’s chief financial officer; and (b) as soon as practicable, and in any event within 90 days after the close of each fiscal year of Borrower, the balance sheet of Borrower as of the end of such fiscal year together with related statements of income and surplus for such fiscal year, all in reasonable detail and prepared in accordance with generally accepted accounting principles consistently applied throughout the period involved, and certified by Borrower’s chief financial officer; and (c) with reasonable promptness, such other data and information relating to the business, operations, affairs, assets or properties of Borrower or any of its subsidiaries or relating to the ability of Borrower to perform its obligations under this Agreement, the Promissory Note and the other Loan Documents as from time to time may be reasonably requested by Lender.

Section 6.8.Books and Records; Inspection of Collateral.  Borrower will maintain proper books of record and account in conformity with GAAP (or, in the case of any interim financial statements, prepared substantially in accordance with GAAP subject to normal year end adjustments) and all applicable requirements of any Governmental Authority having legal or regulatory jurisdiction over the Borrower.  Lender and Lender’s designated representatives and agents shall have the right at all reasonable times to enter into and upon the premises where the Equipment and other Collateral may be located for the purpose of inspecting the same or observing its use.  Lender will be granted access to Borrower’s records relating to the maintenance and use of the Equipment and other Collateral and shall have the right to inspect and make copies of the same.

Section 6.9.Indemnification.  Borrower shall indemnify, defend and hold harmless Lender, its successors and assigns, and their respective directors, officers, employees, agents, accountants, attorneys and Affiliates (each, an “Indemnified Party”), from and against any and all claims, actions and suits of any kind, nature or description whatsoever, liabilities, losses and expenses, including (without limitation) court costs and reasonable attorneys’ fees and expenses, arising, directly or indirectly, in connection with this Agreement or any of the other Loan Documents or the enforcement thereof, or the Equipment or other Collateral, including the acquisition, ownership, manufacture, delivery, installation, acceptance, return, use, possession, control, operation, maintenance,

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storage and condition of the Equipment or other Collateral, and any claims based in negligence, strict or absolute liability or liability in tort, environmental liability or infringement (except those determined by final decision of a court of competent jurisdiction to have been directly and primarily caused by the gross negligence or willful misconduct of such Indemnified Party).  The obligations of Borrower under this Section shall survive payment in full of the Promissory Note and expiration of this Agreement.

Section 6.10.Taxes and Assessments.  Borrower will pay when due all Taxes, including, without limitation, Taxes and assessments upon the Equipment and other Collateral, its use or operation, upon this Agreement, upon the Promissory Note or upon any of the other Loan Documents.  Borrower may withhold any such payment or may elect to contest any such tax or assessment if Borrower is in good faith conducting an appropriate proceeding to contest the obligation to pay and so long as Lender’s interest in the Collateral is not jeopardized in Lender’s sole opinion.  Borrower further agrees to furnish Lender with evidence that such Taxes, assessments, and governmental and other charges have been paid in full and in a timely manner.

Section 6.11.Compliance with Law.  Borrower shall comply promptly with all Applicable Laws, including, without limitation, Environmental Laws and all laws, ordinances, rules and regulations of all Governmental Authorities, now or hereafter in effect, applicable to the ownership, manufacture, use or disposition of the Equipment and other Collateral.  Borrower hereby releases and waives any future claims against Lender for indemnity or contribution in the event Borrower becomes liable for cleanup or other costs under any Environmental Laws, and agrees to indemnify and hold harmless Lender against any and all claims and losses resulting from a breach of this provision of this Agreement.  The indemnity obligations of Borrower under this Section shall survive payment in full of the Promissory Note and expiration of this Agreement.

Section 6.12.Use of Proceeds.  Borrower shall use the proceeds of the Loan solely to finance Borrower’s purchase of the Equipment.

Section 6.13.Patriot Act Compliance.  Borrower agrees to promptly furnish to Lender all documentation and other information requested by Lender which may be required by bank regulatory authorities under applicable “know your customer” and anti-money laundering rules and regulations, including without limitation the Patriot Act.  Borrower is and will remain in full compliance with all such laws, including, without limitation, ensuring that no person who owns a controlling interest in or otherwise controls Borrower is or shall be (a) listed on the Specially Designated Nationals and Blocked Person List maintained by the Office of Foreign Assets Control (“OFAC”), Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation, or (b) a person designated under Section 1 of Executive Order No. 13,224 (September 24, 2001), any related enabling legislation or any other similar Executive Orders.

No financial covenants.

SECTION 7.DEFAULT.

Section 7.1.Events of Default.  The occurrence of any of the following shall constitute an “Event of Default” hereunder:

(a)any payment of principal, interest or Prepayment Charge on the Promissory Note, or any payment of any other amount owing under this Agreement or any other Loan Document, in any case, that is not received by Lender within ten (10) days after such payment is due; or

(b)any representation, warranty, certification or statement of fact made by Borrower in this Agreement or any other Loan Document is untrue, incorrect or misleading in any material respect when made; or

(c)other than as set forth in clauses (a) or (b), any failure by Borrower to observe or perform any covenant to be observed or performed by Borrower under this Agreement, the Promissory Note or any other Loan Document, and such failure shall continue unremedied for ten (10) days after receipt by Borrower of a written notice thereof from Lender and demanding the same to be remedied; or

(d)(i) commencement of any case or other proceeding seeking liquidation, reorganization or other relief with respect to Borrower or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect, or the appointment of a trustee, receiver, liquidator, custodian or other similar official of Borrower or any part of its property (unless, if involuntary, the proceeding is dismissed within 60 days), or (ii) an attachment shall be levied against any of Borrower’s property or a receiver shall be appointed for any of Borrower’s property, or (iii) Borrower shall admit in writing

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its inability to pay its debts generally as they come due, or (iv) Borrower shall make a general assignment for the benefit of creditors, or (v) Borrower shall suspend business, or (vi) Borrower shall take any corporate action to authorize any of the foregoing; or

(e)(i) any transfer, sale or conveyance of the voting equity capital in Borrower or any guarantor occurs which results in a change in control of the Borrower or any guarantor or (ii) any transaction of merger or consolidation or sale of substantially all assets occurs which results in a change in control of the Borrower or any guarantor (for purposes hereof, “voting equity capital” shall mean equity or ownership interests of any class or classes, the holders of which are ordinarily, in the absence of contingencies, entitled to elect a majority of the corporate directors or Persons performing similar functions); or

(f)any guarantor of the Obligations under this Agreement or the Promissory Note defaults on any obligation to Lender, or any of the Events of Default listed in clauses (d) or (e) occurs with respect to any such guarantor or any such guarantor disclaims or repudiates its obligations as guarantor hereunder; or

(g)any of the Loan Documents shall for any reason not be or shall cease to be in full force and effect, or any of the Loan Documents is declared to be null and void, or for any reason the Equipment or any of the other Collateral shall fail to be subject to a valid and perfected first priority Lien in favor of Lender, except as expressly permitted by the terms thereof; or

(h)any event occurs or condition exists which is specified as an event of default under any other note, lease, contract, borrowing or agreement to which Borrower or any guarantor is a party; or

(i)any event occurs or condition exists which, in the sole judgment of Lender, could have a Material Adverse Effect, or if Lender believes the prospect of payment or performance by Borrower under this Agreement, the Promissory Note or any other Loan Document is impaired, or if Lender in good faith believes itself to be insecure.

SECTION 8.REMEDIES.

Upon the occurrence of an Event of Default hereunder, Lender shall have all of the rights of a secured party under the applicable Uniform Commercial Code.  Lender may, at its option, declare this Agreement to be in default and at any time thereafter may do any one or more of the following, all of which are hereby authorized by Borrower:

Section 8.1.Non-Bankruptcy Defaults.  When any Event of Default described in Section 7.1 has occurred and is continuing (other than an Event of Default described in subsection (d) of Section 7.1), Lender may, by notice to Borrower, (a) declare the entire principal of and the accrued interest on the Promissory Note to be immediately due and payable and thereupon the Promissory Note, including both principal and interest and all other Obligations payable under the Loan Documents, shall be and become immediately due and payable without further demand, presentment, protest or notice of any kind plus an amount equal to the Prepayment Charge together with such additional default interest, charges and fees as set forth in the Promissory Note, and (b) to the extent applicable, terminate any obligation of the Lender to extend further credit pursuant to any of the terms hereof.

Section 8.2.Bankruptcy Defaults.  When any Event of Default described in subsection (d) of Section 7.1 has occurred and is continuing, then (a) the entire principal of and the accrued interest on the Promissory Note and all other Obligations payable under the Loan Documents shall immediately become due and payable without presentment, demand, protest or notice of any kind plus an amount equal to the Prepayment Charge together with such additional default interest charges and fees as set forth in the Promissory Note, and (b) to the extent applicable, any obligation of the Lender to extend further credit pursuant to any of the terms hereof shall immediately terminate.

Section 8.3.Assemble Collateral.  Lender may require Borrower to deliver to Lender all or any portion of the Collateral and any and all certificates of title and other documents relating to the Collateral.  Lender may require Borrower to assemble the Collateral and make it available to Lender at a place to be designated by Lender.  Lender also shall have full power to enter upon the property of Borrower to take possession of and remove the Collateral.  If the Collateral contains other goods not covered by this Agreement at the time of repossession, Borrower agrees Lender may take such other goods, provided that Lender makes reasonable efforts to return them to Borrower after repossession.

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Section 8.4.Sell Collateral.  Lender shall have full power to sell, lease, transfer, or otherwise deal with the Collateral and proceeds (cash and non-cash) thereof in Lender’s own name or that of Borrower.  Lender may sell the Collateral at public auction or private sale.  Unless the Collateral threatens to rapidly decline in value or is of a type customarily sold on a recognized market, Lender will give Borrower, and other Persons as required by law, reasonable notice of the time and place of any public sale, or the time after which any private sale or any other disposition of the Collateral is to be made.  However, no notice need be provided to any Person who, after an Event of Default occurs, enters into and authenticates an agreement waiving that Person’s right to notification of sale.  The requirements of reasonable notice shall be met if such notice is given at least ten (10) days before the time of the sale or disposition.  All expenses relating to the disposition of the Collateral, including without limitation the expenses of retaking, holding, insuring, preparing for sale and selling the Collateral, shall become a part of the Obligations secured by this Agreement and shall be payable on demand, with interest at the Default Rate applicable to the Promissory Note from date of expenditure until repaid.

Section 8.5.Appoint Receiver.  Lender shall have the right to have a receiver appointed to take possession of all or any part of the Collateral, with the power to protect and preserve the Collateral, to operate the Collateral preceding foreclosure or sale, and to collect the payments, rents, income and revenues from the Collateral and apply such proceeds, over and above the cost of the receivership, against the Obligations or as the court may direct.  The receiver may serve without bond if permitted by law.  Lender’s right to the appointment of a receiver shall exist whether or not the apparent value of the Collateral exceeds the Obligations by a substantial amount.  Employment by Lender shall not disqualify a person from serving as a receiver.

Section 8.6.Collect Payments, Rents Income and Revenues.  Lender, either itself or through a receiver, may collect the payments, rents, income, and revenues from the Collateral.  Lender may at any time in Lender’s sole discretion transfer any Collateral into Lender’s own name or that of Lender’s nominee and receive the payments, rents, income, and revenues therefrom and hold the same as security for the Promissory Note or apply it to payment of the Promissory Note in such order of preference as Lender may determine.  If and to the extent the Collateral consists of accounts, general intangibles, insurance policies, instruments, chattel paper, choses in action, or similar property, Lender may demand, collect, receipt for, settle, compromise, adjust, sue for, foreclose, or realize on the Collateral as Lender may determine, whether or not the Obligations or Collateral is then due.  For these purposes, Lender may, on behalf of and in the name of Borrower, receive, open and dispose of mail addressed to Borrower; change any address to which mail and payments are to be sent; and endorse notes, checks, drafts, money orders, documents of title, instruments and items pertaining to payment, shipment, or storage of any Collateral.  To facilitate collection, Lender may notify account debtors and obligors on any Collateral to make payments directly to Lender.

Section 8.7.Obtain Deficiency.  If Lender chooses to sell any or all of the Collateral, Lender may obtain a judgment against Borrower for any deficiency remaining on the Obligations due to Lender after application of all amounts received from the exercise of the rights provided in this Agreement.  Borrower shall be liable for a deficiency even if the transaction described in this subsection is a sale of accounts or chattel paper.

Section 8.8.Election of Remedies.  Except as may be prohibited by Applicable Law, all of Lender’s rights and remedies, whether evidenced by this Agreement, the Promissory Notes, or by any other Loan Document or writing, shall be cumulative and may be exercised singularly or concurrently.  Election by Lender to pursue any remedy shall not exclude pursuit of any other remedy, and an election to make expenditures or to take action to perform an obligation of Borrower under this Agreement, after Borrower’s failure to perform, shall not affect Lender’s right to declare an Event of Default and exercise its remedies.

Section 8.9.No Duties.  The powers conferred upon the Lender hereunder are solely to protect its interest in the Collateral and shall not impose on it any duty to exercise such powers.  This Agreement constitutes an assignment of rights only and not an assignment of any duties or obligations of Borrower in any way related to the Collateral and the Lender shall have no duty or obligation to discharge any such duty or obligation.  The Lender shall have no responsibility for taking any necessary steps to preserve rights against any parties with respect to any Collateral or initiating any action to protect the Collateral against the possibility of a decline in market value.  Neither the Lender nor any party acting as agent or attorney for the Lender shall be liable for any acts or omissions or for any error of judgment or mistake of fact or law.

Section 8.10.Other Rights and Remedies.  Lender may exercise any other right or remedy available to it under this Agreement, the Promissory Note, the other Loan Documents or Applicable Law, or proceed by appropriate court action to enforce the terms hereof or to recover damages for the breach hereof or to rescind this Agreement in whole or in part.

Section 8.11.Attorneys’ Fees; Expenses; No Remedy Exclusive.  Borrower agrees to pay upon demand all of Lender’s costs and expenses, including Lender’s attorneys’ fees and Lender’s legal expenses, incurred in connection with the enforcement of this Agreement.  Lender may hire or pay someone else to help enforce this Agreement, and Borrower shall pay the costs and expenses

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of such enforcement.  Costs and expenses include Lender’s attorneys’ fees and legal expenses whether or not there is a lawsuit, including attorneys’ fees and legal expenses for bankruptcy proceedings (including efforts to modify or vacate any automatic stay or injunction), appeals, and any anticipated post-judgment collection services.  Borrower also shall pay all court costs and such additional fees as may be directed by the court Borrower hereby waives any and all existing or future claims to any offset against the sums due under this Agreement, the Promissory Note or the other Loan Documents and agrees to make the payments regardless of any offset or claim which may be asserted by Borrower or on its behalf in connection with this Agreement.

Section 8.12.No Waiver.  The failure by Lender to exercise, or delay in the exercise of, the rights granted hereunder upon any Event of Default shall not constitute a waiver of any such right upon the continuation or recurrence of any such Event of Default.  Lender may take or release other security; may release any party primarily or secondarily liable for the Obligations; may grant extensions, renewals or indulgences with respect to the Obligations and may apply any other security therefor held by it to the satisfaction of the Obligations without prejudice to any of its rights hereunder.

SECTION 9.NOTICES.

All notices hereunder shall be in writing, personally delivered, sent by overnight courier service, sent by facsimile transmission (with proof of completed transmission and followed by hardcopy delivery by overnight courier) or sent by certified mail, return receipt requested, addressed to the other party at its respective address stated below the signature of such parties or at such other addresses as such parties shall from time to time designate in writing to the other parties; and shall be effective on the date of receipt.  Unless otherwise provided or required by law, if there is more than one Borrower, any notice given by Lender to any Borrower is deemed to be notice given to all Borrowers.

SECTION 10.LENDER’S RIGHT TO PERFORM FOR BORROWER.

Section 10.1.Right to Perform.  If Borrower fails to perform or comply with any of its agreements contained herein, Lender shall have the right, but shall not be obligated, to effect such performance or compliance, and the amount of any expenses of Lender thereby incurred, together with interest thereon at the Default Rate, shall be due and payable by Borrower upon demand.

Section 10.2.Attorney-in-Fact.  Borrower hereby irrevocably appoints Lender as Borrower’s attorney-in-fact (which power shall be deemed coupled with an interest) to execute, endorse and deliver any deed, conveyance, assignment or other instrument in writing as may be reasonably necessary to vest in Lender any right, title, interest or power which by the terms hereof are expressed to be conveyed to or conferred upon Lender, including executing any documents necessary to perfect, amend, or to continue the security interest granted in this Agreement or to demand termination of filings of other secured parties.  Lender may at any time, and without further authorization from Borrower, file a carbon, photographic or other reproduction of any financing statement or of this Agreement for use as a financing statement.  Borrower may file one or more financing statements disclosing its security interest in any or all of the Collateral without Borrower’s signature appearing thereon.  Borrower also hereby grants Lender a power of attorney to execute any such financing statements, or amendments and supplements to financing statements, and amendments and supplements to Schedule A thereto, on behalf of Borrower without notice thereof to Borrower.  Borrower hereby ratifies and approves all acts of any such attorney and agrees that neither Lender nor any such attorney will be liable for any acts or omissions nor for any error of judgment or mistake of fact or law.  The foregoing powers of attorney, being coupled with an interest, are irrevocable until the Indebtedness has been fully paid and satisfied and all agreements of Lender to extend credit to or for the account of Borrower have expired or otherwise have been terminated.  Borrower will reimburse Lender for all expenses for the perfection and the continuation of the perfection of Lender’s security interest in the Collateral.

SECTION 11.SUCCESSORS AND ASSIGNS.

This Agreement shall inure to the benefit of Lender, its successors and assigns, and shall be binding upon the successors of Borrower.  Neither the Collateral nor the rights and obligations of Borrower under this Agreement, the Promissory Note and the other Loan Documents may be transferred, sold, pledged, leased, encumbered, assigned or delegated without the prior written consent of Lender.  Lender may sell, assign, transfer, negotiate or grant participations in all or any part of, or any interest in, Lender’s rights and obligations under this Agreement, the Promissory Note and the other Loan Documents, and in the Collateral.  In connection therewith, Lender may disclose all documents and information which Lender now or hereafter may have relating to the Loan, Borrower, or the business of Borrower.  Borrower agrees to fully cooperate with Lender and take all such actions as Lender from time to time may reasonably request in order to facilitate the sale, assignment, transfer, negotiation or sale of a participation interest in Lender’s interest hereunder.  Borrower agrees that any such assignee or participant may enforce all liens, rights and remedies of Lender under the

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provisions of this Agreement, the Promissory Note or any other Loan Documents relating hereto or under Applicable Laws, in the same manner as if such assignee or participant were Lender and a direct creditor of Borrower.

SECTION 12.WISCONSIN LAW GOVERNS.

Section 12.1.Governing Law.  THIS AGREEMENT, THE PROMISSORY NOTE AND THE OTHER LOAN DOCUMENTS AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER AND THEREUNDER SHALL, IN ALL RESPECTS, BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF WISCONSIN (WITHOUT REGARD TO THE CONFLICT OF LAWS PRINCIPLES OF SUCH STATE), INCLUDING ALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, REGARDLESS OF THE LOCATION OF THE COLLATERAL.  IN NO EVENT SHALL LENDER HAVE ANY LIABILITY TO BORROWER FOR INCIDENTAL, GENERAL, CONSEQUENTIAL, PUNITIVE OR EXEMPLARY DAMAGES.

Section 12.2.Jurisdiction.  The parties agree that any action or proceeding arising out of or relating to this Agreement, the Promissory Note or the other Loan Documents may be commenced in any state or federal court of competent jurisdiction in the State of Wisconsin, and each party submits to the jurisdiction of such court and agrees that a summons and complaint commencing an action or proceeding in any such court shall be properly served and shall confer personal jurisdiction if served personally or by certified mail to it at its address designated pursuant hereto, or as otherwise provided under the laws of the State of Wisconsin.

SECTION 13.WAIVER OF JURY TRIAL.

BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO WHICH BORROWER AND LENDER MAY BE PARTIES, ARISING OUT OF OR IN ANY WAY PERTAINING TO THIS AGREEMENT, THE PROMISSORY NOTE OR THE OTHER LOAN DOCUMENTS.  BORROWER AUTHORIZES LENDER TO FILE THIS PROVISION WITH THE CLERK OR JUDGE OF ANY COURT HEARING SUCH CLAIM.  THIS WAIVER IS KNOWINGLY, WILLINGLY AND VOLUNTARILY MADE BY BORROWER AND BORROWER HEREBY ACKNOWLEDGES THAT NO REPRESENTATIONS OF FACT OR OPINION HAVE BEEN MADE BY ANY INDIVIDUAL TO INDUCE THIS WAIVER OF TRIAL BY JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT.  BORROWER FURTHER ACKNOWLEDGES THAT IT HAS BEEN REPRESENTED IN THE SIGNING OF THIS AGREEMENT, THE PROMISSORY NOTE AND THE OTHER LOAN DOCUMENTS AND IN THE MAKING OF THIS WAIVER BY LEGAL COUNSEL, SELECTED OF ITS OWN FREE WILL, AND THAT IT HAS HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH COUNSEL.

SECTION 14.MAXIMUM RATE OF INTEREST.

It is the intention of the parties hereto to comply with the applicable usury laws.  Accordingly, it is agreed that, notwithstanding any provisions to the contrary in this Agreement, the Promissory Note or any other Loan Document, in no event shall this Agreement, the Promissory Note or any other Loan Document require the payment or permit the collection of interest in excess of the maximum amount permitted by Applicable Law.  If any such excess interest is contracted for, charged or received under this Agreement, the Promissory Note or any other Loan Document, or in the event that all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Agreement, the Promissory Note or any other Loan Document on the principal balance shall exceed the maximum amount of interest permitted by Applicable Law, then in such event:  (a) the provisions of this Section 14 shall govern and control, (b) neither Borrower nor any other Person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by Applicable Law, (c) any such excess which may have been collected shall either be applied as a credit against the then unpaid principal balance or refunded to Borrower, at the option of Lender, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under the Applicable Law as now or hereafter construed by the courts having jurisdiction thereof.  It is further agreed that, without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Agreement, the Promissory Note and the other Loan Documents which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by Applicable Law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Borrower or otherwise by Lender in connection with such Obligations; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for Lender to receive a greater interest per annum rate than is presently allowed by law, Borrower agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest rate per annum allowed by the amended state law or the law of the United States of America (but not in excess of the interest rate provided for herein).

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SECTION 15.MISCELLANEOUS.

Section 15.1.Entire Agreement.  This Agreement, the Promissory Note and the other Loan Documents, collectively constitute the entire agreement between the parties with respect to the subject matter hereof and shall not be amended or altered in any manner except by a document in writing executed by both parties.

Section 15.2.Survival.  All representations, warranties, and covenants of Borrower contained herein or made pursuant hereto shall survive closing and continue throughout the term hereof and until the Obligations are satisfied in full, except that any indemnifications provided herein also shall survive such full satisfaction.

Section 15.3.Severability.  Any provision of this Agreement or any other Loan Document which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof or thereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.  To the extent permitted by Applicable Law, Borrower hereby waives any provision of law which renders any provision hereof or thereof prohibited or unenforceable in any respect.

Section 15.4.Counterparts; Electronic Signature and Storage; Joint and Several Liability.  This Agreement and the other Loan Documents may be executed in counterparts.  Photocopies, facsimile transmissions, or electronic or digital transmissions of Adobe portable document format files (also known as “PDF” files) of signatures shall be deemed original signatures and shall be fully binding on the parties to the same extent as original signatures.  Lender and Borrower acknowledge and agree that:  (a) this Agreement, the other Loan Documents and all documents and information related thereto may be reproduced and stored in any electronic format, and the originals so reproduced destroyed; and (b) any such electronic copy shall be deemed an original, shall be admissible in any court or other proceeding, and shall be enforceable against the parties thereto, whether or not the original is in existence and whether or not such reproduction was made or preserved by Lender in the regular course of business.  IF MORE THAN ONE PARTY EXECUTES THIS AGREEMENT AS BORROWER, EACH SHALL BE JOINTLY AND SEVERALLY LIABLE HEREUNDER.

Section 15.5.Expenses.  Borrower shall not be charged for the preparation, negotiation, execution, delivery and performance of the Loan Documents.  Borrower agrees to pay or reimburse Lender for all reasonable costs and expenses (including the reasonable fees and expenses of all counsel, advisors, consultants and auditors retained in connection therewith), incurred in connection with: (a) the and enforcement of the Loan Documents and the preservation of any rights thereunder (including, without limitation, filing or recording fees and taxes); (b) collection, including deficiency collections; (c) any advice in connection with the administration of the Loan or the rights thereunder; and (d) any litigation, dispute, suit, proceeding or action (whether instituted by or between any combination of Lender, Borrower or any other Person), and an appeal or review thereof, in any way relating to the Collateral, any Loan Document, or any action taken or any other agreements to be executed or delivered in connection therewith, whether as a party, witness or otherwise.

Section 15.6.Time of the Essence.  Time is of the essence in the performance of this Agreement, the Promissory Note and the other Loan Documents.

Section 15.7.Accounting Terms; UCC Terms.  All accounting terms used in this Agreement and the other Loan Documents which are not expressly defined in this Agreement have the meanings respectively given to them in accordance with GAAP.  Except as otherwise specifically provided herein, all computations made pursuant to this Agreement shall be made in accordance with GAAP, and all financial statements shall be prepared in accordance with GAAP.  All other undefined terms contained in this Agreement or the other Loan Documents shall, unless the context indicates otherwise, have the meanings provided for by the UCC.

Section 15.8.Rules of Construction.  For purposes of this Agreement and the other Loan Documents, the following additional rules of construction shall apply, unless specifically indicated to the contrary: (a) wherever from the context it appears appropriate, each term stated in either the singular or plural shall include the singular and the plural; (b) the term “or” is not exclusive; (c) the term “including” (or any form thereof) shall not be limiting or exclusive; (d) all references to statutes and related regulations shall include any amendments of same and any successor statutes and regulations; (e) all references to any instruments or agreements, including references to any of the Loan Documents, shall include the exhibits and schedules thereto, and any and all amendments, modifications or supplements thereto; and (f) all references to Lender, Borrower or any other Person shall include their successors and permitted assigns.

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[Remainder of page intentionally left blank]

14

LOAN AND SECURITY AGREEMENT

IN WITNESS WHEREOF, the parties hereto have caused this Loan and Security Agreement to be duly executed as of the day and year first written.

Lender:	BMO Harris Equipment Finance Company		Borrower:	Rockford Corporation
By:	/s/ Kristen Weber		By:	/s/ John M. Perisich
Name:	Kristen Weber		Name:	John M. Perisich
Title:	Officer		Title:	EVP
		250 East Wisconsin Ave	Form of Organization:		Corporation
		Suite 1400	Jurisdiction of Organization:
		Milwaukee, Wisconsin 53202	Organizational Number:
			FEIN:		931021510
			Co-Borrower:	Q3 Contracting, Inc.
			By:	/s/ John M. Perisich
			Name:	John M. Perisich
			Title:	EVP
			Form of Organization:		Corporation
			Jurisdiction of Organization:
			Organizational Number:
			FEIN:		411718869
			Co-Borrower:	ARB, Inc.
			By:	/s/ A. Theeuwes
			Name:	A. Theeuwes
			Title:	CFO
			Form of Organization:		Corporation
			Jurisdiction of Organization:
			Organizational Number:
			FEIN:		952159777

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Co-Borrower:	Stellaris LLC
By:	/s/ A. Theeuwes
Name:	A. Theeuwes
Title:	CFO
Form of Organization:		LLC
Jurisdiction of Organization:
Organizational Number:
FEIN:		421729818

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SCHEDULE A

Attachment to a Loan and Security Agreement Note No. 30278 Between

BMO Harris Equipment Finance Company (“Lender”) And

Rockford Corporation (“Borrower”) And

 Q3 Contracting, Inc.,

 ARB, Inc.,

 Stellaris LLC,

As (“Co- Borrower (s)”)

Dated April 28, 2014

Description	Year	Serial Number	Location
F550 4x2 Reg 16’ F/B Bar	2009	1FDAF56R49EA28546	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
F550 4x2 Reg Cab Servic	2009	1FDAF56R29EA35866	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
F550 4x2 Reg 16’ F/B Bar	2009	1FDAF56R69EA28547	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
F550 4x2 Reg Cab Servic	2009	1FDAF56R79EA08937	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
F550 4x2 Reg Cab Servic	2009	1FDAF56R29EA08943	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
F550 4x2 Reg Cab Servic	2009	1FDAF56R19EA08951	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T270 S/A Reg Cab W/Ser	2014	2NKHHM6X0EM394289	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T370 S/A Contractor Dum	2014	2NKHHM7X2EM404044	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T800 TRI/A DUMP	2014	1NKDXPEX8EJ412551	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2028DL161285	633 Cecelia Drive, Pewaukee, WI 53072 (Waukesha County)
T-20DD T/A Equipment T	2013	4KNFT202XDL161286	633 Cecelia Drive, Pewaukee, WI 53072 (Waukesha County)
T-20DD T/A Equipment T	2013	4KNFT202XDL161269	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2026DL161270	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2026DL161267	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2028DL161268	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2027DL161391	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2029DL161392	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2020DL161393	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2022DL161394	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2013	4KNFT2024DL161395	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
T-20DD T/A Equipment T	2013	4KNFT2026DL161396	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
T-20DD T/A Equipment T	2013	4KNFT2028DL161397	2351 East County Line, Des Moines, IA 50320 (Polk County)
T-20DD T/A Equipment T	2013	4KNFT202XDL161398	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
FT-14E T/A Concrete For	2014	5FTEE1823E1000536	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2013 T-20DD T/A Equipment Trlr-AR	2013	4KNFT2029DL161957	2351 East County Line, Des Moines, IA 50320 (Polk County)
2013 T-20DD T/A Equipment Trlr-AR	2013	4KNFT2020DL161958	2351 East County Line, Des Moines, IA 50320 (Polk County)
2013 T-20DD T/A Equipment Trlr-AR	2013	4KNFT2022DL161959	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2013 T-20DD T/A Equipment Trlr-AR	2013	4KNFT2029DL161960	2351 East County Line, Des Moines, IA 50320 (Polk County)

	By initialing below, Borrower confirms that it has reviewed the entirety of this 5 page Schedule A and agrees that the information set forth in such Schedule is accurate and complete.
Initial Here

INCLUDING ALL ATTACHMENTS, APPURTENANCES, ACCESSIONS, ACCESSORIES AND SUBSTITUTIONS.

INSURANCE PROCEEDS ON ABOVE.

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2013 LSP 3040 4” Stringing Trl	2013	1L9LS3029DG321066	2351 East County Line, Des Moines, IA 50320 (Polk County)
2013 LCV 0406 Line Tamer	2013	1L9LC3024DG321067	2351 East County Line, Des Moines, IA 50320 (Polk County)
2014 T-20DD T/A Equipment Trailer	2014	4KNFT2026EL160069	2351 East County Line, Des Moines, IA 50320 (Polk County)
T-20DD T/A Equipment T	2014	4KNFT2223EL160625	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2014	4KNFT2021EL160626	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2014	4KNFT2023EL160627	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2014	4KNFT2025EL160628	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2014	4KNFT2027EL160629	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T-20DD T/A Equipment T	2014	4KNFT2023EL160630	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Lane LSP 3040 4” Stringin	2014	1L9LS3028EG321089	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA7DU449075	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA4DU449082	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA2DU449484	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA4DU450443	2351 East County Line, Des Moines, IA 50320 (Polk County)
Ingersoll Rand P185WJD	2013	4FVCABAA6DU450444	2351 East County Line, Des Moines, IA 50320 (Polk County)
Ingersoll Rand P185WJD	2013	4FVCABAA9DU450874	5112 North National Avenue, Sioux Falls, SD 57104 (Minnehaha County)
Ingersoll Rand P185WJD	2013	4FVCABAA0DU450875	2351 East County Line, Des Moines, IA 50320 (Polk County)
Ingersoll Rand P185WJD	2013	4FVCABAA4DU450877	5112 North National Avenue, Sioux Falls, SD 57104 (Minnehaha County)
Ingersoll Rand P185WJD	2013	4FVCABAAXDU454478	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA1DU454479	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAAXDU454481	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA1DU454483	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA5DU454484	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA7DU454485	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA4DU454489	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA9DU454181	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA0DU454182	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ingersoll Rand P185WJD	2013	4FVCABAA2DU454183	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2010 PC206 Planer/Asphalt Mil SS Attach-Brkr/Rake	2010	DDG00946	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
CAT H65DS Asphalt Brea	2013	0FTS01987	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2013 TopCap 305 Breaker SS Attach-Brkr/Rake	2013	H673	2351 East County Line, Des Moines, IA 50320 (Polk County)
2013 TopCap 305 Breaker SS Attach-Brkr/Rake	2013	H674	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Magnum TopCap RHB30	2013	H697	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Magnum TopCap RHB30	2013	H699	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
Magnum TopCap RHB30	2013	H757	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Magnum TopCap RHB30	2013	H758	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Magnum TopCap RHB30	2013	H759	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Magnum TopCap RHB30	2013	H760	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Magnum TopCap RHB30	2013	H761	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Magnum TopCap RHB30	2013	H787	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Polaris 800 Sportsman 6x	2013	4XACF76A5DB603113	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
Polaris 800 Sportsman 6x	2013	4XACF76A3DB615034	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
John Deere 310K 2WD R	2013	1T0310KXJDE245152	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 310K 2WD R	2013	1T0310KXEDE245144	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 310K 2WD R	2013	1T0310KXPDE246833	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)

2

John Deere 310K 2WD R	2013	1T0310KXADE246841	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 310K 2WD R	2013	1T0310KXPDE246864	2351 East County Line, Des Moines, IA 50320 (Polk County)
John Deere 310K 2WD R	2013	1T0310KXEDE246973	2351 East County Line, Des Moines, IA 50320 (Polk County)
John Deere 310K 2WD R	2013	1T0310KXJDE246978	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 310K 2WD R	2013	1T0310KXCDE246982	5112 North National Avenue, Sioux Falls, SD 57104 (Minnehaha County)
John Deere 310K 2WD R	2013	1T0310KXLDE246985	5112 North National Avenue, Sioux Falls, SD 57104 (Minnehaha County)
John Deere 310K 2WD R	2013	1T0310KXEDE246987	2351 East County Line, Des Moines, IA 50320 (Polk County)
John Deere 310K 2WD R	2013	1T0310KXCDE247087	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 310K 2WD R	2013	1T0310KXCDE247090	2351 East County Line, Des Moines, IA 50320 (Polk County)
John Deere 310SK 4WD R	2013	1T0310SKEDE247089	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
John Deere 310SK 4WD R	2013	1T0310SKPDE247100	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
John Deere 310K 2WD R	2013	1T0310KXADE246855	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 310K 2WD R	2013	1T0310KXADE246919	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 310K 2WD R	2013	1T0310KXTDE249911	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2008 Ditch Witch RT55 Plow	2008	CMWRT55HA80000443 / 5Y0161	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2008 236B2 Rubber Skid Steer	2008	HEN09011	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2008 236B2 Rubber Skid Steer	2008	HEN09079	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2008 246C W/Hy-Flow Rubber Skid Steer	2008	JAY02339	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2008 246C W/Hy-Flow Rubber Skid Steer	2008	CAT0246CKJAY02658	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2008 236B2 Rubber Skid Steer	2008	HEN09184	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
2008 277C Multi-terrain Loader Skid Steer	2008	JWF01889	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
CAT 236B3	2013	CAT0236BEA9H04004	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2013 CAT 303.5E CR Mini-X	2013	CAT3035ECRKY01499	1613 Read Street, Omaha, NE 68112 (Douglas County)
2013 CAT 303.5E CR Mini-X	2013	CAT3035ETRKY01500	1613 Read Street, Omaha, NE 68112 (Douglas County)
CAT 303.5E CR Mini-X	2013	CAT3035EKRKY01659	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
CAT 303.5E CR Mini-X	2013	CAT3035ECRKY01849	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
CAT 303.5E CR Mini-X	2013	CAT3035EHRKY01850	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
CAT 303.5E CR Mini-X	2013	CAT3035EERKY01851	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
CAT 303.5E CR Mini-X	2013	CAT3035ECRKY01852	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
CAT 303.5E CR Mini-X	2013	CAT3035ETRKY01853	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
CAT 303.5E CR Mini-X	2013	CAT3035ECRKY01857	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
CAT 303.5E CR Mini-X	2013	CAT3035EVRKY01858	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2013 Vermeer RTX1250 Trenchr	2013	1VR6110R6D1001410	2351 East County Line, Des Moines, IA 50320 (Polk County)
Vermeer 24X40 Series 2	2009	1VRZ1903391000794	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Vermeer D36X50 Series 2	2008	1VR4230D281000362	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill 4X	2012	4X1244176	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill 4X	2013	4X1307180	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill 4X	2013	4X1307181	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill 4X	2013	4X1308182	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2009 PV-500D Evacuator on 110221	2009	9050301	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Pacific Tek PV800 Evacua	2009	1J9BU14249L319285 / 9042801	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Pacific Tek PV800 Evacua	2009	1J9BU14269L319286 / 9042802	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Pacific Tek PV800 Evacua	2009	1J9BU14289L319287 / 9042803	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Ditch Witch FX60 Evacua	2008	1DSB202S281702145 / CMWFX60XT80000283	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
Pacific Tek PV800DHO	2013	4S9BU1424DL228219 / 3140205	1613 Read Street, Omaha, NE 68112 (Douglas County)

3

Pacific Tek PV800DHO	2013	4S9BU1422DL228218 / 3140206	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
Pacific Tek PV800DHO	2013	4S9BU1420DL228220 / 3140207	2351 East County Line, Des Moines, IA 50320 (Polk County)
Pacific Tek PV100 - 11037	2013	3060201	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
McLaughlin V800LEHD	2013	1M9FE1223DS284019 / V8H040513581	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
McLaughlin V800LEHD	2013	1M9FE1223DS284022 / V8H040513579	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
McLaughlin V800LEHD	2013	1M9FE1225DS284085 / V8H050213636	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill DS225/4X.1	2012	GS2251248682	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill DS225/4X.1	2013	GS2251307686	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill DS225/4X.1	2013	GS2251307687	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Grundodrill DS225/4X.1	2013	GS2251308688	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2013 PCMS-1210 Msg Brd/Modem	2013	2S9US4128DS132275	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
DIGITRACK F2 LOCATO	2013	F2R30017265 / FBC3279 / FSD30017366	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
DIGITRACK F2 LOCATO	2013	F2R30020177 / FBC4362 / FSD30019877	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
DIGITRACK F2 LOCATO	2013	F2R30024320 / FBC3236 / FSD30023630	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
DIGITRACK F2 LOCATO	2013	30024640 / 00004821 / 30023855	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
Digitrack F2 Locator	2013	30016075 / 30017496 / 30024481	3066 Spruce Street, Little Canada, MN 55117 (Ramsey County)
Digitrack F2 Locator	2013	30016243 / 30016259 / 30024491	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
2013 F2 LOCATOR	2013	30027093 / 30037002	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 27D Mini-X	2014	1FF027DXVDG258723	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 27D Mini-X	2014	1FF027DXLDG258725	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 27D Mini-X	2014	1FF027DXHDG258726	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 27D Mini-X	2014	1FF027DXHDG258810	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
John Deere 27D Mini-X	2014	1FF027DXHDG258810	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T270 S/A Contractor Dum	2014	2NKHHM6X2EM392737	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
T370 S/A Contractor Dum	2014	2NKHHM7X1EM411034	5300 Colorado Blvd, Commerce City, CO 80022 (Adams County)
14 PETERBILT 367 TRACTOR	2014	1XPTP4TX6ED244016	599 Fm 793 Rd., Corsicana, Texas, 75109
14 PETERBILT 367 TRACTOR	2014	1XPTP4TX8ED244017	599 Fm 793 Rd., Corsicana, Texas, 75109
14 PETERBILT 367 TRACTOR	2014	1XPTP4TXXED244018	599 Fm 793 Rd., Corsicana, Texas, 75109
14 PETERBILT 367 TRACTOR	2014	1XPTP4TX1ED244019	599 Fm 793 Rd., Corsicana, Texas, 75109
14 PETERBILT 367 TRACTOR	2014	1XPTP4TX8ED244020	599 Fm 793 Rd., Corsicana, Texas, 75109
14 PETERBILT 367 TRACTOR	2014	1XPTP4TXXED244021	599 Fm 793 Rd., Corsicana, Texas, 75109
14 TRAILKING LOWBED TRAILER	2014	1TKJ05333EM123355	599 Fm 793 Rd., Corsicana, Texas, 75109
14 TRAILKING LOWBED TRAILER	2014	1TKJ0533XEM123353	599 Fm 793 Rd., Corsicana, Texas, 75109
14 TRAILKING LOWBED TRAILER	2014	1TKJ05336EM123351	599 Fm 793 Rd., Corsicana, Texas, 75109
14 TRAILKING LOWBED TRAILER	2014	1TKJ05338EM123349	599 Fm 793 Rd., Corsicana, Texas, 75109
14 TRAILKING LOWBED TRAILER	2014	1TKJ05330EM123345	599 Fm 793 Rd., Corsicana, Texas, 75109
14 TRAILKING LOWBED TRAILER	2014	1TKJ05334EM123347	599 Fm 793 Rd., Corsicana, Texas, 75109
11 CAT 966K WHEEL LOADER	2011	TFS00241	24740 Juniper Flats Rd. Homeland, CA
12 CAT 938K WHEEL LOADER	2012	SWL01101	1501 18th Street, Los Osos, CA 93402
12 CAT 930K WHEEL LOADER	2012	RHN01147	3500 S, Pegasus Drive, Bakersfield, CA, 93308
13 CAT 450E BACKHOE LOADER	2013	RBA00348	20602 Indian Ocean Drive, Lake Forest, CA 92630
13 CAT 336EL HYD EXCAVATOR	2013	BZY02356	1501 18th Street, Los Osos, CA 93402

4

12 CAT 930K WHEEL LOADER	2012	RHN01487	5740 Arbor Vitae, Los Angeles, CA 90045
13 CAT 450E BACKHOE LOADER	2013	RBA00350	1501 18th Street, Los Osos, CA 93402
13 CAT 450E BACKHOE LOADER	2013	RBA00349	1501 18th Street, Los Osos, CA 93402
13 CAT 321D LCR HYD EXCAVATOR	2013	MPG00520	1501 18th Street, Los Osos, CA 93402
13 CAT 938K WHEEL LOADER	2013	SWL01322	1501 18th Street, Los Osos, CA 93402
12 CAT 930K WHEEL LOADER	2012	RHN01151	3500 S, Pegasus Drive, Bakersfield, CA, 93308
13 CAT 450E BACKHOE LOADER	2013	RBA00347	20602 Indian Ocean Drive, Lake Forest, CA 92630
13 CAT 336EL HYD EXCAVATOR	2013	BZY02298	1159 Jonata Park Rd., Buelton, CA 93427
13 CAT 321D LCR HYD EXCAVATOR	2013	MPG00501	1501 18th Street, Los Osos, CA 93402
CAT D7R XR DOZER WINCH	2007	AGN01545	599 Fm 793 Rd., Corsicana, Texas, 75109
CAT D7R XR DOZER WINCH	2007	AGN01546	599 Fm 793 Rd., Corsicana, Texas, 75109
CAT 583T PIPELAYER	2007	CMX00183	599 Fm 793 Rd., Corsicana, Texas, 75109
CAT 583T PIPELAYER	2007	CMX00184	599 Fm 793 Rd., Corsicana, Texas, 75109
CAT 583T PIPELAYER	2007	CMX00189	599 Fm 793 Rd., Corsicana, Texas, 75109
CAT 583T PIPELAYER	2007	CMX00198	599 Fm 793 Rd., Corsicana, Texas, 75109
CAT 583T PIPELAYER	2007	CMX00199	599 Fm 793 Rd., Corsicana, Texas, 75109
CAT 587T PIPELAYER	2007	FAT00289	8782 N County Rd. 850 E., New Carlisle, IN 46552
CAT 587T PIPELAYER	2007	FAT00290	922 N County Rd. 200 E., Chesterton, IN 46304
CAT 561N PIPELAYER	2008	TAD00103	20602 Indian Ocean Drive, Lake Forest, CA 92630
CAT 561N PIPELAYER	2008	TAD00108	20602 Indian Ocean Drive, Lake Forest, CA 92630
CAT 561N PIPELAYER	2008	TAD00109	1875 Loveridge Rode, Pittsburg, CA 94565
CAT 561N PIPELAYER	2008	TAD00110	20602 Indian Ocean Drive, Lake Forest, CA 92630
CAT 561N PIPELAYER	2008	TAD00111	20602 Indian Ocean Drive, Lake Forest, CA 92630
CAT 561N PIPELAYER	2008	TAD00114	1875 Loveridge Rode, Pittsburg, CA 94565
CAT 572R II PIPELAYER	2008	DSC00387	1875 Loveridge Rode, Pittsburg, CA 94565
CAT 572R II PIPELAYER	2008	DSC00388	1159 Jonata Park Rd., Buelton, CA 93427
CAT 321D LCR EXCAVATOR	2008	NAS00322	4201 Technology Drive, Fremont, CA 94538
DEERE 710J BACKHOE	2008	T0710JX160749	20602 Indian Ocean Drive, Lake Forest, CA 92630
DEERE 710J BACKHOE	2008	T0710JX173475	5740 Arbor Vitae, Los Angeles, CA 90045
CAT 336DL EXCAVATOR	2009	W3K00636	11204 Mondon Ave., Santa Fe Springs, CA 90670
CAT 345DL EXCAVATOR	2009	EEH00596	4201 Technology Drive, Fremont, CA 94538
CAT 420E BACKHOE 4x4	2009	PRA00288	1875 Loveridge Rode, Pittsburg, CA 94565
CAT 420E BACKHOE 4x4	2009	PRA00296	1501 18th Street, Los Osos, CA 93402
CAT 420E BACKHOE 4x4	2009	PRA00367	1501 18th Street, Los Osos, CA 93402
CAT 420E BACKHOE 4x4	2009	PRA00371	2500 E. Victoria St., Compton, CA 90220
CAT 336DL EXCAVATOR	2010	W3K01205	1322 Main St Route 20 Lumberport, West Virginia 26386
DEERE 710J BACKHOE	2010	T0710JX174259	28901 Fort Cady Rd., Newberry Springs, CA 92365

5

SCHEDULE B

DEFINITIONS

Capitalized terms used in this Agreement and the other Loan Documents shall have (unless otherwise provided elsewhere in this Agreement or in the Loan Documents) the following respective meanings:

“Affiliate” of any Person shall mean any other Person that directly or indirectly controls, or is controlled by, or is under common control with, such Person.  The term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” shall have meanings correlative to the foregoing.

“Agreement” means this Loan and Security Agreement, as the same may be amended, modified or restated from time to time in accordance with the terms hereof, and including all appendices, exhibits and schedules attached or otherwise identified thereto.

“Applicable Law” means any Federal, state and local law, rule, regulation, ordinance, order, code, common law, interpretation, judgment, directive, decree, treaty, injunction, writ, determination, award, permit or similar norm or decision of any Governmental Authority applicable to Borrower or any of its properties.

“Borrower” means any Person or Persons identified as such in the preamble.

“Collateral” has the meaning assigned to it in Section 3.1.

“Collateral Schedule” means Schedule A to this Agreement.

“Default” means any event or condition the occurrence of which would, with the passage of time or the giving of notice, or both, constitute an Event of Default.

“Default Rate” has the meaning assigned to it in the Promissory Note.

“Environmental Laws” has the meaning assigned to it in Section 5.8.

“Equipment” has the meaning assigned to it in Section 3.1.

“Event of Default” has the meaning assigned to it in Section 7.1.

“GAAP” means generally accepted accounting principles in the United States of America as in effect from time to time, consistently applied.

“Governmental Authority” means any federal, state, county, municipal, regional or other governmental authority, agency, board, body, instrumentality or court, in each case, whether domestic or foreign.

“Indemnified Party” has the meaning assigned to it in Section 6.9.

“Lender” means the Person identified as such in the preamble.

Liens” has the meaning assigned to it in Section 6.3.

“Loan” means the loan in the amount of the aggregate principal amount at any time outstanding under this Agreement and evidenced by the Promissory Note, and made to Borrower under the terms of this Agreement.

“Loan Documents” means this Agreement, the Promissory Note, and the other documents and instruments executed pursuant hereto, and all other documents, instruments, certificates and notices at any time delivered by any Person (other than Lender) in connection with any of the foregoing.

1

“Material Adverse Effect” means (a) a materially adverse effect on the business, condition (financial or otherwise), operations, performance or properties of Borrower or any guarantor, (b) a material impairment of the enforceability of, or the ability of Borrower or any guarantor to perform its obligations under or to remain in compliance with, the Loan Documents or (c) a material impairment of the perfection or priority of Lender’s security interest in any of the Collateral.

“Maturity Date” has the meaning assigned to it in the Promissory Note.

“Obligations” has the meaning assigned to it in Section 3.1, and includes all principal, interest (including interest accruing at the then applicable rate provided in this Agreement or the Promissory Note and interest accruing at the Default Rate provided in this Agreement or the Promissory Note after any Event of Default), fees, charges (including, without limitation, Prepayment Charges as provided in Section 2.2 of this Agreement and late charges as provided in the Promissory Note), expenses, attorneys’ fees and any other sums chargeable to Borrower under any of the Loan Documents.

“OFAC” has the meaning assigned to it in Section 6.13.

“Patriot Act” means the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, P.L. 107-56 and any legislation that amends, modifies or replaces this Act.

“Payment Date” has the meaning assigned to it in Section 2.1.

“Person” means any individual, corporation, partnership, joint venture, limited liability entity, or other legal entity or a Governmental Authority, whether employed, hired, affiliated, owned, contracted with, or otherwise related or unrelated to Borrower.

“Prepayment Charge” has the meaning assigned to it in Section 2.2.

“Prepayment Date” has the meaning assigned to it in Section 2.2.

“Promissory Note” has the meaning assigned to it in Section 1.2.

“Taxes” means taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding taxes imposed on or measured by the net income of Lender.

“UCC” or “Uniform Commercial Code” means the Uniform Commercial Code as in effect in the State of Wisconsin or in any applicable jurisdiction; and any reference to an article or section thereof shall mean the corresponding article or section of any such applicable version of the Uniform Commercial Code.

2

PROMISSORY NOTE

Principal Amount: $15,400,000.00 Interest Rate: 1.9400% Date of Note: April 28, 2014

FOR VALUE RECEIVED, the undersigned Rockford Corporation (“Borrower”) And Q3 Contracting, Inc., ARB, Inc., Stellaris LLC as (‘‘Co-Borrower(s)’’) of 22845 NW Bennett St Ste 150, Hillsboro, OR 97214 And 3066 Spruce Street, Little Canada, MN, 5511726000 Commercentre Drive, Lake Forest, CA, 9263026000 Commercecentre Drive, Lake Forest, CA, 926  promises to pay to the order of BMO Harris Equipment Finance Company (“Lender”) of 250 E. Wisconsin Ave., Milwaukee, WI 53202, in lawful money of the United States of America, the principal amount of $15,400,000.00, together with interest at the rate of 1.9400% per annum (the “Interest Rate”) on the unpaid principal balance from April 28, 2014, until paid in full.  This Promissory Note shall mature on April 28, 2019 (the “Maturity Date”).

LOAN AND SECURITY AGREEMENT.  This Promissory Note is issued pursuant to that certain Loan and Security Agreement dated as of April 28, 2014 between Borrower and Lender (the “Loan Agreement”), and Lender shall be entitled to all of the rights and remedies set forth therein.  This Promissory Note is secured by certain Collateral described in the Loan Agreement.  Capitalized terms not otherwise defined herein shall have the meanings set forth for such terms in the Loan Agreement.

PAYMENT.  Borrower will pay this loan in 60 consecutive arrears monthly payments of principal and interest, each in the amount of $269,720.52, payable monthly on the 28th day of each calendar month, beginning May 28, 2014. Borrower’s final payment will be due on the Maturity Date and will be for all principal, interest and other amounts due under the Promissory Note and Loan Agreement which remain unpaid.  Payments will be credited on the date actually received and applied as provided in the Loan Agreement.  Borrower will pay Lender at Lender’s address shown above or at such other place as Lender may designate in writing.  This Promissory Note may be prepaid in whole or in part at the option of Borrower on the terms set forth in the Loan Agreement.  Any partial prepayment shall proportionately reduce each subsequent payment becoming due under this Promissory Note on and after the date of such prepayment.

INTEREST.  The annual Interest Rate for this Promissory Note is computed on an actual days/360 basis; that is, by applying the ratio of the annual Interest Rate over a year of 360 days, multiplied by the outstanding principal balance, multiplied by the actual number of days the principal balance is outstanding compounded on a monthly basis.  Upon an Event of Default, including failure to make any scheduled payment or to make any payment upon final maturity within ten (10) days after such payment is due, Lender, at its option, may increase the Interest Rate on this Promissory Note by 3.000 percentage points per annum (the “Default Rate”).  As more fully provided in the Loan Agreement, in no event shall this Promissory Note require the payment of interest in excess of the maximum amount permitted by applicable law.

LATE CHARGE.  If any payment of any amount owing under this Promissory Note or the Loan and Security Agreement is received by the Lender 10 or more days after said payment is due, Borrower will be obligated to pay an amount equal to 5.000% of the unpaid portion of such payment as a late charge.

REMEDIES UPON DEFAULT.  If an Event of Default occurs and is continuing, the principal of this Promissory Note may be declared or otherwise become due and payable in the manner, at the price and with the effect provided in the Loan Agreement and Lender shall be entitled to exercise the remedies set forth herein and in the Loan Agreement.  Such remedies shall be cumulative and concurrent and may be pursued singly, successively or together, at the sole discretion of Lender, and the failure to exercise any such right or remedy shall in no event be construed as a waiver or release thereof.  Borrower waives presentment for payment, demand, notice of demand, notice of nonpayment or dishonor, protest and notice of protest of this Promissory Note, and all other notices in connection with the delivery, acceptance, performance, default or enforcement of the payment of this Promissory Note.

GOVERNING LAW.  This Promissory Note will be governed by federal law applicable to Lender and, to the extent not preempted by federal law, the laws of the State of Wisconsin without regard to its conflicts of law provisions.  This Promissory Note has been accepted by Lender in the State of Wisconsin.

DISHONORED ITEM FEE.  Borrower will pay a fee to Lender of $50.00 if Borrower makes a payment on Borrower’s loan and the check or preauthorized charge with which Borrower pays is later dishonored.

1

RIGHT OF SETOFF.  To the extent permitted by Applicable Law, Lender reserves a right of setoff in all of Borrower’s accounts with Lender (whether checking, savings, or any other account).  This includes all accounts Borrower holds jointly with someone else and all accounts Borrower may open in the future (excluding any IRA or Keogh accounts, or any trust accounts for which setoff is prohibited by law).  Borrower authorizes Lender, to the extent permitted by Applicable Law, to charge or setoff all sums owing on the indebtedness against any and all such accounts, and, at Lender’s option, to administratively freeze all such accounts to allow Lender to protect Lender’s charge and setoff rights provided in this paragraph.  Borrower agrees that for purposes of this Right of Setoff, the term “Lender” includes BMO Harris Bank N.A., its subsidiaries and Affiliates.

PAYMENTS ABSOLUTE AND UNCONDITIONAL.  Borrower agrees that its obligation to make payments under this Promissory Note is absolute and unconditional and is not subject to setoff, counterclaim or abatement for any reason.

SUCCESSOR INTERESTS.  The terms of this Promissory Note shall be binding upon Borrower, and upon Borrower’s heirs, personal representatives, successors, and assigns, and shall inure to the benefit of Lender and its successors and assigns.

GENERAL PROVISIONS.  This Promissory Note benefits Lender and its successors and assigns, and binds Borrower and Borrower’s heirs, successors, assigns, and representatives.  If any part of this Promissory Note cannot be enforced, this factor will not affect the rest of the Promissory Note.  Lender may delay or forgo enforcing any of its rights or remedies under this Promissory Note without losing them.  Borrower and any other Person who signs, guarantees or endorses this Promissory Note, to the extent allowed by law, waive presentment, demand for payment, and notice of dishonor.  Upon any change in the terms of this Promissory Note, and unless otherwise expressly stated in writing, no party who signs this Promissory Note, whether as maker, guarantor, accommodation maker or endorser, shall be released from liability.  All such parties agree that Lender, in its sole and absolute discretion, may renew or extend (repeatedly and for any length of time) this Promissory Note or release any party or guarantor or Collateral; or impair, fail to realize upon or perfect Lender’s security interest in the Collateral; and take any other action deemed necessary by Lender without the consent of or notice to anyone.  All such parties also agree that Lender may modify this Promissory Note without the consent of or notice to anyone other than the party with whom the modification is made.

AT THE REQUEST OF LENDER, BORROWER SHALL AUTHORIZE LENDER TO DEBIT A BANK ACCOUNT DESIGNATED BY BORROWER IN ORDER TO MAKE PAYMENTS OF PRINCIPAL, INTEREST, FEES AND OTHER AMOUNTS FROM TIME TO TIME DUE UNDER THE LOAN AGREEMENT AND THIS PROMISSORY NOTE.

[Remainder of page intentionally left blank]

2

PRIOR TO SIGNING THIS PROMISSORY NOTE, BORROWER READ AND UNDERSTOOD ALL THE PROVISIONS OF THIS PROMISSORY NOTE.  BORROWER AGREES TO THE TERMS OF THE PROMISSORY NOTE AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THIS PROMISSORY NOTE.

IF MORE THAN ONE PARTY EXECUTES THIS PROMISSORY NOTE AS BORROWER, EACH SHALL BE JOINTLY AND SEVERALLY LIABLE HEREUNDER.

Borrower:	Rockford Corporation
By:	/s/ John M. Perisich
Name:	John M. Perisich
Title:	EVP
Co-Borrower:	Q3 Contracting, Inc.
By:	/s/ John M. Perisich
Name:	John M. Perisich
Title:	EVP
Co-Borrower:	ARB, Inc.
By:	/s/ A. Theeuwes
Name:	A. Theeuwes
Title:	CFO
Co-Borrower:	Stellaris LLC
By:	/s/ A. Theeuwes
Name:	A. Theeuwes
Title:	CFO

3

EX-31.1

Exhibit 31.1

RULE 13a-14(a)/15d-14(a) CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Brian Pratt, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2014 of Primoris Services Corporation;

2.Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

3.Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and

(d)Disclosed in this Quarterly Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 6, 2014

/s/ BRIAN PRATT

Brian Pratt

Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)

EX-31.2

Exhibit 31.2

RULE 13a-14(a)/15d-14(a) CERTIFICATION PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Peter J. Moerbeek, certify that:

1.I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2014, of Primoris Services Corporation;

2.Based on my knowledge, this Quarterly Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Quarterly Report;

3.Based on my knowledge, the financial statements, and other financial information included in this Quarterly Report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this Quarterly Report;

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Quarterly Report is being prepared;

(b)Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this Quarterly Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Quarterly Report based on such evaluation; and

(d)Disclosed in this Quarterly Report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:  May 6, 2014

/s/ PETER J. MOERBEEK

Peter J. Moerbeek

Executive Vice President, Chief Financial Officer and Director (Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

Certification Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

In connection with the Quarterly Report of Primoris Services Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Brian Pratt, Chairman of the Board, Chief Executive Officer and President of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.

Date: May 6, 2014	/s/ BRIAN PRATT
	Brian Pratt
	Chairman of the Board, Chief Executive Officer and President (Principal Executive Officer)

EX-32.2

Exhibit 32.2

Certification Pursuant to Section 906

of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)

In connection with the Quarterly Report of Primoris Services Corporation (the “Company”) on Form 10-Q for the period ended March 31, 2014, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Peter J. Moerbeek, Executive Vice President, Chief Financial Officer and Director of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

1.The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

In witness whereof, the undersigned has executed and delivered this certificate as of the date set forth opposite his signature below.

Date: May 6, 2014	/s/ PETER J. MOERBEEK
	Peter J. Moerbeek
	Executive Vice President, Chief Financial Officer and Director (Principal Financial and Accounting Officer)

XML

Basis of Presentation (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Customer concentration
Revenues	$ 470,074	$ 409,995
Revenues | Customer concentration | Top ten customers
Customer concentration
Number of top customers	10	10
Number of calendar years in which top customers typically generate minimum specified percentage of revenue	1
Revenues	$ 283,000	$ 227,000
Percentage of concentration risk	60.10%	55.40%
Revenues | Customer concentration | Top ten customers | Minimum
Customer concentration
Minimum percentage of revenues generated by top ten customers	50.00%
Revenues | Customer concentration | Large solar electric plant
Customer concentration
Percentage of concentration risk	12.70%	8.50%
Revenues | Customer concentration | One customer
Customer concentration
Percentage of concentration risk	12.70%	7.30%
Revenues | Customer concentration | Large gas pipeline company
Customer concentration
Percentage of concentration risk		7.30%
Revenues | Customer concentration | TX DOT
Customer concentration
Percentage of concentration risk	9.30%
Accounts receivable | Customer concentration | One customer
Customer concentration
Percentage of concentration risk	12.70%	8.20%
Number of customers	1	1

XML

Income Taxes (Details)	3 Months Ended
	Mar. 31, 2014
Income Taxes
Effective tax rate on income before taxes and noncontrolling interests (as a percent)	38.17%
Effective tax rate for income attributable to Primoris (as a percent)	39.56%
U.S. federal statutory rate (as a percent)	35.00%
Minimum period of statute of limitations of state and foreign jurisdictions	3 years
Maximum period of statute of limitations of state and foreign jurisdictions	5 years

XML

Accounts Payable and Accrued Liabilities (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Accounts Payable and Accrued Liabilities
Retention amounts included in accounts payable	$ 6,233	$ 5,602
Accrued expenses and other current liabilities
Payroll and related employee benefits	35,618	36,556
Insurance, including self-insurance reserves	35,405	33,880
Reserve for estimated losses on uncompleted contracts	274	1,392
Corporate income taxes and other taxes	14,783	13,305
Accrued overhead cost	759	1,165
Other	4,720	4,781
Total accrued expenses and other current liabilities	$ 91,559	$ 91,079

XML

Dividends and Earnings Per Share (Details) (USD $) In Thousands, except Per Share data, unless otherwise specified	0 Months Ended				3 Months Ended
	Apr. 15, 2014	Feb. 26, 2014	Jan. 15, 2014	Oct. 30, 2013	Mar. 31, 2014	Mar. 31, 2013
Dividends and Earnings Per Share
Cash dividend declared (in dollars per share)		$ 0.035		$ 0.035
Total dividend paid	$ 1,808		$ 1,805		$ 1,805
Numerator:
Net income attributable to Primoris					$ 10,833	$ 9,770
Denominator:
Weighted average shares for computation of basic earnings per share					51,610	51,456
Dilutive effect of shares issued to independent directors						9
Dilutive effect of unvested restricted stock units					104
Dilutive effect of shares to be issued to Q3C sellers						2
Weighted average shares for computation of diluted earnings per share					51,714	51,467
Earnings per share:
Basic (in dollars per share)					$ 0.21	$ 0.19
Diluted (in dollars per share)					$ 0.21	$ 0.19

XML

Business Combinations (Details 2) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Pro forma results
Percentage of pro forma tax rate used in calculating taxes on income from continuing operations	39.00%	39.00%
Revenues	$ 470,074	$ 412,794
Income before provision for income taxes	18,355	16,132
Net income attributable to Primoris	$ 10,833	$ 9,700
Weighted average common shares outstanding:
Basic (in shares)	51,610	51,456
Diluted (in shares)	51,714	51,467
Earnings per share:
Basic (in dollars per share)	$ 0.21	$ 0.19
Diluted (in dollars per share)	$ 0.21	$ 0.19

XML

Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2014

Intangible Assets

Summary of intangible asset categories, amounts and the average amortization periods

	Amortization	March 31,		December 31,
	Period	2014		2013
Tradename	3 to 10 years	$	20,041	$	21,023
Non-compete agreements	2 to 5 years	$	2,093	$	2,575
Customer relationships	5 to 15 years	$	21,326	$	21,705
Total		$	43,460	$	45,303

Schedule of estimated amortization expense for intangible assets

For the Years Ending December 31,	Estimated Intangible Amortization Expense
2014 (remaining nine months)	$	5,899
2015	5,921
2016	5,451
2017	5,386
2018	5,307
Thereafter	15,496
	$	43,460

XML

Stockholders' Equity (Details) (USD $)	1 Months Ended					0 Months Ended		3 Months Ended	1 Months Ended
	Mar. 31, 2014	Feb. 28, 2014	Mar. 31, 2013	Mar. 31, 2014 LTR Plan	Mar. 31, 2013 LTR Plan	Mar. 24, 2014 Equity Plan Restricted Stock Units	May 03, 2013 Equity Plan Restricted Stock Units	Mar. 31, 2014 Equity Plan Restricted Stock Units	Jan. 31, 2013 Q3 Contracting	Jan. 07, 2013 Q3 Contracting	Dec. 31, 2012 Q3 Contracting
Stockholders' equity
Amount received in exchange for shares of common stock under a long-term incentive plan				$ 1,671,000	$ 1,455,000
Shares of common stock purchased under the long-term incentive plan				77,455	131,989
Discounted price from market price at which shares purchased by participants in LTR Plan (as a percent)				75.00%
Shares of common stock issued as a part of quarterly compensation of non-employee members of the Board of Directors	6,375		12,480
Stock issued to sellers (in shares)									29,273
Price of shares issued (in dollars per share)											$ 14.69
Stock issued for acquisition										430,000
Shares granted						48,512	100,000	148,512
Aggregate purchase price up to which shares can be acquired under share repurchase program		$ 23,000,000

XML

Reportable Operating Segments

3 Months Ended

Mar. 31, 2014

Reportable Operating Segments

Reportable Operating Segments

Note 20—Reportable Operating Segments

The Company segregates its business into three operating segments: the East Construction Services (“East”) segment, the West Construction Services (“West”) segment and the Engineering segment.

The East segment includes the JCG and PES construction business, located primarily in the southeastern United States and in the Gulf Coast region of the United States.  Cardinal Contractors, Inc. is included in this segment.

The West segment includes the construction services performed by ARB, ARB Structures, Inc., Rockford, Alaska Continental Pipeline, Inc., Q3C, Primoris Renewables, LLC, Juniper Rock Corporation and Stellaris, LLC.  Most of the entities perform work primarily in California; however, Rockford operates throughout the United States and Q3C operates in the upper Midwest United States.  The Blythe joint venture is also included as a part of the segment.

The Engineering segment includes the results of OnQuest, Inc. and OnQuest Canada, ULC.

All intersegment revenues and gross profit, which were immaterial, have been eliminated in the following tables.

Segment Revenues

Revenue by segment for the three months ended March 31, 2014 and 2013 were as follows:

	For the three months ended March 31,
	2014				2013
Segment	Revenue		% of Segment Revenue		Revenue		% of Segment Revenue
East	$	223,072	47.5	%	$	190,211	46.4	%
West	234,026		49.7	%	207,686		50.6	%
Engineering	12,976		2.8	%	12,098		3.0	%
Total	$	470,074	100.0	%	$	409,995	100.0	%

Segment Gross Profit

Gross profit by segment for the three months ended March 31, 2014 and 2013 were as follows:

	For the three months ended March 31,
	2014				2013
Segment	Gross Profit		% of Segment Revenue		Gross Profit		% of Segment Revenue
East	$	16,017	7.2	%	$	14,995	7.9	%
West	31,673		13.5	%	28,749		13.8	%
Engineering	2,067		15.9	%	2,352		19.4	%
Total	$	49,757	10.6	%	$	46,096	11.2	%

Segment Goodwill

The following presents the amount of goodwill recorded by segment at March 31, 2014 and at December 31, 2013.

Segment	March 31, 2014		December 31, 2013
East	$	70,946	$	70,946
West	45,239		45,239
Engineering	2,441		2,441
Total	$	118,626	$	118,626

Geographic Region — Revenues and Total Assets

Revenue and total assets by geographic area were as follows:

	External Revenues
	For the three months ended March 31,
	2014				2013				Total Assets
Country:	Revenue		% of Revenue		Revenue		% of Revenue		March 31, 2014		December 31, 2013
United States	$	465,244	99.0	%	$	405,163	98.8	%	$	996,055	$	1,039,322
Non-United States	4,830		1.0		4,832		1.2		10,897		11,371
Total	$	470,074	100.0	%	$	409,995	100.0	%	$	1,006,952	$	1,050,693

All non-United States revenue was generated in the Engineering segment.  For the table above, revenues generated by OnQuest Canada, ULC, were used to determine non-United States revenues.

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Noncontrolling Interests (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Noncontrolling Interests
Revenues	$ 470,074	$ 409,995
Net income attributable to noncontrolling interests	432	270
Tax effect on income recognized	7,090	6,207
Accounts receivable	289,124		304,955
Current liabilities	394,344		430,314
Blythe joint venture | Primary beneficiary
Noncontrolling Interests
Revenues	940	16,272
Net income attributable to noncontrolling interests	432	270
Tax effect on income recognized	0
Distributions to non-controlling interests	1,125	0
Distributions from joint venture	1,125	0
Capital contributions	0		0
Cash	1,088		3,025
Accounts receivable			1,085
Current liabilities	$ 405		$ 2,041

XML

Accounts Receivable (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Accounts Receivable
Contracts receivable, net of allowance for doubtful accounts	$ 233,932	$ 257,354
Retention receivable	54,850	47,054
Contracts receivable and retention	288,782	304,408
Other accounts receivable	342	547
Accounts receivable, net	289,124	304,955
Allowance for doubtful accounts	$ 672	$ 692

XML

Reportable Operating Segments (Tables)

3 Months Ended

Mar. 31, 2014

Reportable Operating Segments

Schedule of revenue by segment

	For the three months ended March 31,
	2014				2013
Segment	Revenue		% of Segment Revenue		Revenue		% of Segment Revenue
East	$	223,072	47.5	%	$	190,211	46.4	%
West	234,026		49.7	%	207,686		50.6	%
Engineering	12,976		2.8	%	12,098		3.0	%
Total	$	470,074	100.0	%	$	409,995	100.0	%

Schedule of gross profit by segment

	For the three months ended March 31,
	2014				2013
Segment	Gross Profit		% of Segment Revenue		Gross Profit		% of Segment Revenue
East	$	16,017	7.2	%	$	14,995	7.9	%
West	31,673		13.5	%	28,749		13.8	%
Engineering	2,067		15.9	%	2,352		19.4	%
Total	$	49,757	10.6	%	$	46,096	11.2	%

Schedule of amount of goodwill recorded by segment

Segment	March 31, 2014		December 31, 2013
East	$	70,946	$	70,946
West	45,239		45,239
Engineering	2,441		2,441
Total	$	118,626	$	118,626

Schedule of revenue and total assets by geographic area

	External Revenues
	For the three months ended March 31,
	2014				2013				Total Assets
Country:	Revenue		% of Revenue		Revenue		% of Revenue		March 31, 2014		December 31, 2013
United States	$	465,244	99.0	%	$	405,163	98.8	%	$	996,055	$	1,039,322
Non-United States	4,830		1.0		4,832		1.2		10,897		11,371
Total	$	470,074	100.0	%	$	409,995	100.0	%	$	1,006,952	$	1,050,693

XML

Related Party Transactions (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Related party transactions
Lease payments to related party	$ 380	$ 399
SIGI
Related party transactions
Lease payments to related party	219	235
Roger Newnham
Related party transactions
Lease payments to related party	72	75
Lemmie Rockford
Related party transactions
Lease payments to related party	23	23
Quality RE Partners
Related party transactions
Lease payments to related party	$ 66	$ 66
Number of former shareholders owning leased property	3
Number of current employees owning leased property	2

XML

Reportable Operating Segments (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Revenues and total assets by geographic area
Revenue	$ 470,074	$ 409,995
% of Revenue	100.00%	100.00%
Total Assets	1,006,952		1,050,693
United States
Revenues and total assets by geographic area
Revenue	465,244	405,163
% of Revenue	99.00%	98.80%
Total Assets	996,055		1,039,322
Non-United States
Revenues and total assets by geographic area
Revenue	4,830	4,832
% of Revenue	1.00%	1.20%
Total Assets	$ 10,897		$ 11,371

XML

Intangible Assets (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Intangible assets
Intangible assets, net	$ 43,460		$ 45,303
Amortization expense of intangible assets	1,843	1,794
Estimated future amortization expense for intangible assets
2014 (remaining nine months)	5,899
2015	5,921
2016	5,451
2017	5,386
2018	5,307
Thereafter	15,496
Total	43,460		45,303
Tradename
Intangible assets
Intangible assets, net	20,041		21,023
Estimated future amortization expense for intangible assets
Total	20,041		21,023
Tradename | Minimum
Intangible assets
Amortization Period	3 years
Tradename | Maximum
Intangible assets
Amortization Period	10 years
Non-compete agreements
Intangible assets
Intangible assets, net	2,093		2,575
Estimated future amortization expense for intangible assets
Total	2,093		2,575
Non-compete agreements | Minimum
Intangible assets
Amortization Period	2 years
Non-compete agreements | Maximum
Intangible assets
Amortization Period	5 years
Customer relationship
Intangible assets
Intangible assets, net	21,326		21,705
Estimated future amortization expense for intangible assets
Total	$ 21,326		$ 21,705
Customer relationship | Minimum
Intangible assets
Amortization Period	5 years
Customer relationship | Maximum
Intangible assets
Amortization Period	15 years

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Fair Value Measurements

3 Months Ended

Mar. 31, 2014

Fair Value Measurements

Fair Value Measurements

Note 4—Fair Value Measurements

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

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, the Company’s financial assets and liabilities that are required to be measured at fair value at March 31, 2014 and December 31, 2013:

			Fair Value Measurements at Reporting Date
	Amount Recorded on Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets as of March 31, 2014:
Cash and cash equivalents	$	149,620	$	149,620	—	—
Short-term investments	$	17,326	$	17,326	—	—
Liabilities as of March 31, 2014:
Contingent consideration	$	4,347	—		—	$	4,347
Assets as of December 31, 2013:
Cash and cash equivalents	$	196,077	$	196,077	—	—
Short-term investments	$	18,686	$	18,686	—	—
Liabilities as of December 31, 2013:
Contingent consideration	$	9,233	—		—	$	9,233

Short-term investments consist primarily of Certificates of Deposit (“CDs”) and U.S. Treasury bills with various financial institutions that are backed by the federal government.

Other financial instruments of the Company 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 the Company’s 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 the Company’s contingent consideration liability Level 3 fair value measurements during the three months ended March 31, 2014:

Contingent Consideration
Balance at December 31, 2013	$	9,233
Additions:
Change in fair value of contingent consideration	114
Reductions:
Payment to Q3C sellers	(5,000		)
Balance at March 31, 2014	$	4,347

On a quarterly basis, the Company assesses the estimated fair value of the contractual obligation to pay the contingent consideration and any changes in estimated fair value are recorded as other non-operating expense or income in the Company’s consolidated statement of operations.  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 the Company’s cost of capital). Significant changes in either of those inputs in isolation would result in a significantly 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.

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Costs and Estimated Earnings on Uncompleted Contracts (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Costs and Estimated Earnings on Uncompleted Contracts
Costs incurred on uncompleted contracts	$ 3,722,890	$ 4,741,249
Gross profit recognized	432,568	582,430
Costs and Estimated Earnings on Uncompleted Contracts	4,155,458	5,323,679
Less: billings to date	(4,227,692)	(5,439,898)
Net cost and estimated earnings in excess of billings	(72,234)	(116,219)
Amount included in consolidated balance sheet
Costs and estimated earnings in excess of billings	75,067	57,146
Billings in excess of costs and estimated earnings	(147,301)	(173,365)
Net cost and estimated earnings in excess of billings	$ (72,234)	$ (116,219)

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Accounts Receivable (Tables)

3 Months Ended

Mar. 31, 2014

Accounts Receivable

Summary of accounts receivable

	March 31, 2014		December 31, 2013
Contracts receivable, net of allowance for doubtful accounts of $672 at March 31, 2014 and $692 at December 31, 2013	$	233,932	$	257,354
Retention receivable	54,850		47,054
	288,782		304,408
Other accounts receivable	342		547
	$	289,124	$	304,955

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Fair Value Measurements (Tables)

3 Months Ended

Mar. 31, 2014

Fair Value Measurements

Schedule of financial assets and liabilities which are required to be measured at fair value

			Fair Value Measurements at Reporting Date
	Amount Recorded on Balance Sheet		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)	Significant Unobservable Inputs (Level 3)
Assets as of March 31, 2014:
Cash and cash equivalents	$	149,620	$	149,620	—	—
Short-term investments	$	17,326	$	17,326	—	—
Liabilities as of March 31, 2014:
Contingent consideration	$	4,347	—		—	$	4,347
Assets as of December 31, 2013:
Cash and cash equivalents	$	196,077	$	196,077	—	—
Short-term investments	$	18,686	$	18,686	—	—
Liabilities as of December 31, 2013:
Contingent consideration	$	9,233	—		—	$	9,233

Schedule of changes to the Company's contingent consideration liability Level 3 fair value measurements

Contingent Consideration
Balance at December 31, 2013	$	9,233
Additions:
Change in fair value of contingent consideration	114
Reductions:
Payment to Q3C sellers	(5,000		)
Balance at March 31, 2014	$	4,347

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Dividends and Earnings Per Share (Details 2) (Q3 Contracting)	1 Months Ended
	Jan. 31, 2013
Q3 Contracting
Earnings per share
Number of unregistered shares of common stock issued	29,273

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Equity Method Investments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended		0 Months Ended			3 Months Ended			0 Months Ended	3 Months Ended		3 Months Ended				0 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Sep. 30, 2013 WPE, Kealine and the Company Highstar	Jul. 01, 2010 WesPac	Jul. 01, 2010 WesPac Kealine	Mar. 31, 2014 WesPac-Energy & WesPac-Midstream	Mar. 31, 2013 WesPac-Energy & WesPac-Midstream	Dec. 31, 2013 WesPac-Energy & WesPac-Midstream	Feb. 05, 2014 Alvah, Inc.	Mar. 31, 2014 Alvah, Inc.	Nov. 17, 2012 Alvah, Inc.	Mar. 31, 2014 Alvah, Inc. ARB	Mar. 31, 2013 Alvah, Inc. ARB	Mar. 31, 2014 Alvah, Inc. Q3C	Mar. 31, 2013 Alvah, Inc. Q3C	Sep. 30, 2013 Midstream project	Sep. 30, 2013 Midstream Highstar Maximum	Sep. 30, 2013 Midstream Kealine	Sep. 30, 2013 Midstream Company
Equity method investments
Membership interest (as a percent)				50.00%	50.00%						49.00%
Cash proceeds from sale of projects			$ 6,082
Maximum potential bonus payments under the agreement based on attainment of milestones																		5,750	9,000
Amount of reduced potential bonus payments if project not achieving milestone by July, 2014																4,500
Number of projects for which milestones must be attained for the potential bonus payments																2
Funding period																	2 years
Cash paid by majority owner to purchase the Company's minority interest	1,189								1,189
Balance sheet data
Assets						24,928		19,142
Liabilities						852		1,023
Net assets						24,076		18,119
Earnings data:
Revenue						3	39
Expenses						190	231
Earnings before taxes						(187)	(192)
Company's equity in earnings	14	269					(96)			14
Payments made to equity method investee												$ 1,336	$ 1,486	$ 0	$ 1,245

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Costs and Estimated Earnings on Uncompleted Contracts (Tables)

3 Months Ended

Mar. 31, 2014

Costs and Estimated Earnings on Uncompleted Contracts

Schedule of costs and estimated earnings on uncompleted contracts

	March 31, 2014			December 31, 2013
Costs incurred on uncompleted contracts	$	3,722,890		$	4,741,249
Gross profit recognized	432,568			582,430
	4,155,458			5,323,679
Less: billings to date	(4,227,692		)	(5,439,898		)
	$	(72,234	)	$	(116,219	)

Schedule of costs and estimated earnings on uncompleted contracts included in consolidated balance sheet

	March 31, 2014			December 31, 2013
Costs and estimated earnings in excess of billings	$	75,067		$	57,146
Billings in excess of costs and estimated earnings	(147,301		)	(173,365		)
	$	(72,234	)	$	(116,219	)

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Equity Method Investments (Tables) (WesPac & WesPac-Midstream)

3 Months Ended

Mar. 31, 2014

WesPac & WesPac-Midstream

Equity method investments

Summary of the financial position and results

	March 31, 2014		December 31, 2013
Balance sheet data
Assets	$	24,928	$	19,142
Liabilities	852		1,023
Net assets	$	24,076	$	18,119
Company’s equity investment in venture	$	—	$	—

	Three months ended March 31,
	2014			2013
Earnings data:
Revenue	$	3		$	39
Expenses	$	190		$	231
Earnings before taxes	$	(187	)	$	(192	)
Company’s equity in earnings	$	—		$	(96	)

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Recent Accounting Pronouncements

3 Months Ended

Mar. 31, 2014

Recent Accounting Pronouncements

Recent Accounting Pronouncements

Note 3—Recent Accounting Pronouncements

In February 2013, the FASB issued ASU 2013-04, “Liabilities (Topic 405): Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date (a consensus of the FASB Emerging Issues Task Force)”  (“ASU 2013-04”).  ASU 2013-04 provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This ASU is an update to FASB ASC Topic 405, “Liabilities”.  The Company adopted this guidance as of January 1, 2014 which did not have a material impact on the Company’s consolidated financial statements.

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Business Combinations (Tables)

3 Months Ended

Mar. 31, 2014

Business Combinations

Schedule of pro forma results

	Three months ended March 31,
	2014		2013
Revenues	470,074		412,794
Income before provision for income taxes	18,355		16,132
Net income attributable to Primoris	10,833		9,700
Weighted average common shares outstanding:
Basic	51,610		51,456
Diluted	51,714		51,467
Earnings per share:
Basic	$	0.21	$	0.19
Diluted	$	0.21	$	0.19

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Fair Value Measurements (Details) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Assets
Short-term investments	$ 17,326	$ 18,686
Recurring | Quoted Prices in Active Markets for Identical Assets (Level 1)
Assets
Cash and cash equivalents	149,620	196,077
Short-term investments	17,326	18,686
Recurring | Significant Unobservable Inputs (Level 3)
Liabilities
Contingent consideration	4,347	9,233
Recurring | Amount Recorded on Balance Sheet
Assets
Cash and cash equivalents	149,620	196,077
Short-term investments	17,326	18,686
Liabilities
Contingent consideration	$ 4,347	$ 9,233

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Stock-Based Compensation (Details) (Equity Plan, Restricted Stock Units, USD $)	0 Months Ended		3 Months Ended
	Mar. 24, 2014	May 03, 2013	Mar. 31, 2014
Equity Plan | Restricted Stock Units
Stock-based compensation
Shares granted	48,512	100,000	148,512
Number of equal installments to vest units over the service period		4
Units Vesting percentage on September 23,2015			50.00%
Units remaining vesting percentage on March 23,2017			50.00%
Number of shares of common stock issued for each unit when vested		1
Compensation expense recognized			$ 137,000
Unrecognized compensation expense			$ 3,190,000
Period to recognize unrecognized compensation expense			3 years 1 month 6 days
Accrued dividend equivalent units			0

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CONDENSED CONSOLIDATED BALANCE SHEETS (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Current assets:
Cash and cash equivalents	$ 149,620	$ 196,077
Short-term investments	17,326	18,686
Customer retention deposits and restricted cash	55	5,304
Accounts receivable, net	289,124	304,955
Costs and estimated earnings in excess of billings	75,067	57,146
Inventory and uninstalled contract materials	58,681	51,829
Deferred tax assets	13,133	13,133
Prepaid expenses and other current assets	12,610	12,654
Total current assets	615,616	659,784
Property and equipment, net	228,834	226,512
Intangible assets, net	43,460	45,303
Goodwill	118,626	118,626
Other long-term assets	416	468
Total assets	1,006,952	1,050,693
Current liabilities:
Accounts payable	119,089	127,302
Billings in excess of costs and estimated earnings	147,301	173,365
Accrued expenses and other current liabilities	91,559	91,079
Dividends payable	1,808	1,805
Current portion of capital leases	2,681	3,288
Current portion of long-term debt	27,559	28,475
Current portion of contingent earnout liabilities	4,347	5,000
Total current liabilities	394,344	430,314
Long-term capital leases, net of current portion	1,823	2,295
Long-term debt, net of current portion	180,653	191,051
Deferred tax liabilities	10,092	10,092
Long-term contingent earnout liabilities, net of current portion		4,233
Other long-term liabilities	10,405	14,260
Total liabilities	597,317	652,245
Commitments and contingencies
Stockholders' equity
Common stock-$.0001 par value, 90,000,000 shares authorized, 51,655,224 and 51,571,394 issued and outstanding at March 31, 2014 and December 31, 2013	5	5
Additional paid-in capital	162,050	159,196
Retained earnings	247,242	238,216
Noncontrolling interests	338	1,031
Total stockholders' equity	409,635	398,448
Total liabilities and stockholders' equity	$ 1,006,952	$ 1,050,693

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Business Combinations (Details) (FSSI acquisition, USD $) In Thousands, unless otherwise specified	0 Months Ended
	Mar. 11, 2013 item
2013 Acquisition - FSSI
Fair value of consideration	$ 2,377
Number of future potential payments based on agreed upon contingencies	3
Estimated fair value of the potential contingent consideration	702
Non-competition and non-solicitation agreement with a key employee
2013 Acquisition - FSSI
Initial payment	1,000
Period of employment, non-competition and non-solicitation agreement with a key employee	5 years
Amortization period of agreement	5 years
Earnout target period for remainder of the year ending December 31, 2013 | Minimum
2013 Acquisition - FSSI
Pretax income threshold for measuring financial performance	553
2013 earnout target
2013 Acquisition - FSSI
Contingent consideration in cash	500
2014 earnout target
2013 Acquisition - FSSI
Contingent consideration in cash	500
2014 earnout target | Minimum
2013 Acquisition - FSSI
Pretax income threshold for measuring financial performance	2,502
2015 earnout target
2013 Acquisition - FSSI
Contingent consideration in cash	500
2015 earnout target | Minimum
2013 Acquisition - FSSI
Pretax income threshold for measuring financial performance	$ 4,227

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Nature of Business

3 Months Ended

Mar. 31, 2014

Nature of Business

Nature of Business

Note 1—Nature of Business

Organization and operations— Primoris Services Corporation is a holding company of various construction and product engineering subsidiaries. The Company’s underground and directional drilling operations install, replace and repair natural gas, petroleum, telecommunications and water pipeline systems, including large diameter pipeline systems. The Company’s 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. The Company is incorporated in the State of Delaware, and its corporate headquarters are located at 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201.

The following table lists the Company’s primary operating subsidiaries and their reportable operating segment:

Subsidiary	Operating Segment
ARB, Inc. (“ARB”)	West Construction Services
ARB Structures, Inc.	West Construction Services
Q3 Contracting, Inc. (“Q3C”); acquired 2012	West Construction Services
Rockford Corporation (“Rockford”)	West Construction Services
Stellaris, LLC.	West Construction Services
OnQuest, Inc.	Engineering
OnQuest, Canada, ULC (Born Heaters Canada, ULC prior to 2013)	Engineering
Cardinal Contractors, Inc.	East Construction Services
James Construction Group, LLC (“JCG”)	East Construction Services
Silva Group (“Silva”); acquired 2012	East Construction Services
Primoris Energy Services Corporation (“PES”)	East Construction Services

Sprint Pipeline Services, L.P. (“Sprint”) was purchased by PES in 2012.  PES has operated using the Sprint name as a DBA during 2012 and 2013.  PES acquired two subsidiaries, The Saxon Group (“Saxon”) in 2012 and Force Specialty Services, Inc. (“FSSI”) in 2013. On January 1, 2014, the two subsidiaries were merged into PES.  Additionally, the Industrial division of JCG was merged into PES.  In this Quarterly Report on Form 10-Q for the three months ended March 31, 2014 (the “First Quarter 2014 Report), references to Sprint, FSSI, Saxon and James Industrial are to the divisions of PES, while the references are to the entities or divisions for periods prior to 2014.

The Company owns 50% of the Blythe Power Constructors joint venture (“Blythe”) for the installation of a parabolic trough solar field and steam generation system in California and its operations are included as part of the West Construction Services segment.

In January 2014, the Company created a wholly owned subsidiary, BW Primoris, LLC, a Texas limited liability company (“BWP”).  BWP’s goal is to develop water projects, primarily in Texas, that will need the Company’s construction services to construct a water treatment system and pipeline.  On January 22, 2014, BWP entered into an agreement to purchase the assets of Blaus Wasser, LLC, a Wyoming limited liability company for approximately $5 million.  During the 2014 first quarter, BWP entered into an intercompany construction contract with Cardinal Contractors, Inc. to build a small water treatment facility in West Texas; intercompany revenue and profit of the project is eliminated in consolidation.

Unless specifically noted otherwise, as used throughout these consolidated financial statements, “Primoris”, “the Company”, “we”, “our”, “us” or “its” refers to the business, operations and financial results of the Company and its wholly-owned subsidiaries.

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Commitments and Contingencies (Details 2) (USD $) In Thousands, unless otherwise specified		0 Months Ended	3 Months Ended
	Nov. 30, 2011	Feb. 07, 2012 James Construction Group LLC North Texas Tollway Authority v. James Construction Group, LLC wall	Mar. 31, 2014 Q3C	Mar. 31, 2013 Q3C	Nov. 30, 2012 Q3C	Mar. 31, 2014 Letters of credit	Dec. 31, 2013 Letters of credit	Mar. 31, 2014 Bonding	Dec. 31, 2013 Bonding
Commitments and contingencies
Total commercial letters of credit outstanding						$ 7,595	$ 7,696
Cost to repair retaining wall		5,400
Number of other walls constructed on the project, which could have potential exposure to failure		6
Bid and completion bonds issued and outstanding								1,336,007	1,458,744
Withdrawal liability recorded	7,500			119	85
Total of monthly payments towards the liability amount			$ 19

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Noncontrolling Interests (Tables)

3 Months Ended

Mar. 31, 2014

Noncontrolling Interests

Schedule of the Blythe joint venture operating activities included in the Company's consolidated statements of income

	March 31,2014		March 31,2013
Revenues	$	940	$	16,272
Net income attributable to noncontrolling interests	432		270

Schedule of the carrying value of the assets and liabilities associated with the operations of the Blythe joint venture included in the Company's consolidated balance sheets

	March 31,2014		December 31,2013
Cash	$	1,088	$	3,025
Accounts receivable	—		1,085
Current liabilities	405		2,041

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Dividends and Earnings Per Share

3 Months Ended

Mar. 31, 2014

Dividends and Earnings Per Share

Dividends and Earnings Per Share

Note 17—Dividends and Earnings Per Share

The Company has paid or declared cash dividends during 2014 as follows:

· On October 30, 2013, the Company declared a cash dividend of $0.035 per common share, payable to stockholders of record on December 31, 2013.  The dividend, totaling $1,805, was paid on January 15, 2014.

· On February 26, 2014, the Company declared a cash dividend of $0.035 per common share, payable to stockholders of record on March 31, 2014.  The dividend, totaling $1,808, was paid on April 15, 2014.

The table below presents the computation of basic and diluted earnings per share for the three months ended March 31, 2014 and 2013:

	Three months ended March 31,
	2014		2013
Numerator:
Net income attributable to Primoris	$	10,833	$	9,770
Denominator:
Weighted average shares for computation of basic earnings per share	51,610		51,456
Dilutive effect of shares issued to independent directors	—		9
Dilutive effect of unvested restricted stock units (1)	104		—
Dilutive effect of shares to be issued to Q3C sellers (2)	—		2
Weighted average shares for computation of diluted earnings per share	51,714		51,467
Earnings per share:
Basic	$	0.21	$	0.19
Diluted	$	0.21	$	0.19

(1) Represents the dilutive effect of a grant for 100,000 shares of Units on May 3, 2013 and 48,512 shares of Units on March 24, 2014.

(2) Represents the dilutive effect of 29,273 unregistered shares of common stock provided in January 2013 as part of the purchase consideration for the Q3C acquisition.

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Dividends and Earnings Per Share (Tables)

3 Months Ended

Mar. 31, 2014

Dividends and Earnings Per Share

Schedule of computation of basic and diluted earnings per share

	Three months ended March 31,
	2014		2013
Numerator:
Net income attributable to Primoris	$	10,833	$	9,770
Denominator:
Weighted average shares for computation of basic earnings per share	51,610		51,456
Dilutive effect of shares issued to independent directors	—		9
Dilutive effect of unvested restricted stock units (1)	104		—
Dilutive effect of shares to be issued to Q3C sellers (2)	—		2
Weighted average shares for computation of diluted earnings per share	51,714		51,467
Earnings per share:
Basic	$	0.21	$	0.19
Diluted	$	0.21	$	0.19

(1) Represents the dilutive effect of a grant for 100,000 shares of Units on May 3, 2013 and 48,512 shares of Units on March 24, 2014.

(2) Represents the dilutive effect of 29,273 unregistered shares of common stock provided in January 2013 as part of the purchase consideration for the Q3C acquisition.

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Commitments and Contingencies

3 Months Ended

Mar. 31, 2014

Commitments and Contingencies.

Commitments and Contingencies

Note 19—Commitments and Contingencies

Leases— The Company leases certain property and equipment under non-cancellable operating leases which expire at various dates through 2019. The leases require the Company to pay all taxes, insurance, maintenance and utilities and are classified as operating leases in accordance with ASC Topic 840 “Leases”.

Total lease expense during the three months ended March 31, 2014 and 2013 was $3,637 and $3,845, respectively, including amounts paid to related parties of $380 and $399, respectively.

Letters of credit— At March 31, 2014, the Company had letters of credit outstanding of $7,595 and at December 31, 2013, the Company had letters of credit outstanding of $7,696.  The outstanding amounts include the U.S. dollar equivalents for letters of credit issued in Canadian dollars.

Litigation — On February 7, 2012, the Company was sued in an action entitled North Texas Tollway Authority, Plaintiff v. James Construction Group, LLC, and KBR, Inc., Defendants, v. Reinforced Earth Company, Third-Party Defendant (the “Lawsuit”). The Lawsuit was brought in the District Court of Collin County, Texas, 401st Judicial District, Cause No. 401-01747-2012.  In the Lawsuit, the North Texas Tollway Authority (“NTTA”) is alleging damages to a road and retaining wall that were constructed in 1999 on the George Bush Turnpike near Dallas, Texas, due to negligent construction by JCG.  The Lawsuit claims that the cost to repair the retaining wall was approximately $5,400.  The NTTA also alleges that six other walls constructed on the project by JCG could have the same potential exposure to failure.  The Company has denied any liability, has tendered the claim to its insurance carriers and has cross-complained against its engineering subcontractor for potential design liability.  The extent of insurance coverage by the carriers of the Company and its subcontractor is undetermined at this time.  The Company is investigating all potential causes of the alleged loss, including design liabilities of the owner, owner’s engineers and/or the Company’s subcontractor.  The Company will vigorously defend the claims.  After discussion with our legal counsel, we have recorded loss contingencies which have not been material to the financial statements, to reflect the best estimate of the Company’s portion of the NTTA claim.  At this time, management does not believe it is possible to make a reasonably probable estimate of additional loss or a range of loss.

The Company is subject to other claims and legal proceedings arising out of its business. The Company provides for costs related to contingencies when a loss from such claims is probable and the amount is reasonably determinable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, the Company reviews and evaluates its litigation and regulatory matters on a quarterly basis in light of potentially relevant factual and legal developments. If we determine an unfavorable outcome is not probable or reasonably estimable, we do not accrue for a potential litigation loss. Management is unable to ascertain the ultimate outcome of other claims and legal proceedings; however, after review and consultation with counsel and taking into consideration relevant insurance coverage and related deductibles/self-insurance retention, management believes that it has meritorious defense to the claims and believes that the reasonably possible outcome of such claims will not, individually or in the aggregate, have a materially adverse effect on the consolidated results of operations, financial condition or cash flows of the Company.

Bonding— At March 31, 2014 and December 31, 2013, the Company had bid and completion bonds issued and outstanding totaling approximately $1,336,007 and $1,458,744, respectively.

Withdrawal liability for multiemployer pension plan— In November 2011, Rockford and ARB, along with other members of the Pipe Line Contractors Association (“PLCA”), withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan (the “Plan”).  The Company withdrew from the Plan in order to mitigate its liability in connection with the Plan, which is significantly underfunded.  The Company recorded a liability of $7,500 based on information provided by the Plan. However, the Plan has asserted that the PLCA members did not affect a proper withdrawal in 2011. The Company believes that a legally effective withdrawal occurred in November 2011 and has recorded the withdrawal liability on that basis. If the Plan were to prevail in its assertion and the withdrawal of the Company were deemed to occur after 2011, the amount of any withdrawal liability could increase.

Prior to the Company’s acquisition, Q3C had also withdrawn from the Plan.  In November 2012, Q3C estimated a withdrawal liability of $85.  In the first quarter of 2013, the Plan asserted that the liability was $119.  Without agreeing to the amount, Q3C has made monthly payments totaling $19 as of March 31, 2014.

Contingent Consideration— Earnouts related to acquisitions are discussed in Note 13 — “Contingent Earnout Liabilities”.

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Basis of Presentation

3 Months Ended

Mar. 31, 2014

Basis of Presentation

Basis of Presentation

Note 2—Basis of Presentation

Interim consolidated financial statements— The interim condensed consolidated financial statements for the three-month period ended March 31, 2014 and 2013 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 the Company’s Annual Report on Form 10-K, filed on March 3, 2014, which contains the Company’s audited consolidated financial statements for the year ended December 31, 2013, have been omitted.

This First Quarter 2014 Report should be read in concert with the Company’s 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.

Revenue recognition

Fixed-price contracts — Historically, a substantial portion of the Company’s revenue has been generated under fixed-price contracts. Fixed price contracts generally provide that the Company will perform all of the work required by the contract for a stated price.  For fixed-price contracts, the Company recognizes revenues using the percentage-of-completion method, which may result in uneven and irregular results. In the percentage-of-completion method, estimated revenues and resulting contract income are calculated based on the total costs incurred to date as a percentage of total estimated costs.

Unit-price contracts — A unit-price contract provides performance of a specific project at a specific price for each unit of output.  These contracts are commonly associated with road building.

For fixed-price and unit-price contracts, if an estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full at the time of the estimate.  The loss amount is recognized as an “accrued loss provision” and is included in the accrued expenses and other liabilities amount on the consolidated balance sheet.  Because the full loss has been recognized, any future revenues that are generated will result in the accrued loss provision being changed and the gross profit of the contract in future periods will be zero.

Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract.  Total estimated costs, and thus contract revenues 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.

Other contract forms — The Company also uses time and material and cost reimbursable plus fee contracts.  For these jobs, revenue is recognized based on contractual terms.  For example, time and material contract revenues are recognized based on purchasing and employee time records.

For all of its contracts, the Company includes any provision for estimated losses on uncompleted contracts in accrued expenses. Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and income. These revisions are recognized in the period in which the revisions are identified.

The Company considers unapproved change orders to be contract variations for which it has customer approval for a change in scope but for which it does not have an agreed upon price change.  Costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are treated as project costs as incurred. The Company recognizes revenue equal to costs incurred on unapproved change orders when realization of price approval is probable.  Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in future reporting periods to reflect changes in estimates or final agreements with customers.

The Company considers claims to be amounts it seeks, 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 on both scope and price changes. Claims are included in the calculation of revenues when realization is probable and amounts can be reliably determined. Revenues in excess of contract costs incurred on claims are recognized when the amounts have been agreed upon with the customer.  Revenue in excess of contract costs from claims is recognized when an agreement is reached with customers as to the value of the claims, which in some instances may not occur until after completion of work under the contract. Costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred.

The caption “Costs and estimated earnings in excess of billings” in the consolidated balance sheet represents unbilled receivables which arise when revenues have been recorded but the amount will not be billed until a later date.  Balances represent:  (a) unbilled amounts arising from the use of the percentage-of-completion method of accounting which may not be billed under the terms of the contract until a later date, (b) incurred costs to be billed under cost reimbursement type contracts, (c) amounts arising from routine lags in billing, or (d) the revenue associated with unapproved change orders or claims when realization is probable and amounts can be reliably determined.  For those contracts in which billings exceed contract revenues recognized to date, the excess amounts are included in the caption “Billings in excess of costs and estimated earnings”.

In accordance with applicable terms of certain construction contracts, retainage amounts may be withheld by customers until completion and acceptance of the project.  Some payments of the retainage may not be received for a significant period after completion of our portion of a project.  In some jurisdictions, retainage amounts are deposited into an escrow account.

Significant revision in contract estimate— As previously discussed, revenue recognition is based on the percentage-of-completion method for firm fixed-price contracts. Under this method, the costs incurred to date as a percentage of total estimated costs are used to calculate revenue. Total estimated costs, and thus contract revenues and margin, are impacted by many factors which can cause significant changes in estimates during the life cycle of a project.

For projects that were in process in the prior year, but are either completed or continue to be in process during the current year, there can be a difference in revenues and profits recognized to the prior year, had current year estimates of costs to complete been known in the prior year.

Customer Concentration — The Company operates in multiple industry segments encompassing the construction of industrial and public works infrastructure assets throughout primarily the United States. Typically, the top ten customers in any one calendar year generate revenues in excess of 50% of total revenues; however in most years a different group make up the top ten customers.

During the three months ending March 31, 2014, revenues generated by the top ten customers were $283 million, which represented 60.1% of total revenues during the period.  During that period, a large solar electric plant represented 12.7% of total revenues and TX DOT represented 9.3% of total revenues.

During the three months ending March 31, 2013, revenues generated by the top ten customers were $227 million, which represented 55.4% of total revenues during the period.  During that period, a large gas and electric utility represented 8.5% of total revenues and a large pipeline company represented 7.3% of total revenues.

At March 31, 2014, approximately 12.7% of the Company’s accounts receivable were due from one customer, and that customer provided 12.7% of the Company’s revenues for the three months ended March 31, 2014.  At March 31, 2013, approximately 8.2% of the Company’s accounts receivable were due from one customer, and that customer provided 7.3% of the Company’s revenues for the three months ended March 31, 2013.

Multiemployer Plans— Various subsidiaries in the West Construction Services segment are signatories to collective bargaining agreements.  These agreements require that the Company participate in and contribute to a number of multiemployer benefit plans for its 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.  Federal law requires that if the Company were to withdraw from an agreement, it will incur a withdrawal obligation.  The potential withdrawal obligation may be significant.  Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with generally accepted accounting principles (“GAAP”).  In November 2011, the Company withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan.  The Company has no plans to withdraw from any other agreements.  See Note 19 — “Commitments and Contingencies”.

Inventory and uninstalled contract materials — Inventory consists of expendable construction materials and small tools that will be used in construction projects and is valued at the lower of cost, using first-in, first-out method, or market.  Uninstalled contract materials include certain job specific materials not yet installed which are valued using the specific identification method relating the inventory cost to a specific project.

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CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $)	Mar. 31, 2014	Dec. 31, 2013
CONDENSED CONSOLIDATED BALANCE SHEETS
Common stock, par value (in dollars per share)	$ 0.0001	$ 0.0001
Common stock, shares authorized	90,000,000	90,000,000
Common stock, shares issued	51,655,224	51,571,394
Common stock, shares outstanding	51,655,224	51,571,394

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Noncontrolling Interests

3 Months Ended

Mar. 31, 2014

Noncontrolling Interests

Noncontrolling Interests

Note 12 — Noncontrolling Interests

The Company applies the provisions of ASC Topic 810-10-45, which establishes accounting and reporting standards for ownership interests of parties other than the Company in subsidiaries, such as joint ventures and partnerships.

The Company determined that the Blythe joint venture was a variable interest entity (“VIE”) and that the Company was the primary beneficiary as a result of its significant influence over the joint venture operations.

The Blythe joint venture operating activities are included in the Company’s consolidated statements of income as follows for the three months ended March 31:

	March 31,2014		March 31,2013
Revenues	$	940	$	16,272
Net income attributable to noncontrolling interests	432		270

Since Blythe is a partnership, no tax effect was recognized for the income.  Blythe made a $1,125 distribution to the non-controlling interests and a $1,125 distribution to the Company during the three months ended March 31, 2014.  There were no distributions made during the three months ended March 31, 2013.  There were no capital contributions made during the year ended December 31, 2013 or through the three months ended March 31, 2014.

The carrying value of the assets and liabilities associated with the operations of the Blythe joint venture are included in the Company’s consolidated balance sheets as follows:

	March 31,2014		December 31,2013
Cash	$	1,088	$	3,025
Accounts receivable	—		1,085
Current liabilities	405		2,041

The net assets of the joint venture are restricted for use by the project and are not available for general operations of the Company.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2014	May 05, 2014
Document and Entity Information
Entity Registrant Name	Primoris Services Corp
Entity Central Index Key	0001361538
Document Type	10-Q
Document Period End Date	Mar. 31, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Entity Current Reporting Status	Yes
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		51,655,224
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1

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Contingent Earnout Liabilities

3 Months Ended

Mar. 31, 2014

Contingent Earnout Liabilities

Contingent Earnout Liabilities

Note 13 — Contingent Earnout Liabilities

As part of the Rockford acquisition in November 2010, the Company agreed to issue additional cash and common stock to the sellers, contingent upon Rockford meeting certain operating performance targets The final contingent earnout for 2012 was achieved, and in April 2013, the Company made a $6,900 cash payment.

A contingent earnout payment of $4,000 was made in April 2013 to the sellers of Sprint for achieving certain operating performance targets in 2012.  The operations of Sprint did not meet the 2013 performance target.

Saxon’s operations did not meet the performance target for the 2013 year and no payment was made.

In March 2014, the Company paid $5,000 to the sellers of Q3C based on achievement of the 2013 operating performance targets.  The sellers will be paid up to an additional $5,000 in 2015, contingent upon meeting certain performance targets for the calendar year 2014.  The estimated fair value at March 31, 2014 of the remaining contingent earnout was $4,347.

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CONDENSED CONSOLIDATED STATEMENTS OF INCOME (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
Revenues	$ 470,074	$ 409,995
Cost of revenues	420,317	363,899
Gross profit	49,757	46,096
Selling, general and administrative expenses	29,712	28,619
Operating income	20,045	17,477
Other income (expense):
Income from non-consolidated entities	14	269
Foreign exchange gain (loss)	26	(59)
Other expense	(114)	(56)
Interest income	52	40
Interest expense	(1,668)	(1,424)
Income before provision for income taxes	18,355	16,247
Provision for income taxes	(7,090)	(6,207)
Net income	11,265	10,040
Less net income attributable to noncontrolling interests	(432)	(270)
Net income attributable to Primoris	$ 10,833	$ 9,770
Earnings per share:
Basic (in dollars per share)	$ 0.21	$ 0.19
Diluted (in dollars per share)	$ 0.21	$ 0.19
Weighted average common shares outstanding:
Basic (in shares)	51,610	51,456
Diluted (in shares)	51,714	51,467

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Equity Method Investments

3 Months Ended

Mar. 31, 2014

Equity Method Investments.

Equity Method Investments

Note 7—Equity Method Investments

WesPac Energy LLC and WesPac Midstream LLC

On July 1, 2010, the Company acquired a 50% membership interest in WesPac Energy LLC (“WPE”), a Nevada limited liability company, from Kealine Holdings, LLC (“Kealine”), a Nevada limited liability company, with Kealine retaining a remaining 50% membership interest. WPE develops pipeline and terminal projects, primarily for the oil and gas industry.

On September 30, 2013, WPE, Kealine and the Company entered into an agreement (the “Midstream Agreement”) with Highstar Capital IV, LP (“Highstar”), to form a new entity, WesPac Midstream LLC, a Delaware limited liability company (“Midstream”), with WPE contributing project assets to Midstream and Highstar investing $6,082 in cash.  The Midstream Agreement provides for potential bonus payments of up to $5,750 each for Kealine and the Company based on attainment of milestones for two projects; however, the amount of these potential bonus payments will be reduced to $4,500 each if certain milestones are not achieved by July 1, 2014.

The Midstream agreement requires that Highstar fund Midstream’s overhead operations for up to two years. To maintain its equity position, the Company will be required to fund its pro rata share of Midstream’s projects.

The Company has accounted for the investment using the equity method of accounting and recorded its proportionate share of operating expenses.  During the fourth quarter 2013, the Company recorded non-cash impairment charges and wrote-off the value of its equity investment.  As a consequence, in accordance with ASC Topic 323, the Company has suspended the equity method of accounting and the Company’s proportionate share of losses will not be recognized unless the Company committed to a further investment.

The following is a summary of the financial position and results as of and for the periods ended:

	March 31, 2014		December 31, 2013
Balance sheet data
Assets	$	24,928	$	19,142
Liabilities	852		1,023
Net assets	$	24,076	$	18,119
Company’s equity investment in venture	$	—	$	—

	Three months ended March 31,
	2014			2013
Earnings data:
Revenue	$	3		$	39
Expenses	$	190		$	231
Earnings before taxes	$	(187	)	$	(192	)
Company’s equity in earnings	$	—		$	(96	)

Alvah, Inc.

As part of its acquisition of Q3C, the Company acquired a 49% membership interest in Alvah, Inc., a California corporation (“Alvah”).  Alvah is engaged in electrical contracting activities, primarily in Northern California and has worked as a subcontractor for ARB both prior to and subsequent to the Q3C acquisition.  During the three months ending March 31, 2014, payments made by ARB to Alvah were $1,336 and there were no payments made by Q3C.  For the same period in the prior year, ARB made payments of $1,486 and Q3C made payments of $1,245.

On February 5, 2014, the majority owner of Alvah, in accordance with the original investment agreement, elected to purchase the Company’s minority interest effective January 1, 2014 for a cash payment of $1,189.  At the time of the transaction, the Company recorded income adjustments of $14 related to the final sale in the first quarter 2014.

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Costs and Estimated Earnings on Uncompleted Contracts

3 Months Ended

Mar. 31, 2014

Costs and Estimated Earnings on Uncompleted Contracts

Costs and Estimated Earnings on Uncompleted Contracts

Note 6—Costs and Estimated Earnings on Uncompleted Contracts

Costs and estimated earnings on uncompleted contracts consist of the following:

	March 31, 2014			December 31, 2013
Costs incurred on uncompleted contracts	$	3,722,890		$	4,741,249
Gross profit recognized	432,568			582,430
	4,155,458			5,323,679
Less: billings to date	(4,227,692		)	(5,439,898		)
	$	(72,234	)	$	(116,219	)

This amount is included in the accompanying consolidated balance sheets under the following captions:

	March 31, 2014			December 31, 2013
Costs and estimated earnings in excess of billings	$	75,067		$	57,146
Billings in excess of costs and estimated earnings	(147,301		)	(173,365		)
	$	(72,234	)	$	(116,219	)

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Stockholders' Equity

3 Months Ended

Mar. 31, 2014

Stockholders' Equity

Stockholders' Equity

Note 18—Stockholders’ Equity

Common stock — In March 2014, the Company received $1,671 for 77,455 shares of common stock purchased under a long-term incentive plan.  The Company’s Long-Term Retention Plan (“LTR Plan”) for managers and executives allows participants to use a portion of their annual bonus amount to purchase Company common stock at a discount from the market price. The shares purchased in March 2014 were for bonus amounts earned in 2013 and the number of shares was calculated at 75% of the average market closing price of December 2013.  In March 2013, the Company received $1,455 for 131,989 shares of common stock issued under the LTR Plan for bonus amounts earned in the prior year.

In March 2014 and 2013, the Company issued 6,375 shares and 12,480 shares of common stock, respectively, as part of the quarterly compensation of the non-employee members of the Board of Directors.

As part of the acquisition of Q3C, the Company issued 29,273 unregistered shares of stock on January 7, 2013.  The shares were issued based on the average December 2012 closing prices, or $14.69 per share for a total value of $430.

As discussed in Note 15 — “Stock Based Compensation”, the Board of Directors has granted a total of 148,512 shares of Units under the Equity Plan.

In February 2014, the Company’s Board of Directors authorized a share repurchase program under which the Company, from time to time and depending on market conditions, share price and other factors, may acquire shares of its common stock on the open market or in privately negotiated transactions up to an aggregate purchase price of $23 million.  During the three months ending March 31, 2014, the Company did not purchase any shares of stock.  The share repurchase program expires December 31, 2014.

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Related Party Transactions

3 Months Ended

Mar. 31, 2014

Related Party Transactions

Related Party Transactions

Note 14—Related Party Transactions

Primoris has entered into leasing transactions with Stockdale Investment Group, Inc. (“SIGI”).  Brian Pratt, our Chief Executive Officer, President and Chairman of the Board of Directors and our largest stockholder, holds a majority interest and is the chairman, president and chief executive officer and a director of SIGI.  John M. Perisich, our Executive Vice President and General Counsel, is secretary of SIGI.

Primoris leases properties from SIGI at the following locations:

1. Bakersfield, California (lease expires October 2022)

2. Pittsburg, California (lease expires April 2023)

3. San Dimas, California (lease expires March 2019)

4. Pasadena, Texas (leases expire in July 2019 and 2021)

During the three months ended March 31, 2014 and 2013, the Company paid $219 and $235, respectively, in lease payments to SIGI for the use of these properties.

Primoris leases a property from Roger Newnham, a former owner and manager of our subsidiary, OnQuest Canada, ULC. The property is located in Calgary, Canada. During the three months ended March 31, 2014 and 2013, Primoris paid $72 and $75, respectively, in lease payments.  The current term of the lease is through December 31, 2014.

Primoris leases a property from Lemmie Rockford, one of the Rockford sellers, which commenced November 1, 2011.  The property is located in Toledo, Washington.  During the three months ended March 31, 2014 and 2013, Primoris paid $23 and $23, respectively, in lease payments.  The lease expires in January 2015.

Primoris leases a property from Quality RE Partners, owned by three of the Q3C selling shareholders, of whom two are current employees, including Jay Osborn, President of Q3C.  The property is located in Little Canada, Minnesota.  During the three months ended March 31, 2014 and 2013, the Company paid $66 and $66, respectively, in lease payments to Quality RE Partners.  The lease expires in October 2022.

As discussed in Note 7— “Equity Method Investments”, the Company owns several non-consolidated investments and has recognized revenues on work performed by the Company for those joint ventures.

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Accounts Payable and Accrued Liabilities

3 Months Ended

Mar. 31, 2014

Accounts Payable and Accrued Liabilities

Accounts Payable and Accrued Liabilities

Note 10—Accounts Payable and Accrued Liabilities

At March 31, 2014 and December 31, 2013, accounts payable included retention amounts of approximately $6,233 and $5,602, respectively.  These amounts are due to subcontractors have been retained pending contract completion and customer acceptance of jobs.

The following is a summary of accrued expenses and other current liabilities at:

	March 31, 2014		December 31, 2013
Payroll and related employee benefits	$	35,618	$	36,556
Insurance, including self-insurance reserves	35,405		33,880
Reserve for estimated losses on uncompleted contracts	274		1,392
Corporate income taxes and other taxes	14,783		13,305
Accrued overhead cost	759		1,165
Other	4,720		4,781
	$	91,559	$	91,079

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Reportable Operating Segments (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014 segment	Mar. 31, 2013	Dec. 31, 2013
Reportable Operating Segments
Number of operating segments	3
Segment reporting information
Revenue	$ 470,074	$ 409,995
% of Segment Revenue	100.00%	100.00%
Gross Profit	49,757	46,096
% of Segment Revenue	10.60%	11.20%
Goodwill	118,626		118,626
East
Segment reporting information
Revenue	223,072	190,211
% of Segment Revenue	47.50%	46.40%
Gross Profit	16,017	14,995
% of Segment Revenue	7.20%	7.90%
Goodwill	70,946		70,946
West
Segment reporting information
Revenue	234,026	207,686
% of Segment Revenue	49.70%	50.60%
Gross Profit	31,673	28,749
% of Segment Revenue	13.50%	13.80%
Goodwill	45,239		45,239
Engineering
Segment reporting information
Revenue	12,976	12,098
% of Segment Revenue	2.80%	3.00%
Gross Profit	2,067	2,352
% of Segment Revenue	15.90%	19.40%
Goodwill	$ 2,441		$ 2,441

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Business Combinations

3 Months Ended

Mar. 31, 2014

Business Combinations

Business Combinations

Note 8 — Business Combinations

The Company purchased the assets of FSSI on March 11, 2013.  The fair value of the consideration was $2,377, which consisted of a cash payments and three future potential payments to a key employee, contingent upon FSSI meeting certain performance targets for the remainder of calendar year 2013 and for calendar years 2014 and 2015.

The contingent consideration was defined as:  (1) a payment of $500 in cash for the achievement of pretax income of at least $553 for the remainder of the year ending December 31, 2013; (2) a payment of $500 in cash if pretax income for the year 2014 is at least $2,502; and (3), a payment of $500 in cash if pretax income for the year 2015 is at least $4,227.  The estimated fair value of the potential contingent consideration on the acquisition date was $702.  At December 31, 2013, the Company determined that the operations of FSSI had not met the 2013 performance target nor was it probable that FSSI would meet any of the future targets; therefore, the full amount of the accrued contingent consideration was credited to non-operating income at December 31, 2013.

The purchase agreement also included a provision of an initial payment of $1,000 for a five-year employment, non-competition and non-solicitation agreement with the key employee.  The agreement provided that if the employee terminated his employment or violated the agreement prior to the end of the five-year period, he would be required to repay the unamortized amount of the initial payment.  This agreement was accounted for as a prepaid asset and was being amortized equally over a five-year period.

Because the operating performance of FSSI did not meet expected targets, the Company made changes in FSSI management which resulted in adjustments to the value of certain FSSI assets (including the write-down of the unamortized portion of the prepaid employment asset) and liabilities as of December 31, 2013.

Supplemental Unaudited Pro Forma Information for the three months ended March 31, 2014 and 2013

In accordance with ASC Topic 805 we are combining the pro forma information for the FSSI acquisition.  The following pro forma information for the three months ended March 31, 2014 and 2013 presents the results of operations of the Company as if the FSSI acquisition had occurred at the beginning of 2013. 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 for potential earnout liabilities that may be achieved in 2013 and 2014 for the FSSI acquisition;

· 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 three months ended March 31, 2014 and the same period in 2013; and

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 FSSI acquisition been completed on January 1, 2013.  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 FSSI acquisition.

	Three months ended March 31,
	2014		2013
Revenues	470,074		412,794
Income before provision for income taxes	18,355		16,132
Net income attributable to Primoris	10,833		9,700
Weighted average common shares outstanding:
Basic	51,610		51,456
Diluted	51,714		51,467
Earnings per share:
Basic	$	0.21	$	0.19
Diluted	$	0.21	$	0.19

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Intangible Assets

3 Months Ended

Mar. 31, 2014

Intangible Assets

Intangible Assets

Note 9—Intangible Assets

At March 31, 2014 and December 31, 2013, intangible assets totaled $43,460 and $45,303, respectively, net of amortization.  The table below summarizes the intangible asset categories, amounts and the average amortization periods, which are generally on a straight-line basis, as follows:

	Amortization	March 31,		December 31,
	Period	2014		2013
Tradename	3 to 10 years	$	20,041	$	21,023
Non-compete agreements	2 to 5 years	$	2,093	$	2,575
Customer relationships	5 to 15 years	$	21,326	$	21,705
Total		$	43,460	$	45,303

Amortization expense of intangible assets was $1,844 and $1,794 for the three months ended March 31, 2014 and 2013, respectively.  Estimated future amortization expense for intangible assets is as follows:

For the Years Ending December 31,	Estimated Intangible Amortization Expense
2014 (remaining nine months)	$	5,899
2015	5,921
2016	5,451
2017	5,386
2018	5,307
Thereafter	15,496
	$	43,460

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Credit Arrangements

3 Months Ended

Mar. 31, 2014

Credit Arrangements

Credit Arrangements

Note 11—Credit Arrangements

Revolving Credit Facility

As of March 31, 2014, the Company had a revolving credit facility (the “Credit Agreement”) with The PrivateBank and Trust Company, as administrative agent (the “Administrative Agent”) and co-lead arranger, The Bank of the West, as co-lead arranger, and IBERIABANK Corporation (the “Lenders”). The Credit Agreement is a $75 million revolving credit facility whereby the Lenders agree to make loans on a revolving basis from time to time and to issue letters of credit for up to the $75 million committed amount. The Credit Agreement also provides for an incremental facility of up to $50 million. The termination date of the Credit Agreement is December 28, 2017.

The principal amount of any loans under the Credit Agreement will bear interest at either: (i) LIBOR plus an applicable margin as specified in the Credit Agreement (based on the Company’s senior debt to EBITDA ratio as that term is defined in the Credit Agreement), or (ii) the Base Rate (which is the greater of (a) the Federal Funds Rate plus 0.5% or (b) the prime rate as announced by the Administrative Agent). Quarterly non-use fees, letter of credit fees and administrative agent fees are payable at rates specified in the Credit Agreement.

The principal amount of any loan drawn under the Credit Agreement may be prepaid in whole or in part, with a minimum prepayment of $5 million, at any time, potentially subject to make-whole provisions.

The Credit Agreement includes customary restrictive covenants for facilities of this type, as discussed below.

Commercial letters of credit were $4,808 at March 31, 2014 and $5,074 at December 31, 2013.  Other than commercial letters of credit, there were no borrowings under this line of credit during the three months ended March 31, 2014, leaving available borrowing capacity at $70,192 at March 31, 2014.

Senior Secured Notes and Shelf Agreement

On December 28, 2012, the Company entered into a $50 million Senior Secured Notes purchase (“Senior Notes”) and a $25 million private shelf agreement (the “Notes Agreement”) by and among the Company, The Prudential Investment Management, Inc. and certain Prudential affiliates (the “Noteholders”).

The Senior Notes amount was funded on December 28, 2012. The Senior Notes are due December 28, 2022 and bear interest at an annual rate of 3.65%, paid quarterly in arrears. Annual principal payments of $7.1 million are required from December 28, 2016 through December 28, 2021 with a final payment due on December 28, 2022. The principal amount may be prepaid, with a minimum prepayment of $5 million, at any time, subject to make-whole provisions.

On July 25, 2013, the Company drew the full $25 million available under the Notes Agreement.  The notes are due July 25, 2023 and bear interest at an annual rate of 3.85% paid quarterly in arrears.  Seven annual principal payments of $3.6 million are required from July 25, 2017 with a final payment due on July 25, 2023.

Loans made under both the Credit Agreement and the Notes Agreement are secured by our assets, including, among others, our cash, inventory, goods, equipment (excluding equipment subject to permitted liens) and accounts receivable. All of our domestic subsidiaries have issued joint and several guaranties in favor of the Lenders and Noteholders for all amounts under the Credit Agreement and Notes Agreement.

Both the Credit Agreement and the Notes Agreement contain various restrictive and financial covenants including among others, minimum tangible net worth, senior debt/EBITDA ratio, debt service coverage requirements and a minimum balance for unencumbered net book value for fixed assets. In addition, the agreements include restrictions on investments, change of control provisions and provisions in the event the Company disposes more than 20% of its total assets.

The Company was in compliance with the covenants for the Credit Agreement and Notes Agreement at March 31, 2014.

Canadian Credit Facility

The Company has a credit facility for $8,000 in Canadian dollars with a Canadian bank for purposes of issuing commercial letters of credit in Canada.  The credit facility has an annual renewal and provides for the issuance of commercial letters of credit for a term of up to five years. The facility provides for an annual fee of 1% for any issued and outstanding commercial letters of credit. Letters of credit can be denominated in either Canadian or U.S. dollars. At March 31, 2014 and December 31, 2013, letters of credit outstanding totaled $3,079 and $2,788 in Canadian dollars, respectively.  At March 31, 2014, the available borrowing capacity was $4,921 in Canadian dollars.  The credit facility contains a working capital restrictive covenant for our Canadian subsidiary, OnQuest Canada, ULC.  At March 31, 2014, OnQuest Canada, ULC was in compliance with the covenant.

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Accounts Payable and Accrued Liabilities (Tables)

3 Months Ended

Mar. 31, 2014

Accounts Payable and Accrued Liabilities

Summary of accrued expenses and other current liabilities

	March 31, 2014		December 31, 2013
Payroll and related employee benefits	$	35,618	$	36,556
Insurance, including self-insurance reserves	35,405		33,880
Reserve for estimated losses on uncompleted contracts	274		1,392
Corporate income taxes and other taxes	14,783		13,305
Accrued overhead cost	759		1,165
Other	4,720		4,781
	$	91,559	$	91,079

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Contingent Earnout Liabilities (Details) (USD $) In Thousands, unless otherwise specified	1 Months Ended		3 Months Ended		1 Months Ended
	Apr. 30, 2013 Rockford 2012 earnout target	Apr. 30, 2013 Sprint sellers 2012 earnout target	Mar. 31, 2014 Saxon 2013 earnout target	Mar. 31, 2014 Q3C 2014 earnout target	Mar. 31, 2014 Q3C 2013 earnout target
Contingent earnout liabilities
Cash paid	$ 6,900	$ 4,000	$ 0		$ 5,000
Potential contingent consideration				5,000
Estimated fair value of the potential contingent consideration				$ 4,347

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Income Taxes

3 Months Ended

Mar. 31, 2014

Income Taxes

Income Taxes

Note 16—Income Taxes

The effective tax rate on income before taxes and noncontrolling interests for the three months ended March 31, 2014 is 38.17%.  The effective tax rate for income attributable to Primoris is 39.56%. The rate differs from the U.S. federal statutory rate of 35% due primarily to state income taxes, the “Domestic Production Activity Deduction” and nondeductible meals and incidental per diems common in the construction industry.

To determine its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions in which the Company operates. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rate from quarter to quarter.  The Company recognizes interest and penalties related to uncertain tax positions, if any, as an income tax expense.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period of enactment date.

In September 2012, the Internal Revenue Service (“IRS”) concluded an examination of our federal income tax returns for 2008 and 2009, which did not have a material impact on our financial statements.  In the third quarter of 2013, the IRS initiated an examination of our federal income tax returns for 2011 and 2012.  The tax years 2010 through 2012 remain open to examination by the IRS.  The statute of limitations of state and foreign jurisdictions vary generally between 3 to 5 years.  Accordingly, the tax years 2008 through 2012 generally remain open to examination by the other taxing jurisdictions in which the Company operates.

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Basis of Presentation (Policies)

3 Months Ended

Mar. 31, 2014

Basis of Presentation

Revenue recognition

Revenue recognition

Fixed-price contracts — Historically, a substantial portion of the Company’s revenue has been generated under fixed-price contracts. Fixed price contracts generally provide that the Company will perform all of the work required by the contract for a stated price.  For fixed-price contracts, the Company recognizes revenues using the percentage-of-completion method, which may result in uneven and irregular results. In the percentage-of-completion method, estimated revenues and resulting contract income are calculated based on the total costs incurred to date as a percentage of total estimated costs.

Unit-price contracts — A unit-price contract provides performance of a specific project at a specific price for each unit of output.  These contracts are commonly associated with road building.

For fixed-price and unit-price contracts, if an estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full at the time of the estimate.  The loss amount is recognized as an “accrued loss provision” and is included in the accrued expenses and other liabilities amount on the consolidated balance sheet.  Because the full loss has been recognized, any future revenues that are generated will result in the accrued loss provision being changed and the gross profit of the contract in future periods will be zero.

Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular contract.  Total estimated costs, and thus contract revenues 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.

Other contract forms — The Company also uses time and material and cost reimbursable plus fee contracts.  For these jobs, revenue is recognized based on contractual terms.  For example, time and material contract revenues are recognized based on purchasing and employee time records.

For all of its contracts, the Company includes any provision for estimated losses on uncompleted contracts in accrued expenses. Changes in job performance, job conditions and estimated profitability, including those arising from final contract settlements, may result in revisions to costs and income. These revisions are recognized in the period in which the revisions are identified.

The Company considers unapproved change orders to be contract variations for which it has customer approval for a change in scope but for which it does not have an agreed upon price change.  Costs associated with unapproved change orders are included in the estimated cost to complete the contracts and are treated as project costs as incurred. The Company recognizes revenue equal to costs incurred on unapproved change orders when realization of price approval is probable.  Unapproved change orders involve the use of estimates, and it is reasonably possible that revisions to the estimated costs and recoverable amounts may be required in future reporting periods to reflect changes in estimates or final agreements with customers.

The Company considers claims to be amounts it seeks, 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 on both scope and price changes. Claims are included in the calculation of revenues when realization is probable and amounts can be reliably determined. Revenues in excess of contract costs incurred on claims are recognized when the amounts have been agreed upon with the customer.  Revenue in excess of contract costs from claims is recognized when an agreement is reached with customers as to the value of the claims, which in some instances may not occur until after completion of work under the contract. Costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred.

The caption “Costs and estimated earnings in excess of billings” in the consolidated balance sheet represents unbilled receivables which arise when revenues have been recorded but the amount will not be billed until a later date.  Balances represent:  (a) unbilled amounts arising from the use of the percentage-of-completion method of accounting which may not be billed under the terms of the contract until a later date, (b) incurred costs to be billed under cost reimbursement type contracts, (c) amounts arising from routine lags in billing, or (d) the revenue associated with unapproved change orders or claims when realization is probable and amounts can be reliably determined.  For those contracts in which billings exceed contract revenues recognized to date, the excess amounts are included in the caption “Billings in excess of costs and estimated earnings”.

In accordance with applicable terms of certain construction contracts, retainage amounts may be withheld by customers until completion and acceptance of the project.  Some payments of the retainage may not be received for a significant period after completion of our portion of a project.  In some jurisdictions, retainage amounts are deposited into an escrow account.

Significant revision in contract estimate

Significant revision in contract estimate— As previously discussed, revenue recognition is based on the percentage-of-completion method for firm fixed-price contracts. Under this method, the costs incurred to date as a percentage of total estimated costs are used to calculate revenue. Total estimated costs, and thus contract revenues and margin, are impacted by many factors which can cause significant changes in estimates during the life cycle of a project.

For projects that were in process in the prior year, but are either completed or continue to be in process during the current year, there can be a difference in revenues and profits recognized to the prior year, had current year estimates of costs to complete been known in the prior year.

Customer concentration

Customer Concentration — The Company operates in multiple industry segments encompassing the construction of industrial and public works infrastructure assets throughout primarily the United States. Typically, the top ten customers in any one calendar year generate revenues in excess of 50% of total revenues; however in most years a different group make up the top ten customers.

During the three months ending March 31, 2014, revenues generated by the top ten customers were $283 million, which represented 60.1% of total revenues during the period.  During that period, a large solar electric plant represented 12.7% of total revenues and TX DOT represented 9.3% of total revenues.

During the three months ending March 31, 2013, revenues generated by the top ten customers were $227 million, which represented 55.4% of total revenues during the period.  During that period, a large gas and electric utility represented 8.5% of total revenues and a large pipeline company represented 7.3% of total revenues.

At March 31, 2014, approximately 12.7% of the Company’s accounts receivable were due from one customer, and that customer provided 12.7% of the Company’s revenues for the three months ended March 31, 2014.  At March 31, 2013, approximately 8.2% of the Company’s accounts receivable were due from one customer, and that customer provided 7.3% of the Company’s revenues for the three months ended March 31, 2013.

Multiemployer plans

Multiemployer Plans— Various subsidiaries in the West Construction Services segment are signatories to collective bargaining agreements.  These agreements require that the Company participate in and contribute to a number of multiemployer benefit plans for its 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.  Federal law requires that if the Company were to withdraw from an agreement, it will incur a withdrawal obligation.  The potential withdrawal obligation may be significant.  Any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated, in accordance with generally accepted accounting principles (“GAAP”).  In November 2011, the Company withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan.  The Company has no plans to withdraw from any other agreements.  See Note 19 — “Commitments and Contingencies”.

Inventory and uninstalled contract materials

Inventory and uninstalled contract materials — Inventory consists of expendable construction materials and small tools that will be used in construction projects and is valued at the lower of cost, using first-in, first-out method, or market.  Uninstalled contract materials include certain job specific materials not yet installed which are valued using the specific identification method relating the inventory cost to a specific project.

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Credit Arrangements (Details)	3 Months Ended		3 Months Ended	0 Months Ended		3 Months Ended		3 Months Ended								3 Months Ended		3 Months Ended
	Mar. 31, 2014 Senior Notes USD ($)	Dec. 28, 2012 Senior Notes USD ($)	Mar. 31, 2014 Senior Notes Minimum USD ($)	Jul. 25, 2013 Notes Agreement USD ($) payment	Dec. 28, 2012 Notes Agreement USD ($)	Mar. 31, 2014 Notes Agreement Minimum	Mar. 31, 2014 Credit Agreement USD ($)	Mar. 31, 2014 Credit Agreement LIBOR	Mar. 31, 2014 Credit Agreement Base rate	Mar. 31, 2014 Credit Agreement Federal funds rate	Mar. 31, 2014 Credit Agreement Prime rate	Mar. 31, 2014 Credit Agreement Minimum USD ($)	Mar. 31, 2014 Credit Agreement Revolving line of credit USD ($)	Mar. 31, 2014 Credit Agreement Commercial letters of credit USD ($)	Dec. 31, 2013 Credit Agreement Commercial letters of credit USD ($)	Mar. 31, 2014 Canadian Credit Facility Commercial letters of credit CAD	Dec. 31, 2013 Canadian Credit Facility Commercial letters of credit CAD	Mar. 31, 2014 Canadian Credit Facility Commercial letters of credit Maximum
Credit arrangements
Maximum borrowing capacity							$ 75,000,000						$ 75,000,000			8,000,000
Incremental maximum borrowing capacity							50,000,000
Variable rate basis								LIBOR	Base Rate	Federal Funds Rate	prime rate
Basis spread on variable rate (as a percent)										0.50%
Prepayment to be paid on debt			5,000,000									5,000,000
Interest rate (as a percent)	3.65%			3.85%
Restrictions on investments, change of control provisions and provisions as a percentage of total assets to be disposed off						20.00%						20.00%
Total commercial letters of credit outstanding														4,808,000	5,074,000	3,079,000	2,788,000
Available borrowing capacity							70,192,000									4,921,000
Borrowings outstanding													0
Term of credit facility																		5 years
Annual fee (as a percent)																1.00%
Required principal payment	7,100,000			3,600,000
Initial principal amount		$ 50,000,000		$ 25,000,000	$ 25,000,000
Number of annual principal payments				7

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Fair Value Measurements (Details 2) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Rollforward of contingent consideration liability level three fair value measurements
Change in fair value of contingent consideration	$ (4,886)	$ 356
Contingent Consideration Liability
Rollforward of contingent consideration liability level three fair value measurements
Balance at the beginning of the period	9,233
Change in fair value of contingent consideration	114
Balance at the end of the period	4,347
Additional information
Number of unobservable inputs	2
Minimum probability of acquired entity meeting contractual operating performance target (as a percent)	33.00%
Maximum probability of acquired entity meeting contractual operating performance target (as a percent)	100.00%
Contingent Consideration Liability | Q3C Contracting, Inc
Rollforward of contingent consideration liability level three fair value measurements
Payments	$ (5,000)

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Cash flows from operating activities:
Net income	$ 11,265	$ 10,040
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	11,709	9,490
Amortization of intangible assets	1,843	1,794
Loss (gain) on sale of property and equipment	(355)	48
Income from non-consolidated entities	(14)	(269)
Stock-based compensation expense	137
Changes in assets and liabilities:
Customer retention deposits and restricted cash	5,249	8,006
Accounts receivable	15,831	18,174
Costs and estimated earnings in excess of billings	(17,921)	(6,463)
Other current assets	(7,938)	(232)
Other long-term assets		(381)
Accounts payable	(8,213)	(46,557)
Billings in excess of costs and estimated earnings	(26,064)	2,052
Contingent earnout liabilities	(4,886)	356
Accrued expenses and other current liabilities	1,534	(99)
Other long-term liabilities	(3,855)	(3,240)
Net cash used in operating activities	(21,678)	(7,281)
Cash flows from investing activities:
Purchase of property and equipment	(15,067)	(19,550)
Proceeds from sale of property and equipment	1,391	1,222
Purchase of short-term investments	(586)	(2,939)
Sale of short-term investments	1,946	3,201
Cash received for the sale of Alvah minority interest	1,189
Cash paid for acquisitions		(1,025)
Net cash used in investing activities	(11,127)	(19,091)
Cash flows from financing activities:
Proceeds from issuance of long-term debt		16,116
Repayment of capital leases	(1,079)	(1,002)
Repayment of long-term debt	(11,314)	(6,221)
Proceeds from issuance of common stock purchased under a long-term incentive plan	1,671	1,455
Dividends paid	(1,805)
Cash distribution to non-controlling interest holder	(1,125)
Net cash provided by (used in) financing activities	(13,652)	10,348
Net change in cash and cash equivalents	(46,457)	(16,024)
Cash and cash equivalents at beginning of the period	196,077	157,551
Cash and cash equivalents at end of the period	149,620	141,527
Cash paid during the period for:
Interest	1,508	1,259
Income taxes, net of refunds received	2,341	802
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES
Obligations incurred for the acquisition of property and equipment		1,180
Dividends declared and not yet paid	$ 1,808	$ 1,547

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Accounts Receivable

3 Months Ended

Mar. 31, 2014

Accounts Receivable

Accounts Receivable

Note 5—Accounts Receivable

The following is a summary of the Company’s accounts receivable:

	March 31, 2014		December 31, 2013
Contracts receivable, net of allowance for doubtful accounts of $672 at March 31, 2014 and $692 at December 31, 2013	$	233,932	$	257,354
Retention receivable	54,850		47,054
	288,782		304,408
Other accounts receivable	342		547
	$	289,124	$	304,955

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Commitments and Contingencies (Details) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Commitments and Contingencies.
Total lease expense	$ 3,637	$ 3,845
Lease payments to related party	$ 380	$ 399

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Nature of Business (Tables)

3 Months Ended

Mar. 31, 2014

Nature of Business

Schedule of list of primary operating subsidiaries and their reportable operating segment

Subsidiary	Operating Segment
ARB, Inc. (“ARB”)	West Construction Services
ARB Structures, Inc.	West Construction Services
Q3 Contracting, Inc. (“Q3C”); acquired 2012	West Construction Services
Rockford Corporation (“Rockford”)	West Construction Services
Stellaris, LLC.	West Construction Services
OnQuest, Inc.	Engineering
OnQuest, Canada, ULC (Born Heaters Canada, ULC prior to 2013)	Engineering
Cardinal Contractors, Inc.	East Construction Services
James Construction Group, LLC (“JCG”)	East Construction Services
Silva Group (“Silva”); acquired 2012	East Construction Services
Primoris Energy Services Corporation (“PES”)	East Construction Services

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Nature of Business (Details) (USD $) In Thousands, unless otherwise specified	24 Months Ended		0 Months Ended
	Dec. 31, 2013 PES item	Jan. 02, 2014 Blythe	Jan. 22, 2014 BWP Blaus Wasser, LLC
Nature of Business
Number of Businesses Acquired	2
Ownership percentage		50.00%
Amount of purchase of assets and liabilities.			$ 5,000

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Stock-Based Compensation

3 Months Ended

Mar. 31, 2014

Stock-Based Compensation

Stock-Based Compensation

Note 15—Stock-Based Compensation

On May 3, 2013, the Board of Directors granted 100,000 Restricted Stock Units (“Units”) to an executive under the 2013 Long-term Incentive Equity Plan (the “Equity Plan”).  Commencing annually on May 10, 2014 and ending April 30, 2017, the Units will vest in four equal installments subject to continuing employment of the executive.  On March 24, 2014, the Board of Directors granted 48,512 Units to another executive under the Equity Plan.  The Units will vest 50% on September 23, 2015 and the remaining 50% on March 23, 2017 subject to continuing employment of the executive.  Vesting in both grants is also subject to earlier acceleration, termination, cancellation or forfeiture as provided in the underlying Primoris Restricted Stock Unit agreement (“RSU Award Agreement”).  Each Unit represents the right to receive one share of the Company’s common stock when vested.

Under guidance of ASC Topic 718 “Compensation — Stock Compensation”, stock-based compensation cost is measured at the date of grant (utilizing the prior-day closing price), based on the calculated fair value of the stock-based award, and is recognized as expense over the employee’s requisite service period (generally the vesting period of the award).

The fair value of the Units was based on the closing market price of our common stock on the day prior to the date of the grant.  Stock compensation expense for the Units is being amortized using the straight-line method over the service period.  For the three months ended March 31, 2014, the Company recognized $137 in compensation expense.  At March 31, 2014, approximately $3.19 million of unrecognized compensation expense remains for the Units which will be recognized over the next 3.1 years through April 30, 2017.

Vested Units accrue “Dividend Equivalents” (as defined in the Equity Plan) which will be accrued as additional Units.  At March 31, 2014, there were no accrued Dividend Equivalent Units.