UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 OR 15(d) of The Securities Exchange Act of 1934
June 1, 2018
Date of Report (Date of earliest event reported)
Primoris Services Corporation
(Exact name of Registrant as specified in its charter)
Delaware |
|
001-34145 |
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20-4743916 |
(State or other jurisdiction |
|
(Commission File Number) |
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(I.R.S. Employer |
of incorporation) |
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Identification No.) |
2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201
(Address of principal executive offices)
(Zip Code)
(214) 740-5600
Registrant’s telephone number, including area code
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
◻ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
◻ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
◻ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
◻ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ◻
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ◻
On June 6, 2018, Primoris Services Corporation, a Delaware corporation (“we,” “us,” “our,” “Primoris” or the “Company”), filed its Form 8-K (the “Original Form 8-K) to report the completion of its acquisition of Willbros Group, Inc. (“Willbros”). The Original Form 8-K did not include the financial statement of Willbros or the pro forma unaudited financial information of the combined entity. This Amendment No. 1 to the Form 8-K is filed to include the financial statement information required under Item 9.01 of Form 8-K in connection with the acquisition of Willbros.
This Current Report on Form 8-K/A amends the Original Form 8-K to include the financial statements and pro forma information required by Item 9.01 of Form 8-K. Except for the filing of such financial statements and pro forma information, this form 8-K/A does not modify or update other disclosures in, or exhibits to, the Original Form 8-K.
Item 9.01.Financial Statements and Exhibits.
(a) Financial statements of businesses acquired.
The audited consolidated financial statements of Willbros for the year ended December 31, 2017 are filed as Exhibit 99.1 and incorporated by reference herein.
The unaudited consolidated financial statements of Willbros for the quarter ended March 31, 2018 are filed as Exhibit 99.2 and incorporated by reference herein.
(b) Pro forma financial information.
The required pro forma combined financial information with respect to the Company’s acquisition of Willbros is filed as Exhibit 99.3 to this Amendment No.1 and incorporated herein by reference.
(d) Exhibits.
Exhibit No. |
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Description |
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23.1 |
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99.1 |
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99.2 |
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99.3 |
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2
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.
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PRIMORIS SERVICES CORPORATION |
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Dated: August 17, 2018 |
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By: |
/s/ Peter J. Moerbeek |
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Peter J. Moerbeek |
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Executive Vice President, Chief Financial Officer |
3
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-188553 and 333-159491) and Form S-3 (Nos. 333-161331 and 333-174602) of Primoris Services Corporation of our report dated March 29, 2018 relating to the financial statements of Willbros Group, Inc., which appears in this Current Report on Form 8-K.
/s/ PricewaterhouseCoopers LLP
Houston, Texas
August 17, 2018
Exhibit 99.3
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Introduction
On June 1, 2018, Primoris Services Corporation, a Delaware corporation (“Primoris”), completed its previously announced acquisition of Willbros Group, Inc., a Delaware corporation (“Willbros”). Pursuant to the terms of that Agreement and Plan of Merger (the “Merger Agreement”) dated as of March 27, 2018, Waco Acquisition Vehicle, Inc., a Delaware corporation and wholly owned subsidiary of Primoris (“Merger Sub”), merged with and into Willbros (the “Merger”), with Willbros surviving the Merger as a wholly-owned subsidiary of Primoris.
Pursuant to the Merger Agreement and by virtue of the Merger, each share of Willbros common stock issued and outstanding immediately prior to the Merger was converted into the right to receive $0.60 in cash, without interest (the “Merger Consideration”), on the terms and subject to the conditions set forth in the Merger Agreement. As also provided under the Merger Agreement, certain equity awards held by employees of Willbros were converted into cash equal to the product of (A) the number of shares of such awards and (B) the Merger Consideration, less applicable taxes required to be withheld.
The aggregate amount of the Merger Consideration was approximately $111.0 million, net of cash and restricted cash acquired. Primoris funded the Merger Consideration and certain costs associated with the Merger through a combination of existing cash balances and borrowings under its revolving credit facility.
The foregoing description of the Merger Agreement is qualified in its entirety by reference to the full text of the Merger Agreement, which is attached as Exhibit 2.1 to the Current Report on Form 8-K filed by Primoris on March 28, 2018 and incorporated herein by reference in its entirety.
The following unaudited pro forma combined financial statements are based on the historical financial statements of Primoris and Willbros after giving effect to the acquisition, and the assumptions, reclassifications and adjustments described in the accompanying notes to the unaudited pro forma combined financial statements, as prescribed by the Securities and Exchange Commission guidelines.
The following unaudited pro forma combined balance sheet as of March 31, 2018, is presented as if the purchase had occurred on March 31, 2018. The unaudited pro forma combined statements of operations for the three months ended March 31, 2018, and the year ended December 31, 2017, are presented as if the purchase had occurred on January 1, 2017 with recurring acquisition-related adjustments reflected assuming the transaction occurred at the beginning of the fiscal year presented and carried forward through any interim period presented and described in the accompanying notes.
The historical consolidated financial information has been adjusted in the unaudited pro forma combined financial data to give effect to pro forma events that are, based upon available information and certain assumptions, (i) directly attributable to the acquisition, (ii) factually supportable and reasonable under the circumstances, and (iii) with respect to the statement of operations, expected to have a continuing impact on the combined results.
The following unaudited pro forma combined financial statements are prepared for illustrative purposes only and are not necessarily indicative of or intended to represent the results that would have been achieved had the acquisition been consummated as of the dates indicated or that may be achieved in the future. For example, the unaudited pro forma combined financial statements do not reflect any operating efficiencies, associated cost savings or additional costs that we may achieve with respect to the combined companies.
The unaudited pro forma combined financial statements should be read in conjunction with the accompanying notes to the unaudited pro forma combined financial statements. In addition, the unaudited pro forma combined financial statements should be read in conjunction with (i) Primoris’ audited consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2017, (ii) Primoris’ unaudited condensed consolidated financial statements and accompanying notes included in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, (iii) Willbros’ audited consolidated financial statements and accompanying notes included in its Annual Report on Form 10-K for the year ended December 31, 2017, and (iv) Willbros’ unaudited condensed consolidated financial statements and accompanying notes included in its Quarterly Report on Form 10-Q for the quarter ended March 31, 2018.
1
PRIMORIS SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
March 31, 2018
(In thousands)
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Reclassification |
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Pro Forma |
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|||||||
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Adjustments |
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Adjustments |
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Pro Forma |
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Primoris |
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Willbros |
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(Note 2) |
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(Note 4) |
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Combined |
|||||
ASSETS |
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Current assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
134,172 |
|
$ |
21,364 |
|
$ |
— |
|
$ |
(1,203) |
|
(a) (b) (c) |
|
$ |
154,333 |
Restricted cash |
|
|
— |
|
|
— |
|
|
— |
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|
40,473 |
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(h) |
|
|
40,473 |
Accounts receivable, net |
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260,920 |
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|
134,560 |
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|
(23,070) |
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|
|
|
|
|
|
372,410 |
Contract assets |
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262,932 |
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21,615 |
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23,070 |
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(808) |
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(j) |
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306,809 |
Note receivable |
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10,000 |
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— |
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|
— |
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|
(10,000) |
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(d) |
|
|
— |
Assets held for sale |
|
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— |
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|
1,604 |
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|
— |
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— |
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|
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|
1,604 |
Prepaid expenses and other current assets |
|
|
21,694 |
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|
27,173 |
|
|
— |
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|
— |
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|
|
|
48,867 |
Total current assets |
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689,718 |
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|
206,316 |
|
|
— |
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|
28,462 |
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|
|
|
924,496 |
Property and equipment, net |
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313,937 |
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24,776 |
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— |
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|
8,292 |
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(e) |
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|
347,005 |
Intangible assets, net |
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|
42,376 |
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63,950 |
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— |
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(9,500) |
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(f) |
|
|
96,826 |
Goodwill |
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|
153,374 |
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— |
|
|
— |
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|
32,458 |
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(g) |
|
|
185,832 |
Restricted cash |
|
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— |
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|
40,473 |
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— |
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|
(40,473) |
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(h) |
|
|
— |
Deferred tax assets |
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— |
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— |
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— |
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|
8,889 |
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(i) |
|
|
8,889 |
Other long-term assets |
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|
3,042 |
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|
13,524 |
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— |
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(630) |
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(c) |
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|
15,936 |
Total assets |
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$ |
1,202,447 |
|
$ |
349,039 |
|
$ |
— |
|
$ |
27,498 |
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|
|
$ |
1,578,984 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable |
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$ |
130,956 |
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$ |
71,102 |
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$ |
24,580 |
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$ |
— |
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|
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$ |
226,638 |
Contract liabilities |
|
|
137,380 |
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|
9,346 |
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|
15,193 |
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|
17,570 |
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(j) |
|
|
179,489 |
Accrued liabilities |
|
|
99,909 |
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|
78,330 |
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|
(39,773) |
|
|
9,146 |
|
(a) (b) (c) |
|
|
154,598 |
|
|
|
|
|
|
|
|
|
— |
|
|
2,188 |
|
(i) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
1,832 |
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(k) |
|
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
2,966 |
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(l) |
|
|
|
Dividends payable |
|
|
3,092 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
3,092 |
Short-term borrowings under revolving credit facility |
|
|
— |
|
|
23,045 |
|
|
— |
|
|
(23,045) |
|
(c) |
|
|
— |
Current portion of long-term debt |
|
|
63,975 |
|
|
116,857 |
|
|
— |
|
|
(116,857) |
|
(c) (d) |
|
|
63,975 |
Total current liabilities |
|
|
435,312 |
|
|
298,680 |
|
|
— |
|
|
(106,200) |
|
|
|
|
627,792 |
Long-term debt, net of current portion |
|
|
181,972 |
|
|
— |
|
|
— |
|
|
160,000 |
|
(c) |
|
|
341,972 |
Deferred tax liabilities |
|
|
13,577 |
|
|
— |
|
|
— |
|
|
(13,577) |
|
(i) |
|
|
— |
Other long-term liabilities |
|
|
6,090 |
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|
35,186 |
|
|
— |
|
|
10,735 |
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(l) |
|
|
52,011 |
Total liabilities |
|
|
636,951 |
|
|
333,866 |
|
|
— |
|
|
50,958 |
|
|
|
|
1,021,775 |
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Stockholders’ equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock |
|
|
5 |
|
|
3,272 |
|
|
— |
|
|
(3,272) |
|
(m) |
|
|
5 |
Additional paid-in capital |
|
|
162,701 |
|
|
752,640 |
|
|
— |
|
|
(752,640) |
|
(m) |
|
|
162,701 |
Retained earnings |
|
|
393,547 |
|
|
(723,081) |
|
|
— |
|
|
714,794 |
|
(m) (n) |
|
|
385,260 |
Treasury stock |
|
|
— |
|
|
(15,729) |
|
|
— |
|
|
15,729 |
|
(m) |
|
|
— |
Accumulated other comprehensive loss |
|
|
— |
|
|
(1,929) |
|
|
— |
|
|
1,929 |
|
(m) |
|
|
— |
Noncontrolling interest |
|
|
9,243 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
9,243 |
Total stockholders’ equity |
|
|
565,496 |
|
|
15,173 |
|
|
— |
|
|
(23,460) |
|
|
|
|
557,209 |
Total liabilities and stockholders’ equity |
|
$ |
1,202,447 |
|
$ |
349,039 |
|
$ |
— |
|
$ |
27,498 |
|
|
|
$ |
1,578,984 |
See accompanying notes to the unaudited pro forma combined financial statements
2
PRIMORIS SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the three months ended March 31, 2018
(In thousands, except per share amounts)
|
|
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|
|
|
|
|
Reclassification |
|
Pro Forma |
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|||
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|
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|
|
|
|
Adjustments |
|
Adjustments |
|
|
|
Pro Forma |
|
|||
|
|
Primoris |
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Willbros |
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(Note 2) |
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(Note 4) |
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|
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Combined |
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|||||
Revenue |
|
$ |
504,119 |
|
$ |
200,980 |
|
$ |
— |
|
$ |
— |
|
|
|
$ |
705,099 |
|
Cost of revenue |
|
|
459,559 |
|
|
193,294 |
|
|
(6,080) |
|
|
1,326 |
|
(e) |
|
|
648,099 |
|
Gross profit |
|
|
44,560 |
|
|
7,686 |
|
|
6,080 |
|
|
(1,326) |
|
|
|
|
57,000 |
|
Selling, general and administrative expenses |
|
|
38,651 |
|
|
24,239 |
|
|
— |
|
|
(6,742) |
|
(f) (o) |
|
|
56,148 |
|
Gain on sale of assets |
|
|
— |
|
|
(6,080) |
|
|
6,080 |
|
|
— |
|
|
|
|
— |
|
Operating income (loss) |
|
|
5,909 |
|
|
(10,473) |
|
|
— |
|
|
5,416 |
|
|
|
|
852 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange gain |
|
|
257 |
|
|
— |
|
|
— |
|
|
— |
|
|
|
|
257 |
|
Other income (expense), net |
|
|
(12) |
|
|
37 |
|
|
— |
|
|
— |
|
|
|
|
25 |
|
Interest income |
|
|
272 |
|
|
8 |
|
|
— |
|
|
— |
|
|
|
|
280 |
|
Interest expense |
|
|
(1,998) |
|
|
(6,528) |
|
|
— |
|
|
4,701 |
|
(p) |
|
|
(3,825) |
|
Income (loss) before provision for income taxes |
|
|
4,428 |
|
|
(16,956) |
|
|
— |
|
|
10,117 |
|
|
|
|
(2,411) |
|
(Provision) benefit for income taxes |
|
|
(212) |
|
|
221 |
|
|
— |
|
|
1,694 |
|
(q) |
|
|
1,703 |
|
Net income (loss) |
|
$ |
4,216 |
|
$ |
(16,735) |
|
$ |
— |
|
$ |
11,811 |
|
|
|
$ |
(708) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less net income attributable to noncontrolling interests |
|
|
(3,528) |
|
|
— |
|
$ |
— |
|
|
— |
|
|
|
|
(3,528) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Primoris |
|
$ |
688 |
|
$ |
(16,735) |
|
$ |
— |
|
$ |
11,811 |
|
|
|
$ |
(4,236) |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.08) |
|
Diluted |
|
$ |
0.01 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(0.08) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
51,479 |
|
|
|
|
|
|
|
|
|
|
|
|
|
51,479 |
|
Diluted |
|
|
51,747 |
|
|
|
|
|
|
|
|
|
|
|
|
|
51,479 |
|
See accompanying notes to the unaudited pro forma combined financial statements
3
PRIMORIS SERVICES CORPORATION
UNAUDITED PRO FORMA COMBINED STATEMENT OF OPERATIONS
For the year ended December 31, 2017
(In thousands, except per share amounts)
|
|
|
|
|
|
|
|
Pro Forma |
|
|
|
|
|
||
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
Pro Forma |
|
||
|
|
Primoris |
|
Willbros |
|
(Note 4) |
|
|
|
Combined |
|
||||
Revenue |
|
$ |
2,379,995 |
|
$ |
849,983 |
|
$ |
— |
|
|
|
$ |
3,229,978 |
|
Cost of revenue |
|
|
2,101,561 |
|
|
874,738 |
|
|
3,547 |
|
(e) |
|
|
2,979,846 |
|
Gross profit |
|
|
278,434 |
|
|
(24,755) |
|
|
(3,547) |
|
|
|
|
250,132 |
|
Selling, general and administrative expenses |
|
|
172,146 |
|
|
66,586 |
|
|
(6,644) |
|
(e) (f) |
|
|
232,088 |
|
Operating income (loss) |
|
|
106,288 |
|
|
(91,341) |
|
|
3,097 |
|
|
|
|
18,044 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment income |
|
|
5,817 |
|
|
— |
|
|
— |
|
|
|
|
5,817 |
|
Foreign exchange gain |
|
|
253 |
|
|
— |
|
|
— |
|
|
|
|
253 |
|
Other income (expense), net |
|
|
484 |
|
|
(296) |
|
|
— |
|
|
|
|
188 |
|
Interest income |
|
|
587 |
|
|
31 |
|
|
— |
|
|
|
|
618 |
|
Interest expense |
|
|
(8,146) |
|
|
(16,017) |
|
|
8,709 |
|
(p) |
|
|
(15,454) |
|
Income (loss) before provision for income taxes |
|
|
105,283 |
|
|
(107,623) |
|
|
11,806 |
|
|
|
|
9,466 |
|
(Provision) benefit for income taxes |
|
|
(28,433) |
|
|
964 |
|
|
37,363 |
|
(q) |
|
|
9,894 |
|
Net income (loss) |
|
$ |
76,850 |
|
$ |
(106,659) |
|
$ |
49,169 |
|
|
|
$ |
19,360 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less net income attributable to noncontrolling interests |
|
|
(4,496) |
|
|
— |
|
|
— |
|
|
|
|
(4,496) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Primoris |
|
$ |
72,354 |
|
$ |
(106,659) |
|
$ |
49,169 |
|
|
|
$ |
14,864 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.41 |
|
|
|
|
|
|
|
|
|
$ |
0.29 |
|
Diluted |
|
$ |
1.40 |
|
|
|
|
|
|
|
|
|
$ |
0.29 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
51,481 |
|
|
|
|
|
|
|
|
|
|
51,481 |
|
Diluted |
|
|
51,741 |
|
|
|
|
|
|
|
|
|
|
51,741 |
|
See accompanying notes to the unaudited pro forma combined financial statements
4
PRIMORIS SERVICES CORPORATION
NOTES TO THE UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
Note 1—Basis of Presentation
The unaudited pro forma combined balance sheet as of March 31, 2018 is presented as if the acquisition of Willbros had occurred on March 31, 2018. The unaudited pro forma combined statements of operations for the three months ended March 31, 2018, and the year ended December 31, 2017, are presented as if the acquisition of Willbros had occurred on January 1, 2017, with recurring acquisition-related adjustments reflected in each of these periods.
Note 2—Reclassification Adjustments
Certain reclassification adjustments have been made to the unaudited pro forma combined financial statements to conform Willbros’ consolidated balance sheet as of March 31, 2018 and statement of operations for the three months ended March 31, 2018, to Primoris’ presentation, as follows:
· |
We recognize retainage amounts as a contract asset, while Willbros recognized these amounts as accounts receivable. Retainage is the portion of the contract price earned by us for work performed, but held for payment by the customer as a form of security until we reach certain construction milestones. |
· |
We recognize the accrued loss provision on contracts and accrued contract discounts as contract liabilities, while Willbros recognized these amounts as accrued liabilities. |
· |
We recognize job costs payable as accounts payable, while Willbros recognized these amounts as accrued liabilities. |
· |
We recognize gains on sale of assets as a reduction in cost of revenue, while Willbros recognized these amounts as a separate component of operating income. |
Note 3—Preliminary Acquisition Accounting
The tables below represents the purchase consideration and the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The preliminary estimated fair values have been used to prepare pro forma adjustments in the pro forma combined financial statements. The final determination of fair value for certain assets and liabilities will be completed as soon as the information necessary to complete the analysis is obtained, which may differ materially from the preliminary estimates used in the pro forma adjustments. The primary areas of the preliminary estimates that are not yet finalized relate to property, plant and equipment, identifiable intangible assets, contract assets and liabilities, deferred income taxes, uncertain tax positions, and the fair value of certain contractual obligations.
Preliminary identifiable assets acquired and liabilities assumed (in thousands) |
|
|
|
|
Cash and restricted cash |
|
$ |
53,728 |
|
Accounts receivable |
|
|
102,719 |
|
Contract assets |
|
|
30,762 |
|
Other current assets |
|
|
18,767 |
|
Property, plant and equipment |
|
|
33,171 |
|
Intangible assets: |
|
|
|
|
Customer relationships |
|
|
52,650 |
|
Non-compete |
|
|
1,600 |
|
Tradename |
|
|
200 |
|
Deferred income taxes |
|
|
22,466 |
|
Other non-current assets |
|
|
2,261 |
|
Accounts payable and accrued liabilities |
|
|
(117,736) |
|
Contract liabilities |
|
|
(44,258) |
|
Other non-current liabilities |
|
|
(35,269) |
|
Total identifiable net assets |
|
|
121,061 |
|
Goodwill |
|
|
43,697 |
|
Total purchase consideration |
|
$ |
164,758 |
|
5
Note 4—Pro Forma Adjustments
The pro forma adjustments are based on our preliminary estimates and assumptions that are subject to change. The following adjustments have been reflected in the unaudited pro forma combined financial statements:
(a) |
To record approximately $164.8 million of consideration paid for the Willbros acquisition. Of this amount, approximately $160.8 million was paid in cash at the close of the Merger. The remaining $4.0 million was accrued and consisted of a $3.1 million accrual for Willbros’ advisory fees and a $0.9 million accrual for Willbros’ equity awards that vested at the close of the Merger. Both of these amounts were paid by Primoris subsequent to the close of the Merger. |
(b) |
To record approximately $8.3 million of Primoris and Willbros transaction costs associated with the Merger, consisting of advisor fees of $4.3 million and change in control payments to certain Willbros executives of $4.0 million. Of these costs, $0.4 million was paid at the close of the Merger and the remaining $7.9 million was accrued. These fees are recorded against retained earnings solely for the purposes of this presentation. There is no continuing impact of these one-time transaction costs on the combined operating results and, as such, these fees are not included in the unaudited pro forma combined statement of operations. |
(c) |
The below table reflects the net increase to debt for $160.0 million of new debt incurred to finance the Willbros acquisition, less the effects of extinguishing Willbros’ outstanding debt of $139.9 million upon consummation of the acquisition (in thousands): |
Increase for borrowings under revolving credit facility |
$ |
160,000 |
Decrease for extinguishment of existing Willbros debt |
|
(139,902) |
Pro forma adjustment to debt |
$ |
20,098 |
The adjustment also reflects the reduction of $0.6 million of debt issuance costs associated with Willbros revolving credit facility and the reduction in accrued interest of $2.7 million due to the extinguishment of Willbros debt.
(d) |
To record the repayment in full of the bridge financing issued to Willbros for working capital needs in connection with the Merger Agreement. |
(e) |
To record the difference between the historical amount of Willbros’ fixed assets and our preliminary estimate of fair value and the related impact to depreciation expense. On a preliminary basis, we increased the book value of Willbros’ fixed assets by $8.3 million. The resulting adjustment to depreciation expense was an increase of approximately $1.3 million for the pro forma three months ended March 31, 2018, which is recorded in cost of revenue. The resulting adjustment to depreciation expense was an increase of approximately $3.4 million for the pro forma year ended December 31, 2017, of which depreciation expense recorded in cost of revenue increased by $3.5 million, and depreciation expense recorded in selling, general and administrative expenses decreased by $0.1 million. |
(f) |
Reflects the elimination of Willbros’ pre-existing intangible assets and recognition of the estimated preliminary fair value of identifiable intangible assets acquired. To determine the estimated fair value of intangibles acquired, we engaged a third party valuation specialist to assist management. Our valuation estimates are preliminary and subject to change. The estimated preliminary fair value of identifiable intangible assets acquired is comprised of the following (in thousands): |
|
|
Useful Life |
|
Fair Value |
|
Pro Forma Amortization Expense Three Months Ended March 31, 2018 |
|
Pro Forma Amortization Expense Year Ended December 31, 2017 |
|
|||
Customer relationships |
|
20 years |
|
$ |
52,650 |
|
$ |
658 |
|
$ |
2,633 |
|
Non-compete agreements |
|
5 years |
|
|
1,600 |
|
|
80 |
|
|
320 |
|
Tradename |
|
0.25 years |
|
|
200 |
|
|
— |
|
|
200 |
|
|
|
|
|
$ |
54,450 |
|
|
738 |
|
|
3,153 |
|
Historical Willbros amortization expense |
|
|
|
|
|
|
|
(2,399) |
|
|
(9,667) |
|
Pro forma adjustments to amortization expense |
|
|
|
|
|
|
$ |
(1,661) |
|
$ |
(6,514) |
|
6
The customer relationships were valued utilizing the “excess earnings method” of the income approach. The estimated discounted cash flows associated with existing customers and projects were based on historical and market participant data. Such discounted cash flows were net of fair market returns on the various tangible and intangible assets that are necessary to realize the potential cash flows.
The fair value for the non-compete agreements was valued based on a discounted “income approach” model, including estimated financial results with and without the non-compete agreements in place. The agreements were analyzed based on the potential impact of competition that certain individuals could have on the financial results, assuming the agreements were not in place. An estimate of the probability of competition was applied and the results were compared to a similar model assuming the agreements were in place.
The fair value of the tradename was determined based on the “relief from royalty” method. A royalty rate was selected based on consideration of several factors, including external research of third party trade name licensing agreements and their royalty rate levels, and management estimates.
(g) |
To record goodwill as a result of the Merger. Goodwill represents the excess of the purchase price over the fair value of assets acquired and liabilities assumed. Goodwill is not amortized, but is assessed at least annually for impairment or when a change in facts and circumstances prompts an assessment. Based on the current tax treatment, goodwill is not expected to be deductible for income tax purposes. |
(h) |
To reclass Willbros’ restricted cash from non-current to current. The restricted cash was pledged by Willbros to secure letters of credit. After the acquisition, we issued new letters of credit under our revolving credit facility, and the restricted cash was released. |
(i) |
To record preliminary tax adjustments related to the acquisition, resulting in a net increase in deferred tax assets of $8.9 million, and income taxes payable of $2.2 million. The following table reflects the net increase in deferred tax assets: |
Net increase in deferred taxes from Willbros |
$ |
22,466 |
Primoris existing deferred tax liability |
|
(13,577) |
Pro forma net increase in deferred tax assets |
$ |
8,889 |
The preliminary $22.5 million net increase in deferred tax assets from Willbros is primarily due to our expected utilization of a portion of Willbros’ pre-acquisition tax losses, partially offset by certain deferred tax liabilities including those acquired from Willbros and those created from intangible assets acquired.
(j) |
To record the estimated preliminary adjustment to decrease assumed contract assets by $0.8 million to a fair value of $43.9 million, and increase assumed contract liabilities by $17.6 million to a fair value of approximately $42.1 million. The fair values were determined based on estimated costs to complete the remaining performance obligations on open contracts at a normalized gross margin. After the acquisition, the net increase in contract liabilities will increase revenue and gross profit as the contracts are completed, which we expect to occur within six months. |
(k) |
To record retention bonus liability associated with a program initiated by Willbros to retain certain employees through the close of the Merger. |
(l) |
To record the estimated preliminary fair value of the liability associated with off-market leases of $13.7 million. |
(m) |
To eliminate Willbros historical equity balances. |
(n) |
To reflect certain Primoris and Willbros transaction costs associated with the Merger of approximately $8.3 million. For a discussion of transaction costs, see (b) above. |
(o) |
Represents the elimination of nonrecurring transaction costs incurred during the three month period ended March 31, 2018 of $5.1 million that are directly related to the acquisition of Willbros. |
7
(p) |
The below table reflects the net decrease to interest expense resulting from interest on the new debt to finance the acquisition of Willbros and the extinguishment of Willbros’ existing debt (in thousands): |
|
|
Three Months Ended March 31, 2018 |
|
Year Ended December 31, 2017 |
|
||
Elimination of Willbros interest expense |
|
$ |
(6,528) |
|
$ |
(16,017) |
|
Interest expense on new borrowings (1) |
|
|
1,827 |
|
|
7,308 |
|
Pro forma adjustment to interest expense |
|
$ |
(4,701) |
|
$ |
(8,709) |
|
(1) |
Expected interest expense on our borrowings under our revolving credit facility assuming an estimated weighted average annual interest rate of 4.57%. A hypothetical 0.125% change in the weighted average annual interest rate on the revolving credit facility would increase or decrease pro forma interest expense by $0.2 million annually. |
(q) |
To record the income tax effect as a result of the Merger, calculated using our statutory rate of 28% for the three months ended March 31, 2018, and 40% for the year ended December 31, 2017. |
8