Acquisitions (Notes)

3 Months Ended

Sep. 30, 2017

Business Combinations [Abstract]

Acquisitions

Note 2 – Acquisitions

Purchase of Houston Interests, LLC

On December 12, 2016, the Company completed the acquisition of Houston Interests, LLC ("Houston Interests"), a premier global solutions company that provides consulting, engineering, design, construction services and systems integration. Houston Interests brings expertise to the Company in natural gas processing; sulfur recovery, processing and handling; liquid terminals, silos and other bulk storage; process plant design; power generation environmental controls and material handling; industrial power distribution; electrical, instrumentation and controls; marine structures; material handling systems and terminals for cement, sulfur, fertilizer, coal and grain; and process heaters. The business has been included in our Matrix PDM Engineering, Inc. subsidiary, and its operating results impact primarily the Oil Gas & Chemical and Industrial segments.

The Company purchased all of the equity interests of Houston Interests for $42.5 million in cash, net of working capital adjustments and cash acquired. The consideration paid is as follows (in thousands):

Cash paid for equity interest	$	46,000
Cash paid for working capital	6,837
Less: cash acquired	(10,331		)
Net purchase price	$	42,506

The Company funded the equity interest portion of the consideration paid from borrowings under the Company's senior secured revolving credit facility (See Note 5). The purchase of working capital was paid with cash on hand.

The net purchase price was allocated to the major categories of assets and liabilities based on their estimated fair value at the acquisition date.

The following table summarizes the preliminary net purchase price allocation (in thousands):

Cash	$	10,331
Accounts receivable	10,273
Costs and estimated earnings in excess of billings on uncompleted contracts	746
Other current assets	454
Current assets	21,804
Property, plant and equipment	942
Goodwill	35,146
Other intangible assets	10,220
Total assets acquired	68,112
Accounts payable	962
Billings on uncompleted contracts in excess of costs and estimated earnings	11,648
Other accrued expenses	2,475
Current liabilities	15,085
Other liabilities	190
Net assets acquired	52,837
Less: cash acquired	10,331
Net purchase price	$	42,506

The goodwill recognized from the acquisition is primarily attributable to the technical expertise of the acquired workforce and the complementary nature of Houston Interests' operations, which the Company believes will enable the combined entity to expand its service offerings and enter new markets. All of the goodwill recognized is deductible for income tax purposes. The fair value of the net assets acquired is preliminary pending the final valuation of those assets. As a result, goodwill is also preliminary since it has been recorded as the excess of the purchase price over the estimated fair value of the net assets acquired.

The Company has agreed to pay the previous owners up to $2.6 million for any unused portion of acquired warranty obligations outstanding as of June 30, 2017. This agreement was settled for $1.7 million, which was paid in July 2017. This settlement was reflected as a decrease to the acquired current liabilities and an increase to the net purchase price.

The unaudited financial information in the table below summarizes the combined results of operations of Matrix Service Company and Houston Interests for the three months ended September 30, 2017 and 2016, on a pro forma basis, as though the companies had been combined as of July 1, 2015. The pro forma financial information presented in the table below is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place at July 1, 2015 nor should it be taken as indicative of future consolidated results of operations.

	Three Months Ended
	September 30, 2017		September 30, 2016
	(In thousands, except per share data)
Revenues	$	269,910	$	378,494
Net income	$	3,824	$	10,788
Basic earnings per common share	$	0.14	$	0.41
Diluted earnings per common share	$	0.14	$	0.40

The pro forma financial information presented in the table above includes the following adjustments to the combined entities' historical financial statements:

• Pro forma earnings during the three months ended September 30, 2016 were adjusted to include $0.3 million of integration expenses that would have been recognized had the acquisition occurred on July 1, 2015.

• Pro forma earnings during the three months ended September 30, 2016 were adjusted to include $0.4 million of interest expense. The interest was attributable to the assumption that the Company's borrowings of $46.0 million used to fund the net purchase price had been outstanding as of July 1, 2015. This interest was partially offset by the assumption that Houston Interests' former debt was extinguished as of July 1, 2015.

• Pro forma earnings during the three months ended September 30, 2016 were adjusted to exclude $0.1 million of depreciation and intangible asset amortization expense. This adjustment is due to the recognition of amortizable intangible assets as part of the acquisition and the effect of fair value adjustments to acquired property, plant and equipment.

• Pro forma earnings during the three months ended September 30, 2016 were adjusted to include income tax expense of $1.9 million. Houston Interests was previously an exempt entity and income taxes were not assessed in its historical financial information.