UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
FORM 10-K
(Mark One)
For the fiscal year ended December 31, 20172023
OR
For the transition period from to
Commission file number: 001-34145
Primoris Services Corporation
(Exact name of registrant as specified in its charter)
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Delaware | | 20-4743916 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
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| | 75201 |
(Address of principal executive offices) | | (Zip Code) |
(214) (214) 740-5600
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock, $0.0001 par value | PRIM |
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Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☒⌧ No ☐◻
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ ◻No ☒⌧
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 ☒⌧ No ☐◻
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 (§ 229.405232.405 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 ☒⌧ No ☐◻
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III in this Form 10-K or any amendment to this Form 10-K. ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | Accelerated filer | Non-accelerated filer | Smaller reporting company ☐ |
| | 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. ☐◻
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒⌧
The aggregate market value of the voting common equity held by non-affiliates of the registrant was approximately $1.02 billion$1,604.9 million based upon the closing price of such common equity as of June 30, 20172023 (the last business day of the Registrant’s most recently completed second fiscal quarter). On February 26, 2018, there were 51,531,339 shares of common stock, par value $0.0001, outstanding. For purposes of this Annual Report on Form 10-K, in addition to those stockholders which fall within the definition of “affiliates” under Rule 405 of the Securities Act of 1933, holders of ten percent or more of the Registrant’s common stock are deemed to be affiliates.
On February 19, 2024 there were 53,436,884 shares of common stock, par value $0.0001, outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are incorporated by reference into this Annual Report on Form 10-K: Portions of the registrant’s definitive Proxy Statement for its 2024 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K.
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 | |
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Changes In and Disagreements With Accountants on Accounting and Financial Disclosure | ||
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Disclosure Regarding Foreign Jurisdictions that Prevent Inspections | 53 | |
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 54 | |
Certain Relationships and Related Transactions, and Director Independence | ||
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F-1 |
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FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K 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 usually 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 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 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. Actual results may differ materially as a result of a number of factors, including, among other things, customer timing, project duration, weather, and general economic conditions; changes in our mix of customers, projects, contracts and business; regional or national and/or general economic conditions and demand for our services; price, volatility, and expectations of future prices of oil, natural gas, and natural gas liquids; variations and changes in the margins of projects performed during any particular quarter; increases in the costs to perform services caused by changing conditions; the termination, or expiration of existing agreements or contracts; the budgetary spending patterns of customers; inflation and other increases in construction costs that we may be unable to pass through to our customers; cost or schedule overruns on fixed-price contracts; availability of qualified labor for specific projects; changes in bonding requirements and bonding availability for existing and new agreements; the need and availability of letters of credit; increases in interest rates and slowing economic growth or recession; the instability in the banking system; costs we incur to support growth, whether organic or through acquisitions; the timing and volume of work under contract; losses experienced in our operations; the results of the review of prior period accounting on certain projects and the impact of adjustments to accounting estimates; developments in governmental investigations and/or inquiries; intense competition in the industries in which we operate; failure to obtain favorable results in existing or future litigation or regulatory proceedings, dispute resolution proceedings or claims, including claims for additional costs; failure of our partners, suppliers or subcontractors to perform their obligations; cyber-security breaches; failure to maintain safe worksites; risks or uncertainties associated with events outside of our control, including conflicts in the Gaza Strip and between Russia and Ukraine, severe weather conditions, public health crises and pandemics, political crises or other catastrophic events; client delays or defaults in making payments; the cost and availability of credit and restrictions imposed by credit facilities; failure to implement strategic and operational initiatives; risks or uncertainties associated with acquisitions, dispositions and investments; possible information technology interruptions, cybersecurity threats or inability to protect intellectual property; the Company’s failure, or the failure of our agents or partners, to comply with laws; the Company's ability to secure appropriate insurance; new or changing political conditions and legal requirements, including those relating to environmental, health and safety matters; the loss of one or a few clients that account for a significant portion of the Company's revenues; asset impairments; and risks arising from the inability to successfully integrate acquired businesses. We discuss many of these risks in detail in “Item 1A. Risk Factors”.Part I, Item 1A “Risk Factors.” You should read this Annual Report on Form 10-K 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 forward-looking statements. Forward-looking statements represent our management’s beliefs and assumptions only as of the date of this Annual Report on Form 10-K. We assume no obligation to update 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.
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PART I
Business Overview
Primoris Services Corporation (“Primoris”, the “Company”, “we”, “us”, or “our”) is a holding company of various subsidiaries which form one of the larger publicly traded specialty contractors andleading providers of infrastructure companiesservices operating mainly in the United States. Serving diverse end-markets, weStates and Canada. We provide a wide range of construction, fabrication, maintenance, replacement, water and wastewater,fabrication, and engineering services to major public utilities, petrochemical companies, energy companies, municipalities, state departmentsa diversified base of transportationcustomers through our two segments: Utilities 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 engineeringEnergy. The structure of our reportable segments is generally focused on broad end-user markets for our services.
Historically, weWe have longstanding customer relationships with major utility, refining, petrochemical, power, renewable energy, communications, midstream, and engineering companies.companies, and state departments of transportation. We have completed major underground and industrial projects forprovide our services to a number of large natural gas transmission and petrochemical companies in the 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 60 months, or longer for completion of larger projects. Although we have not been dependent upon any one customer, in any year a small numberdiversified base of customers, tend to constituteunder a substantialrange of contracting options. A portion of our total revenues.
Our common stock trades on the NASDAQ Select Global Marketservices are provided under the symbol “PRIM”. Founded as ARB, Inc.Master Service Agreements (“ARB”MSA”) in 1960, we became organized as Primoris in Nevada in 2003, and we became a Delaware public company in July 2008 when we merged with a special purpose acquisition company (a non-operating shell company).
Our service capabilities and geographic footprint have expanded primarily through the following four significant acquisitions over the last nine years.
In 2009, we acquired James Construction Group, LLC, a privately-held Florida limited liability company (“JCG”). Headquartered in Baton Rouge, Louisiana, JCG is one of the largest general contractors based in the Gulf Coast states and is engaged in highway, industrial and environmental construction, primarily in Louisiana, Texas, Arkansas, Mississippi and Florida. JCG and its predecessor company have been in business for over 80 years.
In 2010, we acquired Rockford Corporation (“Rockford”). Rockford specializes in construction of large diameter natural gas and liquid pipeline projects and related facilities throughout the United States.
In 2012, we purchased Sprint Pipeline Services, L.P. (“Sprint”), a Texas based company headquartered near Houston, which we renamed as Primoris Energy Services (“PES”). PES provides a comprehensive range of pipeline construction, maintenance, upgrade, fabrication and specialty services primarily in the southeastern United States.
In November 2012, we purchased Q3 Contracting, Inc., a privately-held Minnesota corporation (“Q3C”). Based in Little Canada, Minnesota (north of St. Paul), Q3C specializes in small diameter pipeline and gas distribution construction, restoration and other services, primarily in the upper Midwest region of the United States.
In addition to these primary acquisitions, we have entered into agreements to purchase smaller businesses or business assets to start a business as we continue to seek opportunities to expand our skill sets or operating locations. These include The Saxon Group (“Saxon”) and The Silva Group (“Silva”) (merged with JCG), which we acquired in 2012. During 2014 we acquired Vadnais Trenchless Services, Inc. (“Vadnais”) and made three small acquisitions consistingare generally multi-year agreements. The remainder of the purchase of the net assets of Surber Roustabout, LLC (“Surber”), Ram-Fab, LLC (“Ram-Fab”) and Williams Testing, LLC (“Williams”). In February 2015, we acquired the net assets of Aevenia, Inc. In 2016, we further enhanced our market reach with the purchase of the net assets of Mueller Concrete Construction Company (“Mueller”) and Northern Energy & Power (“Northern”). During 2017, we acquired Florida Gas Contractors (“FGC”), Coastal Field
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Services (“Coastal”), and a small acquisition of certain engineering assets. We continue to evaluate potential acquisition candidates, especially those with strong management teams with good reputations. services are generated from contracts for specific construction or installation projects.
Reportable Segments
Through the end of the year 2016,2022, we segregated our business into three reportable segments: the EnergyUtilities segment, the East Construction ServicesEnergy/Renewables segment, and the West Construction ServicesPipeline segment. In the first quarter 2017,of 2023, we changed our reportable segments in connection with athe realignment of our internal organization and management structure. The segment changes reflect the focus of our chief operating decision makerChief Operating Decision Maker (“CODM”) on the range of services we provide to our end user markets. Our CODM regularly reviews our operating and financial performance based on these new segments.
The current reportable segments include the Power, Industrial, and Engineering (“Power”) segment, the Pipeline and Underground (“Pipeline”) segment, the Utilities and Distribution (“Utilities”) segment and the Civil segment. Segment information for prior periods has been restated to conform to the newEnergy segment, presentation.
Eachwhich is made up of our reportable segments is comprised of similar business units that specialize in services unique to the segment. Driving the new end-user focused segments are differences in the economic characteristics of each segment, the nature of the services provided by each segment; the production processes of each segment; the type or class of customer using the segment’s services; the methods used by the segment to provide the services;former Energy/Renewables and the regulatory environment of each segment’s customers.
Pipeline Services segments. The classification of revenues and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made.
The following is a brief description of the reportable segments:
The Power segment operates throughout the United States and specializes in a range of services that include full Engineering, Procurment, and Construction (“EPC”) project delivery, turnkey construction, retrofits, upgrades, repairs, outages, and maintenance for entities in the petroleum, petrochemical, water, and other industries.
The PipelineUtilities segment operates throughout the United States and specializes in a range of services, including pipeline construction, pipelinethe installation and maintenance pipeline facility work, compressor stations, pump stations, metering facilities,of new and other pipeline related services for entities in the petroleumexisting natural gas and petrochemical industries.electric utility distribution and transmission systems, and communications systems.
The UtilitiesEnergy segment operates primarily in California and the Midwest and Southeast regions ofthroughout the United States and Canada and specializes in a range of services including utility line installationthat include engineering, procurement, construction, retrofits, highway and bridge construction, demolition, site work, soil stabilization, mass excavation, flood control, upgrades, repairs, outages, pipeline construction and maintenance, gaspipeline integrity services, and electric distribution, streetlight construction, substation work, and fiber optic cable installation.
The Civil segment operates primarilymaintenance services for entities in the Southeasternrenewable energy and Gulf Coastenergy storage, renewable fuels, and petroleum and petrochemical industries, as well as state departments of transportation.
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Acquisitions
See Note 4 — “Business Combinations” of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for additional detail.
PLH Group, Inc. On August 1, 2022, we acquired PLH Group, Inc. (“PLH”) in an all-cash transaction valued at approximately $429.0 million, net of cash acquired (the “PLH acquisition”). PLH is a utility-focused infrastructure services company with concentrations in growing regions of the United StatesStates. The transaction directly aligns with our strategic focus on higher-growth, higher margin markets and specializesexpands our capabilities in highwaythe power delivery, communications, and bridge construction, airport runwaygas utilities markets.
B Comm, LLC. On June 8, 2022, we acquired B Comm, LLC (“B Comm”) in an all-cash transaction for approximately $36.0 million, net of cash acquired. B Comm is a provider of maintenance, repair, upgrade and taxiway construction, demolition, heavy earthwork, soil stabilization, mass excavation,installation services to the communications markets. The transaction directly aligns with the strategy to grow our MSA revenue base and drainage projects.expand our communication services within the utility markets.
StrategyFuture Infrastructure Holdings, LLC. On January 15, 2021, we acquired Future Infrastructure Holdings, LLC (“FIH”) in an all-cash transaction valued at approximately $604.7 million, net of cash acquired. FIH is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the communications, regulated gas utility, and infrastructure markets. FIH furthers our strategic plan to expand our service lines, enter new markets, and grow our MSA revenue base. The transaction directly aligns with our strategy to grow in large, higher growth, higher margin markets, and expands our utility services capabilities.
Other acquisitions. In addition to these acquisitions, we have acquired other businesses as we continue to seek opportunities to deepen our market presence, broaden our geographic reach, and expand our service offerings. We continue to evaluate potential acquisition candidates, especially those with strong management teams and growing end markets such as renewable energy, gas and electric utilities, and communications.
Strategy
Our strategy has remained consistent from year to year and continues to emphasize the following key elements:
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| Emphasis on MSA Revenue Growth and Retention of Existing |
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| Ownership or Long-Term Leasing of Equipment. Many of our services are equipment intensive. The cost of construction equipment, and in some cases the availability of construction equipment, provides a significant barrier to entry into several of our businesses. We believe that our ownership or long-term leasing of a large and varied construction fleet and our maintenance facilities enhances our access to reliable equipment at a favorable cost. |
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| Stable Work Force. Our business model emphasizes self-performance of a significant portion of our work. In |
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| Selective Bidding. We selectively bid |
● | Maintain a strong |
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Backlog
Backlog is discussed in Item 7.7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.10-K, which is incorporated herein by reference.
Customers
Customers
We have longstanding customer relationships with major utility, refining, petrochemical, powercommunications, midstream, downstream, and engineering companies.companies, as well as independent power producers and transportation agencies across our core markets. We have completed major underground and industrial projects for a number of large natural gas transmission and petrochemical companies in the westernUnited States, major electrical and gas projects for large utility companies in the United States, as well as significant projects for our engineering customers. Through JCG, we expanded our customer base to include a significant presence in the Gulf Coast region of the United States; with Q3C, we expanded into the upper Midwest United States; and with Rockford, we operate throughout the United States. Over time, the various acquisitions have also changed the composition of our customer base with significant increases in state agency projects. We enter into a large number of contracts each year and the projects can vary in length from several weeks to as long as 60 months, or longer 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.revenue in any given year.
We enter into a large number of contracts each year, and the projects can vary in length from daily work orders to as long as 36 months, and occasionally longer, for completion on larger projects. We often provide services under long term MSAs, which are generally multi-year agreements for specific types of work. Work performed under these contracts is typically generated through project specific work orders, ranging from repairs and new installations, to maintenance and upgrade services. These MSAs have various terms, depending on the nature of the services provided, and our customers are generally not contractually obligated to purchase an amount of services from us under the MSAs, although we do have MSAs that include minimum spend requirements, or targeted spend amounts. For the years ended December 31, 2023, 2022 and 2021, revenue derived from projects performed under MSAs was 36.7%, 45.8%, and 45.9 %, respectively.
Our customers have included the Texas Department of Transportation and Louisiana Department of Transportation and Development in the Southern United States as well as many of the leading energy and utility companies in the United States, including, among others, Enterprise Liquids Pipeline, Xcel Energy, Pacific Gas & Electric, Southern California Gas, Oncor Electric, Duke Energy, Sempra Energy, Williams, NRG, Chevron, Calpine, Kinder Morgan,Hecate Energy, Consumers Energy, Dominion, Valero, Enel Green Power North America, ExxonMobil and Sasol.Phillips 66.
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The followingOur top ten customers accounted for more than 5% of our revenues in the periods indicated:
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Description of customer’s business |
| 2017 |
| 2016 |
| 2015 |
State DOT |
| 9.3% |
| 9.7% |
| 9.5% |
Public gas and electric utility |
| 8.9% |
| 9.2% |
| 6.2% |
Private gas and electric utility |
| 8.0% |
| 10.1% |
| 9.0% |
Chemical/Energy producer |
| 6.8% |
| 10.4% |
| 9.0% |
Pipeline operator |
| 5.4% |
| * |
| * |
Pipeline operator |
| * |
| 6.2% |
| * |
Pipeline operator |
| * |
| * |
| 8.6% |
Gas utility |
| * |
| * |
| 6.6% |
Totals |
| 38.4% |
| 45.6% |
| 48.9% |
(*)Indicates a customer with less than 5% of revenues during such period.
As can be seen from the table, the customers accounting for revenues in excess of 5% each year variesvary from year to year due to the nature of our business. A large construction project for a customer may result in significant revenuesrevenue in that one year, with significantly less revenuesrevenue in subsequent years after project completion.
For the years ended December 31, 2017, 20162023, 2022 and 2015, 56.4%2021, 41.1%, 60.4%46.1% and 59.4%42.9%, respectively, of total revenues wererevenue was generated from our top ten customers in each year. In each of the years, a different group of customers comprised the top ten customers by revenue.
Management atin each of our segments and business units is responsible for developing and maintaining successful long-term relationships with customers. Our segment and business unit management teams buildwork with our business development group to foster existing customer relationships and better understand their needs in order to secure additional projects and increase revenue from our current customer base. BusinessSegment and business unit managers are also responsible for working with our business development group in pursuing growth opportunities with prospective new customers.
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We believe that ourdeveloping and fostering strategic relationships with customers will result in increased future opportunities. Some of our strategic relationships are in the form of strategic alliance or long-term maintenance agreements.MSAs. However, we realize that future opportunities also require cost effective, high value bids, as pricing is a key element for most construction projects.projects and service agreements.
Ongoing ProjectsSeasonality, Cyclicality and Variability
Our results of operations are subject to quarterly variations. Some of the variation is the result of weather, particularly rain, ice, snow, and named storms, which can impact our ability to perform construction and infrastructure services. These seasonal impacts can affect revenue and profitability in all of our businesses. 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 in our Utilities segment tends to be lower during the early part of the calendar year due to clients’ internal budget cycles. As a result, we usually experience higher revenue and earnings in the second, third and fourth quarters of the year as compared to the first quarter.
Our project values range in size from several hundred dollars to several hundred million dollars. The followingbulk of our work is a summarycomprised of significant ongoingproject sizes that average less than $3.0 million. We also perform construction projects demonstratingwhich tend not to be seasonal, but can fluctuate from year to year based on customer timing, project duration, weather, and 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 capabilities in different markets at December 31, 2017:
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Pipeline |
| 177 Mile Natural Gas Pipeline |
| Atlantic Coast |
| $ | 678 |
| 12/2019 |
| $ | 677 |
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Civil |
| I-10 Highway |
| Breaux Bridge, LA |
| $ | 126 |
| 11/2019 |
| $ | 108 |
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Power |
| 500 MW Natural Gas Simple Cycle Power Plant |
| Carlsbad, CA |
| $ | 299 |
| 10/2018 |
| $ | 101 |
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Civil |
| IH 35 Highway |
| Temple, TX |
| $ | 281 |
| 03/2019 |
| $ | 88 |
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Pipeline |
| Dual force main & generator replacement |
| Marina Del Rey, CA |
| $ | 87 |
| 07/2018 |
| $ | 62 |
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Utilities |
| 230KV Transmission Line |
| San Diego, CA |
| $ | 74 |
| 06/2018 |
| $ | 15 |
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business, the financial results for any period may fluctuate from prior periods, and our financial condition and operating results may vary from quarter to quarter. Results from one quarter may not be indicative of our financial condition, or operating results for any other quarter, or for an entire year.
Competition
Competition
We face substantial competition on large construction projects from both regional and national contractors.contractors, including competition from larger companies that have financial and other resources in excess of those available to us. Competitors on small construction projects range from a few large construction companies, to a variety of smaller contractors. We compete with many local and regional firms for construction services and with a number of large firms on select projects. Each business unit faces varied competition depending on the types of projects, project locations, and services offered.
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We compete with different companies in different end markets. For example, large competitors in our undergroundutilities markets include Quanta Services, Inc. Dycom Industries, MYR Group, and MasTec, Inc.; competitors in our industrial markets include PCL, Kiewit, Corporation;Granite Construction, Performance Contractors and Boh Brothers; competitors in the renewables market include Blattner Energy, and Mortenson; and competitors in our highway services markets include Sterling Construction Company and privately-held Boh Brothers and ZacharyZachry Construction Company. In each market we may also compete with local, private companies.
We believe that the primary factors influencing competition in our industry are price, reputation for quality, delivery and safety, schedule certainty, relevant experience, availability of field supervision and skilled labor, machinery and equipment, financial strength, as well as knowledge of local markets and conditions, and estimating abilities.conditions. We believe that we have the ability to compete favorably in all of these factors.
Geographic Areas — Financial Information
The majority of our revenues are derived from customers and projects geographically located in the United States with approximately 1% generated from sources outside the United States. Assets located outside the United States also represent approximately 1% of our total assets. Our revenue from operations in Canada is primarily derived from our Power segment’s office in Calgary, Canada, but relates to specific projects in other countries, including in the Far East and Australia.
Risks Attendant to Foreign Operations
In 2017, approximately 1% of our revenue was attributable to external customers in foreign countries. The current expectation is that a similar portion of revenue will continue to come from international projects for the foreseeable future. Though a small portion of our revenues, international operations are subject to foreign economic and political uncertainties and risks as disclosed more fully in Item 1A “Risk Factors” of this Annual Report. Unexpected and adverse changes in the foreign countries in which we operate could result in project disruptions, increased costs and potential losses. Our business is subject to fluctuations in demand and to changing domestic and international economic and political conditions which are beyond our control.
Contract Provisions and Subcontracting
We typically structure contracts as unit-price, time and material, fixed-price or cost reimbursable plus fixed fee. A substantial portion of our revenue is derived from contractsMSAs, which provide a menu of available services that are utilized on an as-needed basis and are typically priced using a unit-price or on a time and material basis. The remainder of our services are generated from contracts for specific construction or installation projects, which are subject to multiple pricing options, including unit-price, time and material, fixed-price, or unit-price contracts.cost reimbursable plus fixed fee. Under a fixed-price contract, we undertake to provide labor, equipment and services required by a project for a competitively bid or negotiated fixed price. Under a unit-price contract, we are committed to providing materials or services required by a project at a fixed price per unit prices.of work. While the unit-price contract shifts the risk of estimating the quantity of units required for a particular project to the customer, any increase in our unit cost over the unit price bid, whether due to inflation, inefficiency, faulty estimates or other factors, is borne by us. Significant materials required under a fixed-price or unit-price contract, such as pipe, turbines, boilers and vessels, are usuallytypically supplied by the customer.
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OurSubstantially all of our gas and electric distribution services are typically provided pursuant to renewable contractsMSAs on a “unit-cost”“unit-price” basis. Fees on unit-costunit-price contracts are negotiated and are earned based on units completed. Historically, substantially all of the gas and electric distribution customers have renewed their maintenance contracts. FacilitiesMSAs with us. Facility maintenance services, such as regularly scheduled and emergency repair work, are provided on an ongoing basis at predetermined rates.rates, or on a time and material basis.
Construction contracts are primarily obtained through competitive bidding or through negotiations with long-standing customers. We are typically invited to bid on projects undertaken by recurring customers who maintain pre-qualified contractor lists. Contractors are selected for the pre-approved contractor lists by virtue of their prior performance for such customers, as well as their experience, reputation for quality, safety record, financial strength, competitiveness, and bonding capacity.
In evaluating bid opportunities, we consider such factors as the customer, the geographic location of the work, the availability of labor, our competitive advantage or disadvantage relative to other likely contractors,bidders, our current and projected workload, the likelihood of additional work, our history with the client, contract terms, and the project’s cost and profitability estimates. We use
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computer-based sophisticated estimating systems and our estimating staff has significant experience in the construction industry. The project estimates form the basis of a project budget against which performance is tracked through a project cost system, thereby enabling management to monitor a project.project’s cost and schedule performance. Project costs are accumulated and monitored regularly against billings and payments to assureensure proper understandingtracking of cash flow on the project.
Most contracts provide for termination of the contract forat the convenience of the owner.owner or contractor. The terms associated with termination for convenience typically cover the reimbursement of all of our costs through a specific date, as well as all reasonable costs associated with demobilizing from the jobsite. In addition, many contracts aremay be subject to certain completion schedule requirements with damages orwhich may include liquidated damages in the event schedules are not met. To date, these provisions have not materially adversely affected us.
We act as prime contractor on a majority of the construction projects we undertake. In the construction industry, the prime contractor is normally responsible for the performanceexecution of the entire contract scope of work, including subcontract work. Thus, we are potentially subject to increased costs and reputational riskrisks associated with the failure of one or more of our subcontractors to perform their respective scope as anticipated.defined in the contract. While we subcontract specialized activities such as blasting, hazardous waste removal and selected electricalelectrical/instrumentation work, we performself-perform most of the work on our projects with our own resources, including field supervision, labor, and equipment.
Risk Management, Insurance and Bonding
We maintain general liability and excess liabilitya comprehensive schedule of insurance policies covering a broad range of exposures arising from our construction equipment, and workers’ compensation insurance ingeneral business operations. All of our policies have been procured with limits and deductibles or self-insured retention amounts consistent with industry practices. In certain states, we self-insure our workers’ compensation claims in an amount of up to $250,000$1,000,000 per occurrence, and we maintain insurance covering larger claims.occurrence. In addition, we maintain umbrella coverage policies. We believe thatcertain self-insured retentions in our insurance programs are adequate.policies in excess of our general and auto liability policies.
We maintain a diligent safety and risk management program that has resulted in a favorable loss experience factor. Through our safety director and the employment of a large staff of regional and site specificsite-specific safety managers, we have been able to effectively assess and control potential losses and liabilities in both the pre-construction and performance phases of our projects. Though we strongly focus on safety in the workplace, we cannot give assurances that we can prevent or reduce all injuries and/or claims in our workplace.
In connection with our business, we generally are required to provide various types of surety bonds guaranteeing our performance under certain public and private sector contracts. Our ability to obtain surety bonds depends upon our capitalization, working capital, backlog, past performance, management expertise and other factors, and the surety company’s current underwriting standards. To date, we have obtained the level of surety bonds necessary to support our business.
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Regulation and Environmental Requirements
Regulation
Our operations are subject to variouscompliance with regulatory requirements of federal, state, localand municipal agencies and authorities, and international laws and regulations including:including with respect to:
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| Licensing, permitting and inspection |
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● | Transportation of equipment and materials, including licensing and permitting requirements, as well as aviation activities; |
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● | Applicable U.S. and non-U.S. anti-corruption regulations; |
● | Immigration regulations applicable to |
● | Labor relations and affirmative action; |
● | Special bidding, procurement and other requirements on government projects; and |
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We believe that we have all the licenses and permits required to conduct our operations and that we are in substantial compliance with applicable regulatory requirements.
Environmental Matters and Climate Change Impacts
We are subject to numerous federal, state, local and international environmental laws and regulations governing our operations, including the handling, transportation and disposal of non-hazardous and hazardous substances and wastes, as well as emissions and discharges into the environment, including discharges to air, surface water, groundwater and soil. We have a substantial investment in construction equipment that utilizes diesel fuel. Any changes in laws
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requiring us to use equipment that runs on alternative fuels could require a significant investment,fuel, which could adversely impact our financial performance.be negatively impacted by regulations related to greenhouse gas emissions from such sources.
We also are subject to laws and regulations that impose liability and cleanup responsibility for releases of hazardous substances into the environment. Under some of these laws and regulations, liability can be imposed for cleanup of previously owned or operatedleased properties, or properties to which hazardous substances or wastes were sent by current, or former operations at our facilities, regardless of whether we directly caused the contamination or violated any law at the time of discharge, or disposal. The presence of contamination from such substances or wastes could interfere with ongoing operations, or adversely affect our ability to sell, lease or use our properties as collateral for financing.
We continually evaluate whether we must take additional steps at our locations to ensure compliance with environmental laws. While compliance with applicable regulatory requirements has not materially adversely affected our operations in the past, there can be no assurance these requirements will not change, and compliance will not adversely affect our operations in the future. In addition, we could be held liabletighter regulation for significant penaltiesthe protection of the environment and damages under certain environmental lawsother factors may make it more difficult to obtain new permits and regulations and also couldrenewal of existing permits may be subject to a revocation of our licenses or permits, which could materiallymore restrictive conditions than currently exist.
Climate Change-Related Impacts
Our management considers climate-related risks and adversely affect our businessopportunities in connection with its long-term strategic planning and results of operations. Our contracts with our customers may also impose liabilities on us regarding environmental issues that arise throughenterprise risk management process. While the performance of our services. From time to time, we may incur costs and obligations for correcting environmental noncompliance matters and for remediation at or relating to certain of our properties. We believe that we are in substantial compliance with our environmental obligations to date and that any such obligations will not have a material adverse effectoverall impact on our business or financial performance.
The potential physicaloperations continues to evolve, various aspects of climate change, as well as market and societal concerns about the future impact of climate change, onhave resulted and are expected to continue to result in operational opportunities and challenges. These opportunities and challenges arise from the physical risks associated with changes in climate, as well as technological advances, market developments and additional regulatory and compliance costs.
Our operating results can be significantly influenced by the climates in which we operate as well as severe weather events. Changes in climate could result in more accommodating weather patterns for greater periods of time in certain areas, which may enable us to increase our productivity in those areas. Physical risks associated with climate change have also increased hazards associated with certain of our operations, is highly uncertain. Climatewhich in turn has increased the potential for liability and increased the costs associated with such operations. Additionally, new legislation or regulation related to
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climate change may resultcould increase our costs. However, due to climate change risks some utility customers are transitioning toward more sustainable sources of power generation, such as renewables, which can provide additional opportunities for our Energy segment. For additional information regarding the risks and opportunities described above, see Risks Related to Operating Our Business in among other things, changes in rainfall patterns, storm patterns and intensities and temperature levels. As discussed elsewhere inItem 1A. “Risk Factors” of this Annual Report on Form 10-K, including in Item 1A. “Risk Factors”, our operating results are significantly influenced by weather. Therefore, major changes in historical weather patterns could significantly impact our future operating results. For example, if climate change results in significantly more adverse weather conditions in a given period, we could experience reduced productivity, which could negatively impact our revenues and gross margins.10-K.
Climate change could also affect our customers and the types of projects that they award. Demand for power projects, underground pipelines or highway projects could be affected by significant changes in weather. Reductions in project awards could adversely affect our operations and financial performance.Human Capital Management
Employees
Employee Profile. We believe that our employees are the most valuable resource invital to successfully completing construction work.our projects. Our ability to maintain sufficient, continuous work for approximately 5,800 hourly employees helps us to instill in our employees loyalty to andmaintain a stable, loyal workforce with an understanding of our policies and culture, which contributes to our strong production,performance, safety and quality record. Our talent acquisition team uses internal and external resources to recruit highly skilled and talented workers, and we encourage employee referrals for open positions. In addition, we have partnerships with technical schools where we recruit and hire craft employees.
As of December 31, 2017, we employed 1,345 salaried employees and 5,757 hourly employees. The total number of hourly personnel employed is subject to the volume of construction work in progress.
Several of our subsidiaries have operations that are unionized through the negotiation and execution of collective bargaining agreements. As of December 31, 2023, approximately 30.6% of our hourly employees, primarily consisting of field laborers, were covered by collective bargaining agreements. These collective bargaining agreements have varying terms and are subject to renegotiation upon expiration. We have not experienced recent work stoppages and believe our employee and union relations are good.
As of December 31, 2023, we employed 2,773 salaried employees and 11,285 hourly employees. The total number of hourly personnel employed is subject to the volume of infrastructure services and construction work in progress.
Diversity and Inclusion. We employ a dynamic mix of people to create the strongest company possible. Our policy prohibits discrimination in employment on the basis of age, culture, gender, national origin, sexual orientation, physical appearance, race or religion. We are an inclusive, diverse company with people of all backgrounds, experiences, cultures, styles and talents. We have a Diversity and Inclusion committee whose goal is to identify and advance efforts that aim to create and foster a workplace that is reflective of, and contributes to, the diverse communities in which we do business. The committee promotes awareness of diversity and inclusion issues in support of company-wide efforts to build a more inclusive and diverse workplace.
Professional and Career Development. We strive to develop and sustain a skilled labor advantage by providing thorough on-and off-site training programs, project management training, and leadership development programs. We have company-owned training facilities that support continuous skills training, including several locations where we train electric apprentices to become journeymen. We offer multiple levels of leadership programs designed to meet the needs of our employees and support the development of best-in-class talent. Our five cornerstone programs are Foreman Foundations, Extreme Ownership, Hunt for Leadership Success, Next Level Leadership, and The Leadership Experience. From Foreman Foundations where employees learn the fundamentals of transitioning from a crew member to a crew leader through The Leadership Experience where emerging leaders explore values-based leadership and sharpen their strategic leadership skills, our Learning and Development programs are designed to support Primoris’ vision, mission, and values and promote the growth of our greatest assets, our employees.
Safety, Health and Wellness. We are committed to the health, safety and wellness of our employees, and we pride ourselves on above average workplace safety. We track and maintain several key safety metrics, which senior management reviews monthly, and we evaluate management on their ability to provide safe working conditions on job sites and to create a strong safety culture. Lost Time Injury Rate (“LTIR”) tracks the rate of injuries in the workplace which results in the employee having to take a minimum of one full working day away from work. For the year ended December 31, 2023, our LTIR rate was 0.07 compared to an industry average of 1.0 per the U.S. Bureau of Labor construction industry statistics. Total Recordable Incident Rate (“TRIR”) tracks the total number of workplace injuries which rise to the level of Occupational Safety and Health Administration recordability, whether leading to time away from work or not. TRIR is reported as the number of workplace safety incidents per 100 full-time workers during a one-year period. For the year ended December 31, 2023, our TRIR rate was 0.46 compared to an industry average of 2.4 per the U.S. Bureau of Labor construction industry statistics.
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Compensation and Benefits. As part of our compensation philosophy, we believe that we must offer and maintain market competitive total rewards programs for our employees in order to attract and retain superior talent. Our compensation programs are generally designed to align employee compensation with market practices and our performance. With respect to our executive officers, business unit management, and other senior leadership, compensation programs consist of both fixed and variable components. The fixed portion is generally set at market levels, with variable compensation designed to reward employees based on company and individual performance. In connection with these compensation programs, we grant stock-based compensation to management and key personnel at the business unit levels, which we believe helps to align incentives throughout our organization. We also enter into employment agreements with our executive officers and certain other key personnel. For additional information regarding our executive compensation, please see the information required in Item 11 “Executive Compensation,” which will be incorporated by reference from our definitive proxy statement related to our 2024 Annual Meeting of Stockholders.
We also provide additional benefits to our non-union employees, including a Company matched 401(k) Plan, healthcare and insurance benefits, health savings and flexible spending accounts, paid time off, family leave, flexible work schedules, and employee assistance programs.
Code of Conduct. All of our employees are subject to our Code of Conduct, which includes guidance and requirements concerning, among other things, general business ethics, including policies concerning the environment, conflicts of interest, anti-corruption, harassment and discrimination, data security and privacy, insider trading and the Anti-Bribery & Corruption Policy, which includes guidance and requirements concerning, among other things, interactions with government officials; provision of gifts, entertainment and hospitality; and charitable and political contributions.
Website Access and Other Information
Our website address is www.prim.com. You may obtain free electronic copies of our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to these reports through our website under the “Investors” tab or through the website of the Securities and Exchange Commission (the “SEC”) at www.sec.gov. These reports are available on our website as soon as reasonably practicable after we electronically file them with, or furnish them to, the SEC. In addition, our “Code of Ethics” (including a separate supplement which applies to our CEO, CFO and senior financial executives) and the charters of our Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee, and NominatingStrategy and Risk Committee are posted on our website under the “Investors/Governance”Governance Documents” tab. Also posted on our website under the “Investors/Governance Documents” tab are our Code of Conduct and charters for our Environmental, Social and Governance Committee, Enterprise Risk Management Committee, Cyber Security Steering Committee, and Diversity and Inclusion Committee along with our Human Rights and Corporate Environmental policies. We intend to disclose on our website any amendments or waivers to our Code of Ethics
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that are required to be disclosed pursuant to Item 5.05 of Form 8-K. You may obtain copies of these items from our website.Conduct.
We will make available to any stockholder, without charge, copies of our Annual Report on Form 10-K as filed with the SEC. For copies of this or any other information, stockholders should submit a request in writing to Primoris Services Corporation, Inc., Attn: Corporate Secretary, 2100 McKinney Avenue,2300 N. Field Street, Suite 1500,1900, Dallas, TX 75201.
This Annual Report on Form 10-K and our website may contain information provided by other sources that we believe are reliable. However, we cannot assure you that the information obtained from other sources is accurate or complete. No information on our website is incorporated by reference herein and should not be considered part of this Annual Report.Report on Form 10-K.
Our business is subject to a variety of risks and uncertainties, many of which are described below (not necessarily in probability of occurrence or order of importance). The following list is not all-inclusive, and there can be no assurance that we have correctly identified and appropriately assessed all factors affecting our business or that the publicly available or other information with respect to these matters is complete and correct.below. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial also may have a material adverse effect on our business in the future. This Annual Report on Form 10-K includes projections, assumptions and beliefs that are intended to be “forward looking statements” and should be read in conjunction with the discussion of “Forward Looking Statements” at the beginning of this Annual Report on Form 10-K.
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The following risk factors could have a material adverse effect on our business, the results of our operations, our financial condition, our cash flow and the price of our shares. These risk factors could prevent us from meeting our goals or expectations.
Risks Related Primarily to Operating our Business
Our financial and operating results may vary significantly from quarter-to-quarter and year-to-year.
Our business is subject to seasonal and annual fluctuations. Some of the quarterly variation is the result of weather, particularly rain, ice, snow, and snow,named storms, which create difficult operating conditions. Similarly, demand for routine repair and maintenance services for gas utilities is lower during their peak customer needs in the winter.winter, and demand for routine repair and maintenance services for electric utilities is lower during their peak customer needs in the summer. Some of the annual variation is the result of large construction projects which fluctuate based on customer timing, project duration, weather, and general economic conditions and customer needs.conditions. Annual and quarterly results may also be adversely affected by:
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| Changes in our mix of customers, projects, contracts and business; |
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| Regional or national and/or general economic conditions and demand for our services; |
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| Variations and changes in the margins of projects performed during any particular quarter; |
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| Increases in the costs to perform services caused by changing |
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| The termination, or expiration of existing agreements or contracts; |
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| The budgetary spending patterns of customers; |
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| Increases in construction costs, including due to inflation or supply chain challenges, that we may be unable to pass through to our customers; |
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| Cost or schedule overruns on fixed-price contracts; |
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| Availability of qualified labor for specific projects; |
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| Changes in bonding requirements and bonding availability for existing and new agreements; |
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| The need and availability of letters of credit; |
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| Costs we incur to support growth, whether organic or through acquisitions; |
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| The timing and volume of work under contract; and |
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| Losses experienced in our operations. |
As a result, our operating results in any particular quarter may not be indicative of the operating results expected for any other quarter, or for an entire year.
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Demand for our services may decrease during economic recessions or volatile economic cycles, and a reduction in demand in end markets may adversely affect our business.
A substantial portion of our revenuesrevenue and profitsprofit is generated from construction projects, the awarding of which we do not directly control. The engineering and construction industry historically has experienced cyclical fluctuations in financial results due to economic recessions, downturns in business cycles of our customers, material shortages, price increases by subcontractors, interest rate fluctuations and other economic factors beyond our control. When the general level of economic activity deteriorates, our customers may delay, or cancel upgrades, expansions, and/or maintenance and repairs to their systems. Many factors, including the financial condition of the industry, could adversely affect our customers and their willingness to fund capital expenditures in the future.
Economic, political, regulatory and market conditions affecting our specific end markets may adversely impact the demand for our services, resulting in the delay, reduction or cancellation of certain projects and these conditions may continue to adversely affect us in the future. For example, much of the work that we perform in the highway markets involves funding by federal, state and local governments. This funding is subject to fluctuation based on the budgets and operating priorities of the various government agencies.
We are also dependent on the amount of work our customers outsource. In a slower economy, our customers may decide to outsource less infrastructure services, reducing demand for our services. In addition, consolidation, competition or capital constraints in the industries we serve may result in reduced spending by our customers.
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Industry trends and government regulations could reduce demand for our pipeline construction services.
The demand for our pipeline construction services is dependent on the level of capital project spending by companies in the oil and gas industry. This level of spending is subject to large fluctuations depending primarily on the current and expectations of future prices of oil and natural gas. The price is a function of many factors, including levels of supply and demand, government policies and regulations, oil industry refining capacity and the potential development of alternative fuels.
Specific government decisions could affect demand for our construction services. For example, a limitation on the use of “fracking” technology, or creation of significant regulatory issues for the construction of underground pipelines, could significantly reduce our underground work.
Conversely, government regulations may increase the demand for our pipeline services. The anticipation by utilities that coal-fueled power plants may become uneconomical to operate because of potential environmental regulations or low natural gas prices has increased demand for gas pipeline construction for utility customers.
Many of our customers are regulated by federal and state government agencies and the addition of new regulations or changes to existing regulations may adversely impact demand for our services and the profitability of those services.
Many of our energy customers are regulated by the Federal Energy Regulatory Commission or FERC,(“FERC”), and our utility customers are regulated by state public utility commissions. These agencies could change the way in which they interpret current regulations and may impose additional regulations. These changes could have an adverse effect on our customers and the profitability of the services they provide, which could reduce demand for our services or delay our ability to complete projects. Additionally, our failure to comply with applicable regulations could result in substantial fines or revocation of our operating licenses, as well as give rise to termination or cancellation rights under our contracts or disqualify us from future bidding opportunities.
The demand for our pipeline construction services is dependent on the level of operating and capital project spending by midstream companies in the oil and gas industry and industrial companies primarily in the petrochemical industry. This level of spending is subject to large fluctuations depending primarily on the current price, volatility, and expectations of future prices of oil, natural gas, and natural gas liquids. The price is a function of many factors, including levels of supply and demand, government policies and regulations, oil industry refining capacity and the potential development of alternative fuels.
Specific government decisions could affect demand for our construction services. For example, limitations on the use of “fracking” technology, creation of significant regulatory issues for the construction of underground pipelines and permitting and licensing requirements have reduced our underground work.
Conversely, government regulations may increase the demand for our pipeline services. Recent pipeline safety legislation could increase demand for our pipeline facility, maintenance, integrity and repair services.
Our business may be materially adversely impacted by regional, national and/or global requirements related to significantly limit or reduceclimate change and the impact of greenhouse gas emissions in the future.
Greenhouse gases that result from human activities, including burning of fossil fuels, are the focus of increased scientific and political scrutiny and may be subjectedsubject to variouschanging legal requirements. International agreements, federal laws, state laws and various regulatory schemes to limit or otherwise regulate emissions of greenhouse gases, and additional restrictions are under consideration by different governmental entities. We derive a significant amountsmall portion of revenuesour revenue and contract profitsprofit from engineering and construction services to clients that own and/or operate a wide range of process plants and own and/or operate electric power generating plants that generate electricity from burning natural
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gas or various types of solid fuels. These plants may emit greenhouse gases as part of the process to generate electricity or other products. Compliance with the existing greenhouse gas regulation may prove costly or difficult. It is possible that owners and operators of existing or future process plants and electric generating plants could be subject to new or changed environmental regulations that result in significantly limiting, or reducing the amounts of greenhouse gas emissions, increasing the cost of emitting such gases or requiring emissions allowances. The costs of controlling such emissions or obtaining required emissions allowances could be significant. It also is possible that necessary controls or allowances may not be available. Such regulations could negatively impact client investments in capital projects in our markets, which could negatively impact the market for our products and/or services. This could materially adversely affect our business.
In addition, theThe establishment of additional rules limiting greenhouse gas emissions could also impact our ability to perform construction services, or to perform these services with current levels of profitability. New regulations may require us to acquire different equipment or change processes. The new equipment may not be available, or it may not be purchased or rented in a cost effectivecost-effective manner. Project deferrals, delays or cancellations resulting from the potential regulations could adversely impact our business.
In addition, we could be held liable for significant penalties and damages under certain environmental laws and regulations and also could be subject to a revocation of our licenses or permits. Our contracts with our customers may also impose liabilities on us regarding environmental issues that arise through the performance of our services. From time to time, we may incur costs and obligations for correcting environmental noncompliance matters and for remediation at or relating to certain of our job sites or properties. We believe that we are in substantial compliance with our environmental obligations.
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While the potential impact of climate-related changes, including legislative and regulatory responses thereto, on our operations is uncertain, management considers climate-related risks and opportunities in connection with its long-term strategic planning and short-term deployment of resources. Climate change may result in, among other things, changes in rainfall patterns, storm patterns and intensities and temperature levels. Our operating results are significantly influenced by weather, and major changes in historical weather patterns could significantly impact our future operating results. For example, if climate change results in significantly more adverse weather conditions in a given period, we could experience reduced productivity, which could negatively impact our operating results.
Concerns about the impact of climate change have resulted, and are expected to continue to result, in technological advancements and market developments that impact our business. For example, utility customers are transitioning toward more sustainable sources of power generation, such as renewables, which can provide additional opportunities for our Energy segment. Additionally, increased electrification of new technologies may lead to continued and additional demand for new and expanded electric power infrastructure and reengineering of existing electric power infrastructure. However, concerns about climate change could also result in potential new regulations, regulatory actions or requirements to fund energy efficiency activities, as well as decreased demand for refined products, which in turn could negatively impact our customers and demand for certain of our pipeline, underground utility and infrastructure services.
Climate change could also affect our customers and the types of projects that they award. Demand for power projects, underground pipelines or highway projects could be affected by significant changes in weather, or climate conditions, or by regulatory changes relating to climate change, which could in turn reduce demand for our services.
Our results could be adversely affected by natural disasters, public health crises, political crises, or other catastrophic events.
Natural disasters, such as hurricanes, tornadoes, floods, earthquakes, and other adverse weather and climate conditions; public health crises, such as pandemics and epidemics; political crises, such as terrorist attacks, war, labor unrest, and other political instability; or other catastrophic events could disrupt our operations, or the operations of one or more of our vendors or customers, and could adversely affect our financial results. In particular, these types of events could impact our product supply chain from or to the impacted region and could cause our customers to delay or cancel projects, which could impact our ability to operate. In addition, these types of events could lead to general inefficiencies from having to start and stop work, re-sequencing work or modifying our customary work practices.
Changes to renewable portfolio standards and decreased demand for renewable energy projects could negatively impact our future results of operations, cash flows and liquidity.
A significant portion of our future business may be focused on providing construction and/or installation services to owners and operators of solar power and other renewable energy facilities. Currently, the development of solar and other renewable energy facilities is highly dependent on tax credits, the existence of renewable portfolio standards and other state incentives.incentives and requirements. Renewable portfolio standards are state-specific statutory provisions requiring or encouraging that electric utilities generate a certain amount of electricity from renewable energy sources. These standards have initiated significant growth in the renewable energy industry and a potentialincreased demand for renewable energy infrastructure construction services. Since renewable energy is generally more expensive to produce, eliminationElimination of, or changes to, existing renewable portfolio standards, tax credits or similar environmental policies may negatively affect future demand for our services.
We may lose business to competitors through the competitive bidding processes.
We are engaged in highly competitive businesses in which most customer contracts are awarded through bidding processes based on price and the acceptance of certain risks.risks, along with other factors. We compete with other general and specialtyinfrastructure services contractors, both regional and national, andas well as small local contractors. The strong competition in our markets requires maintaining skilled personnel and investing in technology, and it also puts pressure on profit margins. We do not obtain contracts from all of our bids and our inability to win bids at acceptable profit margins would adversely affect our business.
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We may be unsuccessful at generating internal growth which may affect our ability to expand our operations or grow our business.
Our ability to generate internal growth may be affected by, among other factors, our ability to:
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| Attract new customers; |
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| Increase the number of projects performed for existing customers; |
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| Hire and retain qualified personnel; |
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● | Successfully bid for new projects; and |
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| Adapt the range of services we offer to address our customers’ evolving construction needs. |
In addition, our customers may reduce the number or size of projects available to us due to their inability to obtain capital. Our customers may also reduce projects in response to economic conditions.
Many of the factors affecting our ability to generate internal growth may be beyond our control, and we cannot be certain that our strategies will be successful or that we will be able to generate cash flow sufficient to fund our
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operations and to support internal growth. If we are unsuccessful, we may not be able to achieve internal growth, expand our operations or grow our business.
The timing of new contracts may result in unpredictable fluctuations in our business.
Substantial portions of our revenuesrevenue are derived from project-based work that is awarded through a competitive bid process. The portion of revenue generated from the competitive bid process for 2017, 20162023, 2022 and 20152021 was approximately 52%30.1%, 45%26.3%, and 47%31.2%, respectively. It is generally very difficult to predict the timing and geographic distribution of the projects that we will be awarded. The selection of, timing of or failure to obtain projects, delays in award of projects, the re-bidding or termination of projects due to budget overruns, cancellations of projects or delays in completion of contracts could result in the under-utilization of our assets and reduce our cash flows. Even if we are awarded contracts, we face additional risks that could affect whether or when work will begin. For example, some of our contracts are subject to financing, permitting and other contingencies that may delay or result in termination of projects. We may have difficulty in matching workforce size and equipment location with contract needs. In some cases, we may be required to bear the cost of a ready workforce and equipment that is larger than necessary, resulting in unpredictability in our cash flow, expenses and profitability. If any expected contract award, or the related work release is delayed or not received, we could incur substantial costs without receipt of any corresponding revenues. Moreover, construction projects for which our services are contracted may require significant expenditures by us prior to receipt of relevant payments by a customer and may expose us to potential credit risk if the customer encounters financial difficulties.revenue. Finally, the winding down or completion of work on significant projects will reduce our revenue and earnings if these projects have not been replaced.
We derive a significantmeaningful portion of our revenuesrevenue from a few customers, and the loss of one or more of these customers could have significant effects on our revenues,revenue, resulting in adverse effects on our financial condition, results of operations and cash flows.
Our customer base is highlyreasonably concentrated, with our top ten customers accounting for approximately 56%41.1% of our revenue in 2017, 60%2023, 46.1% of our revenue in 20162022 and 59%42.9% of our revenue in 2015.2021. However, the customers included in our top ten customer list generally vary from year to year. Our revenue is dependent both on performance of larger construction projects and relatively smaller Master Services Agreements (“MSA”) contracts.projects under MSAs. For the large construction projects, the completion of the project does not necessarily represent the permanent loss of a customer; however, the future revenuesrevenue generated from work for that customer may fluctuate significantly.
We also generate ongoing revenuesrevenue from our MSA customers, which are generally comprised of regulated gas and electric utilities. If we were to lose one of these customers, our revenue could significantly decline. Reduced demand for our services by larger construction customers or a loss of a significant MSA customer could have an adverse effect on our business.
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Our international operations expose us to legal, political and economic risks in different countries as well as currency exchange rate fluctuations that could harm our business and financial results. We could be adversely affected by our failure to comply with laws applicable to our foreign activities, such as the U.S. Foreign Corrupt Practices Act.
During 2017, 20162023, 2022 and 2015,2021, revenue attributable to our services outside of the United States, principally in Canada, was 0.3%5.8%, 0.6%6.7% and 0.9%4.5% of our total revenue, respectively. While much of this revenue is derived from the operations of our Canadian subsidiary, OnQuest Canada, ULC, construction activities have occurred in several far eastern countries and in Australia. There are risks inherent in doing business internationally, including:
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| Imposition of governmental controls and changes in laws, regulations, policies, practices, tariffs and taxes; |
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| Political and economic instability; |
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| Changes in United States and other national government trade policies affecting the market for our services; |
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| Potential non-compliance with a wide variety of laws and regulations, including the United States Foreign Corrupt Practices Act (“FCPA”) and similar non-United States laws and regulations; |
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| Currency exchange rate fluctuations, devaluations and other conversion restrictions; |
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| Restrictions on or fees or taxes associated with repatriating foreign |
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| Difficulties in staffing and managing international operations. |
The FCPA and similar anti-bribery laws in other jurisdictions prohibit U.S.-based companies and their intermediaries from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. We pursue opportunities in certain parts of the world that experience government corruption, and in certain circumstances, compliance with anti-bribery laws may conflict with local customs and practices. Our internal policies mandate compliance with all applicable anti-bribery laws. We require our partners, subcontractors, agents and others who work for us or on our behalf to comply with the FCPA and other anti-bribery laws. There is no assurance that our policies or procedures will protect us against liability under the FCPA or other laws for actions taken by our agents, employees and intermediaries. If we are found to be liable for FCPA violations (either due to our own acts or our inadvertence, or due to the acts or inadvertence of others), we could suffer from severe criminal or civil penalties or other sanctions, which could have a material adverse effect on our reputation and business. In addition, detecting, investigating and resolving actual or alleged FCPA violations is expensive and could consume significant time and attention of our senior management.
Backlog may not be realized or may not result in revenuesrevenue or profits.profit.
Backlog is measured and defined differently by companies within our industry. We refer to “backlog” as our anticipated revenue from the uncompleted portions of existing contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value, and the estimated revenue on uncompleted contracts, less the revenue we have recognized under such contracts, plus the amountMSA work. We present two measures of backlog; one that includes fixed backlog and estimated revenue on contracts on whichMSA work has not begun, plus an estimated level of MSA revenues for the next four quarters.quarters, and total backlog that includes all fixed backlog and estimated revenue on MSA work to the end of the MSA agreement. We do not consider renewals when estimating total backlog. Backlog is not a comprehensive indicator of future revenues.revenue. Most contracts may be terminated by our customers on short notice. Reductions in backlog due to cancellation by a customer, or for other reasons, could significantly reduce the revenue that we actually receive from contracts in backlog. In the event of a project cancellation, we may beare typically reimbursed for certainall of our costs through a specific date, as well as all reasonable costs associated with demobilizing from the jobsite, but we typically have no contractual right to the total revenuesrevenue reflected in our backlog. Projects may remain in backlog for extended periods of time. While backlog includes estimated MSA revenues,revenue, customers are not contractually obligated to purchase ana certain amount of services under the MSA.
Given these factors, our backlog at any point in time may not accurately represent the revenue that we expect to realize during any period, and our backlog as of the end of a fiscal year may not be indicative of the revenue we expect to earn in the following fiscal year. Inability to realize revenue from our backlog could have an adverse effect on our business.
BacklogWhile backlog may not be indicative of the revenue we expect to earn the following fiscal year, it is ana potential indicator of future revenues;revenue; however, recognition of revenuesrevenue from backlog does not necessarily ensure that the projects will be profitable. Poor project or contract performanceexecution could impact profitsprofit from contracts included in backlog. For projects for which
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a loss is expected, future revenuesrevenue will be recorded with no margin, which may reduce the overall margin percentage for work performed.
Our actual cost may be greater than expected in performing our fixed-price and unit-price contracts causing us to realize significantly lower profitsprofit or losses on our projects.
We currently generate, and expect to continue to generate, a substantial portion of our revenue from fixed price and profits under fixed-price and unit-price contracts. The approximate portion of revenue generated from fixed-price contracts for the years 2017, 2016 and 2015 was 40%, 35% and 39%, respectively. The approximate portion of revenue generated from unit-price contracts for the years 2017, 2016 and 2015 was 46%, 45%, and 43%, respectively. In general, we must estimate the costs of completing a specific project to bid these types ofunit price contracts. The actual cost of labor and materials may vary from the costs we originally estimated, and we may not be successful in recouping additional costs from our customers. These variations may cause gross profitsprofit for a project to differ from those we originally estimated. Reduced profitability or losses on projects could occur due to changes in a variety of factors such as:
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| Failure to properly estimate costs of engineering, materials, equipment or labor; |
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| Unanticipated technical problems with the structures, materials or services being supplied by us, which may require that we spend our own money to remedy the problem; |
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| Project modifications not reimbursed by the client creating unanticipated costs; |
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| Changes in the costs of equipment, materials, labor or subcontractors; |
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| Our suppliers or subcontractors failure to perform; |
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| Changes in local laws and regulations, and; |
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| Delays caused by |
As projects grow in size and complexity, thesemultiple factors may combine,contribute to reduced profit or losses, and depending on the size of the particular project, variations from the estimated contract costs could have a material adverse effect on our business.
Weather can significantly affect our revenuesrevenue and profitability.
Our ability to perform work and meet customer schedules can be affected by weather conditions such as snow, ice, rain, and rain.named storms. Weather may affect our ability to work efficiently and can cause project delays and additional costs. Our ability to negotiate change orders for the impact of weather on a project could impact our profitability. In addition, the impact of weather can cause significant variability in our quarterly revenue and profitability.
We require subcontractors and suppliers to assist us in providing certain services, and we may be unable to retain the necessary subcontractors or obtain supplies to complete certain projects which could adversely affectingaffect our business.
We use subcontractors to perform portions of our contracts and to manage workflow, particularly for design, engineering, procurement and some foundation work.workflow. While we are not dependent on any single subcontractor, general market conditions may limit the availability of subcontractors to perform portions of our contracts causing delays and increases inincreasing our costs.
WeAlthough significant materials are often supplied by the customer, we use suppliers to provide thesome materials and some equipment used for projects. However, significant materials and equipment are usually supplied by the customer. If a supplier fails to provide supplies and equipment at athe estimated price, we estimated,fails to provide adequate amounts of supplies and equipment, fails to provide supplies andor equipment that are not of acceptable quantitymeet the project requirements, or fails to provide supplies when scheduled, we may be required to source the supplies or equipment at a higher price or may be required to delay performance of the project. The additional cost or project delays could negatively impact project profitability.
Failure of a subcontractor or supplier to comply with laws, rules or regulations could negatively affect our reputation and our business.
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We mayperiodically enter into joint ventures which require satisfactory performance by our venture partners of their obligations. The failure of our joint venture partners to perform their joint venture obligations could impose additional financial and performance obligations on us that could result in reduced profitsprofit or losses for us with respect to the joint venture.
As is typical in our industry, we mayWe periodically enter into various joint ventures and teaming arrangements where control may be shared with unaffiliated third parties. At times, we also participate in joint ventures where we are not a controlling party. In such instances, we may have limited control over joint venture decisions and actions, including internal controls and financial reporting which may have an impact on our business. If our joint venture partners fail to satisfactorily perform their joint venture obligations, the joint venture may be unable to adequately perform or deliver its contracted services. Under these circumstances, we may be required to make additional investments or provide additional services to ensure the adequate performance and delivery of the contracted services. These additional obligations could result in reduced profitsprofit and may impact our reputation in the industry.
We may experience delays and defaults in client payments and we may pay our suppliers and subcontractors before receiving payment from our customers for the related services; weservices, which could experienceresult in an adverse effect on our financial condition, results of operations and cash flows.
We use subcontractors and material suppliers for portions of certain work, and our customers pay us for those related services. If we pay our suppliers and subcontractors for materials purchased and work performed for customers who fail to pay us, or such customers delay paying us for the related work or materials, we could experience a material
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adverse effect on our business. In addition, if customers fail to pay us for work we perform, we could experience a material adverse effect on our business.
Our inability to recover on claimscontract modifications against project owners or subcontractors for payment or performance could negatively affect our business.
We occasionallyperiodically present claimscontract modifications to our clients for changes in contract specifications or requirements. We consider unapproved change orders to our clientsbe contract modifications for which customers have not agreed to both scope and subcontractorsprice. We consider claims to be contract modifications for additional costs exceeding a contract pricewhich we seek, or for costs not included in the original contract price. Change orders are modifications of an original contract that effectively change certain provisions of the contract. They generally include changes in specifications or design, facilities, equipment, materials, sites and periods for completion of work. Claims are amounts in excess of the agreed contract price (or amounts not included in the original contract price) that wewill 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, orcustomers. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. These costs may orIn some cases, settlement of contract modifications may not be recoveredoccur until after completion of work under the claim is resolved. In some instances, these claims can be the subject of lengthy legal proceedings, and it is difficult to accurately predict when they will be fully resolved.contract. A failure to promptly document and negotiate a recovery for change orders and claimscontract modifications could have a negative impact on our cash flows, and an overall ability to recover change orders and claimscontract modifications could have a negative impact on our financial condition, results of operations and cash flows.
For some projects we may guarantee a timely completion or provide a performance guarantee which could result in additional costs, such as liquidated damages, to cover our obligations.
In our fixed-price and unit-price contracts we may provide a project completion date, and in some of our projects we may commit that the project will achieve specific performance standards. If we do notFailure to complete the project as scheduled or if the project does not meetat the contracted performance standards we may be held responsible for the impact to the client resulting from the delaycould result in additional costs or the inability to meet the standards. Generally, the impact to the client is in the form ofpenalties, including liquidated damages, specified in the contract.and such amounts could exceed expected project profit.
A significant portion of our business depends on our ability to provide surety bonds, and we may be unable to compete for or work on certain projects if we are not able to obtain the necessary surety bonds.
Our contracts frequently require that we provide payment and performance bonds to our customers. Under standard terms in the surety market, sureties issue or continue bonds on a project-by-project basis and can decline to issue bonds at any time or require the posting of additional collateral as a condition to issuing, or renewing bonds.
Current or future market conditions, as well as changes in our surety providers’ assessments of our operating and financial risk, could cause our surety providers to decline to issue or renew, or to substantially reduce, the availability of bonds for our work and could increase our bonding costs. These actions could be taken on short notice. If our surety providers were to limit or eliminate our access to bonding, our alternatives would include seeking bonding
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capacity from other sureties, finding more business that does not require bonds and posting other forms of collateral for project performance, such as letters of credit or cash. We may be unable to secure these alternatives in a timely manner, on acceptable terms, or at all. Accordingly, if we were to experience an interruption or reduction in the availability of bonding capacity, we may be unable to compete for, or work on certain projects.
Our bonding requirements may limit our ability to incur indebtedness, which would limit our ability to refinance our existing credit facilities or to execute our business plan.
Our ability to obtain surety bonds depends upon various factors including our capitalization, working capital, tangible net worth and amount of our indebtedness. In order to help ensure that we can obtain required bonds, we may be limited in our ability to incur additional indebtedness that may be needed to refinance our existing credit facilities upon maturity, to complete acquisitions, and to otherwise execute our business plan.plans.
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We may be unable to win some new contracts if we cannot provide clients with letters of credit.
For many of our clients surety bonds provide an adequate form of security, but for some clients additional security in the form of a letter of credit may be required. While we have capacity for letters of credit under our credit facility, the amount required by a client may be in excess of our credit limit. Any such amount would be issued at the sole discretion of our lenders. Failure to provide a letter of credit when required by a client may result in our inability to compete for, win, or winretain a project.
During the ordinary course of our business, we may become subject to material lawsuits or indemnity claims.
We have in the past been, and may in the future be, named as a defendant in lawsuits, claims and other legal proceedings during the ordinary course of our business. These actions may seek, among other things, compensation for alleged personal injury, workers’ compensation, employment discrimination, breach of contract, cyber-security and related incidents, property damage, punitive damages, and civil penalties, or other losses or injunctive or declaratory relief. In addition, we generally indemnify our customers for claims related to the services we provide and actions we take under our contracts with them, and, in some instances, we may be allocated risk through our contract terms for actions by our customers, or other third parties. Because our services in certain instances may be integral to the operation and performance of our customers’ infrastructure, we may become subject to lawsuits or claims for any failure of the systems on which we work, even if our services are not the cause of such failures, and we could be subject to civil and criminal liabilities to the extent that our services contributed to any property damage, personal injury or system failure. The outcome of any of these lawsuits, claims or legal proceedings could result in significant costs and diversion of management’s attention tofrom the business. Payments of significant amounts, even if reserved, could adversely affect our reputation, our cash flows, and our business.
We are self-insured against potential liabilities.up to certain limits.
Although we maintain insurance policies with respect to employer’s liability, general liability, auto and workers compensation claims, those policies are subject to deductibles or self-insured retention amounts of up to $250,000$1,000,000 per occurrence. We are primarily self-insured for all claims that do not exceed the amount of the applicable deductible/self-insured retention. In addition, for our employees not part of a collective bargaining agreement, we provide employee health care benefit plans. Our primary health insurance plan is subject to a deductible of $250,000$425,000 per individual claim per year.
Our insurance policies include various coverage requirements, including the requirement to give appropriate notice. If we fail to comply with these requirements, our coverage could be denied.
Losses under our insurance programs are accrued based upon our estimates of the ultimate liability for claims reported and an estimate of claims incurred but not reported.reported, with assistance from third-party actuaries. Insurance liabilities are difficult to assess and estimate due to unknown factors, including the severity of an injury, the extent of damage, the determination of our liability in proportion to other parties and the number of incidents not reported. The accruals are based upon known facts and historical trends.
We renew our insurance policies on an annual basis, and therefore deductibles and levels of insurance coverage may change in future periods. In addition, insurers may cancel our coverage or determine to exclude certain items from coverage, or we may elect not to obtain certain types or incremental levels of insurance based on the potential benefits
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considered relative to the cost of such insurance, or coverage may not be available at reasonable and competitive rates. In any such event, our overall risk exposure would increase, which could negatively affect our results of operations, financial condition and cash flows.
Our business is labor intensive. If we are unable to attract and retain qualified managers and skilled employees, our operating costs may increase.
Our business is labor intensive and our ability to maintain our productivity and profitability may be limited by our ability to employ, train and retain skilled personnel necessary to meet our requirements. We may not be able to maintain an adequately skilled labor force necessary to operate efficiently and to support our growth strategy. We have from time-to-time experienced, and may in the future experience, shortages of certain types of qualified personnel. For example, periodically there are shortages of engineers, project managers, field supervisors, and other skilled workers capable of working on and supervising the construction of underground, electric utilities, heavy civil and industrial facilities, as well as providing engineering services. The supply of experienced engineers, project managers, field supervisors, journeyman linemen and other skilled workers may not be sufficient to meet current or expected demand. The beginning of new, large-scale infrastructure projects, or increased competition for workers currently available to us, could affect our business, even if we are not awarded such projects. Labor shortages, or increased labor costs could impair our ability to maintain our
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business or grow our revenues.revenue. If we are unable to hire employees with the requisite skills, we may also be forced to incur significant training expenses.
Our unionized workforce may commence work stoppages or impact our ability to complete certain acquisitions, which could adversely affect our operations.
As of December 31, 2017,2023, approximately 52%30.6% of our hourly employees, primarily consisting of field laborers, were covered by collective bargaining agreements. Of the 97 collective bargaining agreements to which we are a party, 75 expire during 2018 and require renegotiation. Although the majority of these agreements prohibit strikes and work stoppages, we cannot be certain that strikes or work stoppages will not occur in the future. Strikes or work stoppages would adversely impact our relationships with our customers and could have an adverse effect on our business.
Our ability to complete future acquisitions could be adversely affected because of our union status for a variety of reasons. For instance, in certain geographic areas, our union agreements may be incompatible with the union agreements of a business we want to acquire, and some businesses may not want to become affiliated with a union company. In addition, if we acquire a union affiliated company, we may increase our future exposure to withdrawal liabilities for any underfunded pension plans.
Withdrawal from multiemployer pension plans associated with our unionized workforce could adversely affect our financial condition and results of operations.
Our collective bargaining agreements generally require that we participate with other companies in multiemployer pension plans. To the extent those plans are underfunded, the Employee Retirement Income Security Act of 1974 (“ERISA”), as amended by the Multiemployer Pension Plan Amendments Act of 1980 (“MEPA”), may subject us to substantial liabilities under those plans if we withdraw from them, or if they are terminated. In addition, the Pension Protection Act of 2006 added new funding rules for multiemployer plans that are classified as endangered, seriously endangered or critical status. For a plan in critical status, additional required contributions and benefit reductions may apply if a plan is determined to be underfunded, which could adversely affect our financial condition or results of operations. For plans in critical status, we may be required to make additional contributions, generally in the form of surcharges on contributions otherwise required. Participation in those plans with high funding levels could adversely affect our results of operations, financial condition or cash flows if we are not able to adequately mitigate these costs.
The amount of the withdrawal liability legislated by ERISA and MEPA varies for every pension plan to which we contribute. For each plan, our potential liability is the total unfunded vested benefits of the plan multiplied by a fraction: the numerator of the fraction is the sum of our contributions to the plan for the past ten years and the denominator is the sum of all contributions made by all employers for the past ten years. For some pension plans to which we contribute, the total unfunded vested benefits arefor the entire plan could be in the billions of dollars. If we cannot reduce the liabilityalleged fractional exposure through exemptions or negotiations, the withdrawal from a plan could have a material adverse impact on our business.
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We depend on key personnel and we may not be able to operate and grow our business effectively if we lose the services of any of our key persons or are unable to attract qualified and skilled personnel in the future.
We are dependent upon the efforts of our key personnel, and our ability to retain them and hire other qualified employees. The loss of our executive officers, or other key personnel could affect our ability to run our business effectively. Competition for senior management personnel is intense, and we may not be able to retain our personnel. The loss of any key person requires the remaining key personnel to divert immediate and substantial attention to seeking a replacement.replacement, as well as to performing the departed person’s responsibilities until a replacement is found. In addition, as some of our key persons approach retirement age, we need to provide for smooth transitions. An inabilityIf we fail to find a suitable replacement for any departing executive or senior officer on a timely basis, such departure could adversely affect our ability to operate and grow our business.
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If we fail to integrate acquisitions successfully, we may experience operational challenges and risks which may have an adverse effect on our business.
As part of our growth strategy, we intend to acquire companies that expand, complement or diversify our business. Acquisitions may expose us to operational challenges and risks, including, among others:
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| The diversion of management’s attention from the day-to-day operations of the combined company; |
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| Managing a significantly larger company than before completion of an acquisition; |
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| The assimilation of new employees and the integration of business cultures; |
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| Training and facilitating our internal control processes within the acquired organization; |
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| Retaining key personnel; |
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| The integration of information, accounting, finance, sales, billing, payroll and regulatory compliance systems; |
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| Challenges in keeping existing customers and obtaining new customers; |
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| Challenges in combining service offerings and sales and marketing activities; |
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| The assumption of unknown liabilities of the acquired business for which there are inadequate reserves; |
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| The potential impairment of acquired goodwill and intangible assets; and |
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| The inability to enforce covenants not to compete. |
If we cannotFailure to effectively manage the integration process or if any significant business activities are interrupted as a result of the integration process of any acquisition,could adversely impact our business, could suffer.financial condition, results of operations, and cash flows.
We may incur higher costs to lease, acquire and maintainon equipment necessary for our operations.
A significant portion of our contracts is built withutilizing our own construction equipment rather than leased or rented equipment. To the extent that we are unable to buy or buildlease equipment necessary for a project, either due to a lack of available funding, or equipment shortages in the marketplace, we may be forced to rent equipment on a short-term basis, or to find alternative ways to perform the work without the benefit of equipment ideally suited for the job, which could increase the costs of completing the project. We often bid for work knowing that we will have to rent equipment on a short-term basis, and we include our assumptions of marketthe equipment rental rates in our bid. If market rates for rental equipment increase between the time of bid submission and project execution, our margins for the project may be reduced. In addition, our equipment requires continuousregular maintenance, which we generally provide through our own repair facilities. If we are unable to continue to maintain the equipment in our fleet, we may be forced to obtain additional third-party repair services at a higher cost or be unable to bid on contracts.
Our business may be affected by difficult work sites and environments which may adversely affect our ability to procure materials and labor.
We perform our work under a variety of conditions, including, but not limited to, difficult and hard to reach terrain, difficult site conditions, and busy urban centers, where delivery of materials and availability of labor may be impacted. Performing work under these conditions can slow our progress, potentially causing us to incur contractual liability to our customers. These difficult conditions may also cause us to incur additional, unanticipated costs that we might not be able to pass on to our customers.
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We may incur liabilities or suffer negative financial or reputational impacts relating to health and safety matters.
Our operations are subject to extensive laws and regulations relating to the maintenance of safe conditions in the workplace. While we have invested, and will continue to invest, substantial resources in our environmental, health and safety programs, our industry involves a high degree of operational risk and there can be no assurance that we will avoid significant liability exposure. Although we have taken what we believe are appropriate precautions, we have suffered fatalities in the past and may suffer additional fatalities in the future. Serious accidents, including fatalities, may subject us to substantial penalties, civil litigation or criminal prosecution. Claims for damages to persons, including claims for bodily injury or loss of life, could result in substantial costs and liabilities, which could materially and adversely affect our financial condition, results of operations or cash flows. In addition, if our safety record were to
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substantially deteriorate over time or we were to suffer substantial penalties or criminal prosecution for violation of health and safety regulations, our customers could cancel our contracts and not award us future business.
Interruptions in information technology or breaches in data securityDisruptions to our operational systems could adversely impact our operations, our ability to report financial results and our business.
We rely on computer, information and communication technology and related systems to operate our business. As we continuebusiness and to grow our business, we need to add softwareprotect confidential, sensitive company, customer and hardware and effectively upgrade our systems and network infrastructure in order to improve the efficiency and protection of our systems andpartner information. While we do not maintain customer information in our computer systems, ourOur computer and communications systems, and consequently our operations, could be damaged or interrupted by cyber-attacks and physical security risks, such as natural disasters, loss of power, telecommunicationscommunications failures, acts of war, acts of terrorism, computer viruses, physical or electronic break-ins and actions by hackers and cyber-terrorists. Any of these, or similar, events could cause system disruptions, delays and loss of critical information, delays in processing transactions and delays in the reporting of financial information.
Security breaches, cyber security attacks or other disruptions to our information technology systems and networks could adversely impact our operations or compromise the confidentiality of private customer data or our own proprietary information.
Any cyber security attack (including denial of service attacks, ransomware, phishing attacks, payment fraud or others) that affects our facilities, our systems, our partners, our customers or any of our financial data could have a material adverse effect on our business. We rely on information technology systems, some of which are managed by third parties, to process, transmit and store electronic information and to manage or support a variety of our business processes, activities and services. Additionally, we collect and store sensitive data, including intellectual property and proprietary business information, as well as personally identifiable information of our customers and employees, in data centers and on information technology networks (including networks that may be controlled or maintained by third parties). The secure operation of these systems and products, and the processing and maintenance of the information processed by these systems and products, is critical to our business operations and strategy. Further, customers using our systems rely on the security of our infrastructure, including hardware, software and other elements provided by third parties, to ensure the reliability of our products and the protection of their data. We also face the risk of operational disruption, failure, termination or capacity constraints of any of the third parties that facilitate our business activities, including vendors, service providers, suppliers, customers, counterparties or other financial intermediaries. Such third parties who provide us services or with whom we communicate could also be the source of a cyberattack on, or breach of, our operational systems, network, data or infrastructure. Despite our security measures and business continuity plans, our information technology systems and networked and connected products may be vulnerable to damage, disruptions or shutdowns caused by attacks by hackers, computer viruses, or breaches due to errors or malfeasance by employees, contractors or others who have access to these systems and products. Any of these events could result in, among other things, the loss of proprietary data, interruptions or delays in our business operations and damage to our reputation.
We have experienced cyber security threats, such as viruses and attacks targeting our systems, and expect the frequency and sophistication of such incidents will continue to increase. Such prior events have not had a material impact on our financial condition, results of operations or liquidity. However, future threats or existing threats of which we are not yet aware could cause harm to our business and our reputation, disrupt our operations, expose us to potential liability, regulatory actions and loss of business, and impact our results of operations materially. We also currently maintain a cyber insurance policy; however, such insurance coverage may not be adequate to cover all the costs related to cyber security attacks or disruptions resulting from such events.
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While we have implementedtaken steps to mitigate persistent and continuously evolving cyber security threats by implementing network security and internal control measures, there can be no assurance thatimplementing policies and procedures for managing risk to our information systems, periodically testing our information technology systems, and conducting employee training on cyber security, a system or network failure or data security breach would notcould have negative consequences for our company, customers, or partners and adversely affect our business.
As a holding company, Furthermore, the continuing and evolving threat of cyber-attacks has resulted in increased regulatory focus on prevention. To the extent we are dependent on our subsidiaries for cash distributions to fund debt payments, dividend payments and other liabilities.
We are a holding company with no operations or significant assets other than the stock that we own of our subsidiaries. We depend on dividends, loans and distributions from these subsidiaries to service our indebtedness, pay dividends, fund share repurchases and satisfy other financial obligations. If contractual limitations or legal regulations were to restrict the ability of our subsidiaries to make cash distributions to us,face increased regulatory requirements, we may not have sufficient fundsbe required to cover our financial obligations.expend significant additional resources to meet such requirements.
We may need additional capital in the future for working capital, capital expenditures or acquisitions, and we may not be able to do soaccess capital on favorable terms, or at all, which would impair our ability to operate our business or achieve our growth objectives.
Our ability to generate cash is essential for the funding of our operations and the servicing of our debt. If existing cash balances together with the borrowing capacity under our credit facilities were not sufficient to make future investments, make acquisitions or provide needed working capital, we may require financing from other sources. Our ability to obtain such additional financing in the future will depend on a number of factors including prevailing capital market conditions;conditions, conditions in our industry;industry, and our operating results. These factors may affect our ability to arrange additional financing on terms that are acceptable to us. If additional funds were not available on acceptable terms, we may not be able to make future investments, take advantage of acquisitions or pursue other opportunities or respond to competitive challenges.opportunities.
Risks Related Primarily to the Financial Accounting of our Business
Our financial results are based upon estimates and assumptions that may differ from actual results.
In preparing our consolidated annual and quarterly financial statements in conformity with generally accepted accounting principles, many estimates and assumptions are used in determining the reported revenues,revenue, costs and expenses recognized during the periods presented, and disclosures of contingent assets and liabilities known to exist as of the date of the financial statements. 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, times, these estimates are particularly difficult to determine, and we must exercise significant judgment. Estimates may be used in our assessments of 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, accounting for revenue recognition under percentage-of-completion accountingrecognized over time, and provisions for income taxes. Actual results for estimates could differ materially from the estimates and assumptions that we used.
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Our use of percentage-of-completion accounting for revenue recognized over time could result in a reduction or elimination of previously reported revenue and profits.profit.
For fixed-pricecontracts where scope is adequately defined, and unit-price contracts,therefore we can reasonably estimate total contract value, we recognize revenue over time as work is completed because of the continuous transfer of control to the customer (typically using the percentage-of-completion method of accounting, using the cost-to-cost method, where revenues are estimated based on the percentage ofan input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. This method is used because management considers expended costs to be the best available measure of progress on these contracts. The earnings or losses recognized on individualFor long-term contracts, are based on estimates oftransaction price, estimated cost at completion and total contract revenues, total expected costs and costs incurred to date. Contract lossesdate are recognized in full when determined,used to calculate revenue earned. Unforeseen events and contractcircumstances can alter the estimate of the costs and potential profit estimates are adjusted based upon ongoing reviews of contract profitability.
Penalties or potential charges are recorded when known or finalized. In addition, we record adjustments toassociated with a particular contract. Total estimated costs, of contracts when we believe the change in the estimate is probable and the amountsthus contract revenue and income, can be reasonably estimated. These adjustments could resultimpacted by changes in both increasesproductivity, scheduling, the unit cost of labor, subcontracts, materials and decreasesequipment. Additionally, external factors such as weather, client needs, client delays in profit margins.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. Actual results could differ from estimated amounts and could result in a reduction or elimination of previously recognized earnings. In certain circumstances, it is possible that such adjustments could be significant and could have an adverse effect on our business.
Our reported results23
The Financial Accounting Standards Board (“FASB”) periodically issues Accounting Standards Updates (“ASU”) that revise the treatment for various accounting topics. See Note 2 — “Summary of Significant Accounting Policies - Recently Issued Accounting Pronouncements” of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for a discussion of ASUs not yet adopted. These changes and other future changes could result in changes in the way we report our financial results.
Our reported results of operations could be adversely affected as a result of impairments of goodwill or other identifiable intangible assets or investments.assets.
When we acquire a business, we record an asset called “goodwill” for the excess amount we pay for the business over the net fair value of the tangible and identifiable intangible assets of the business we acquire. At December 31, 2017,2023, our balance sheet included goodwill of $153.4$857.7 million and intangible assets of $44.8$227.6 million resulting from previous acquisitions. Fair value is determined using a combination of the discounted cash flow, market multiple and market capitalization valuation approaches. Under current accounting rules, goodwill and other identifiable intangible assets that have indefinite useful lives cannot be amortized, but instead must be tested at least annually for impairment, while identifiable intangible assets that have finite useful lives are amortized over their useful lives. Significant judgment is required in completing these tests, as described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Goodwill and Indefinite-Lived Intangible Assets” of this Annual Report on Form 10-K. Any impairment of the goodwill, or identifiable intangible assets recorded in connection with the various acquisitions, or for any future acquisitions, would negatively impact our results of operations.
In addition, we may enter into various types of investment arrangements, such as an equity interest we hold in a business entity. Our equity method investments are carried at original cost and are included in other assets in our Consolidated Balance Sheet and are adjusted for our proportionate share of the investees’ income, losses and distributions. Equity investments are reviewed for impairment by assessing whether any decline in the fair value of the investment below its carrying value is other than temporary. In making this determination, factors such as the ability to recover the carrying amount of the investment and the inability of the investee to sustain future earnings capacity are evaluated in determining whether an impairment should be recognized.
Compliance with and changes in tax laws could adversely affect our performance.
We are subject to extensive tax liabilities imposed by multiple jurisdictions, including federal, state, local and international jurisdictions. The Tax Cuts and Jobs Act (the “Tax Act”) was signed into law on December 22, 2017. This legislation makes significant changes to the U.S. Internal Revenue Code and requires complex computations not previously provided in U.S. tax law. Given the significance of the legislation, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for uncertainties of the effects of the Tax Act. Specifically, SAB 118 allows companies to record provisional estimates of
22
the impact of the Tax Act during a one year “measurement period” similar to that used when accounting for business combinations.
New tax laws, treaties and regulations and changes in existing tax laws, treaties and regulations are continuously being enacted or proposed and could result in a different tax rate on our earnings, which could have a material impact on our earnings and cash flow from operations. In addition, significant judgment is required in determining our provision for income taxes.taxes, as described in Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Income Taxes” of this Annual Report on Form 10-K. In the ordinary course of our business, there are many transactions and calculations where the ultimate tax determination is uncertain. We are regularly under auditsubject to audits by tax authorities, and our tax estimates and tax positions could be materially affected by many factors including the final outcome of tax audits and related litigation, the introduction of new tax accounting standards, legislation, regulations and related interpretations, our mix of earnings, the realizability of deferred tax assets and changes in uncertain tax positions. A significant increase in our tax rate could have a material adverse effect on our profitability and liquidity.
WeOur variable rate indebtedness subjects us to interest rate risk.
Borrowings under our revolving credit facility and term loan bear interest at variable rates and expose us to interest rate risk. From time to time, we may not be successful in continuinguse certain derivative instruments to meet the internal control requirementshedge our exposure to variable interest rates. As of the Sarbanes-Oxley Act of 2002.
The Sarbanes-Oxley Act of 2002 has many requirements applicable to us regarding corporate governance and financial reporting, including the requirements for management to report on internal controls over financial reporting and for our independent registered public accounting firm to express an opinion over the operating effectivenessDecember 31, 2023, $300.0 million of our internal control over financial reporting. Atvariable rate debt outstanding was economically hedged. The remaining $574.1 million of variable rate debt was unhedged. If interest rates increase, our debt service obligations on the unhedged portion of our variable rate debt will increase even if the amount borrowed remains the same, and our net income and cash flows, will decrease correspondingly. Based on our variable rate debt outstanding as of December 31, 2017, our internal control over financial reporting was effective using the internal control framework issued by the Committee of Sponsoring Organizations (“COSO”) of the Treadway Commission: Internal control—Integrated Framework (2013).
We have successfully completed the implementation of an integrated financial system in the majority of our operations. With the completion of the conversion from the previous system, virtually all of our operations use the same information platform, allowing us to establish more consistent financial and operational controls. While we plan to convert the remaining operations to the same platform in 2018, there can be no assurance that the conversion will be completed on schedule, which would mean continued use of manual processes and controls, which tend to2023, a 1.0% increase the risk of control deficiencies.
Please note that there can be no assurance that our internal control over financial reporting will be effective in future years. Failure to maintain effective internal controls or the identification of material internal control deficiencies in acquisitions already made or made in the future could result in a decrease in the market value of our common stock, the reduced ability to obtain financing, the loss of customers, penalties and additional expenditures to meet the requirements in the future.interest rates would change annual interest expense by approximately $5.7 million.
Starting in the fourth quarter of 2014, our management, outside counsel and Audit Committee of the Board of Directors have been reviewing and analyzing various issues relating to the methods used by our subsidiaries to recognize revenue and estimate contingencies for construction projects in progress. We have implemented a number of changes in the documentation of contingencies and the control processes surrounding the recognition of revenue. We will continue to focus on making additional improvements that will enhance our controls and documentation.
We have been cooperating with an inquiry by the staff of the Securities and Exchange Commission, which appears to be focused on certain percentage-of-completion contract revenue recognition practices of the Company during 2013 and 2014. We are continuing to respond to the staff’s inquiries in connection with this matter. At this stage, we are unable to predict when the staff’s inquiry will conclude or the outcome. Depending on the outcome of the inquiry, a government entity or other third party could bring an action and seek injunctions, fines, civil and criminal penalties, or other remedies, or assert other claims or litigation against us with respect to any issues that might arise in connection with the inquiry. Findings from the inquiry could result in a loss of investor confidence and decrease in the market value of our common stock, the reduced ability to obtain financing and the loss of customers.
23
Risks Related to our Common Stock
Our common stock is subject to potential dilution to our stockholders.
As part of our acquisition strategy, we have issued shares of common stock and used shares of common stock as a part of contingent earn-out consideration, which have resulted in dilution to our stockholders. Our ArticlesCertificate of Incorporation permitpermits us to issue up to 90.0 million shares of common stock of which approximately 51.453.4 million were outstanding at December 31, 2017.2023. While NASDAQNew York Stock Exchange rules require that we obtain stockholder approval to issue more than 20% additional shares, stockholder approval is not required below that level. In addition, we can issue shares of preferred stock which could cause further dilution to the stockholder, resulting in reduced net income and cash flow available to common stockholders.
In 2013,2022, our stockholders adopted the 2022 Employee Stock Purchase Plan (the “ESPP”), under which eligible full-time employees can purchase shares of our common stock at a discount on a semi-annual basis. The number of shares authorized and available for purchase under the ESPP is 1.0 million. As of December 31, 2023, there were
24
977,000 shares of common stock remaining available for purchase. Additional purchases made under the ESPP will have the effect of diluting our earnings per share and stockholders’ percentage of ownership.
In 2023, our stockholders adopted our 20132023 Equity Incentive Plan (“2023 Equity Plan”). The 2023 Equity Plan replaced a previous plan. The Equity Plan authorized the Board of Directors to issue equity awards totaling 2,526,2756.5 million shares of our common stock. Our current director compensation plan,As of December 31, 2023, there were 6.2 million shares of common stock remaining available for issuance under our management long-term incentive plan2023 Equity Plan. Equity awards made to our directors and any additional equity awards madeemployees will have the effect of diluting our earnings per share and stockholders’ percentage of ownership.
Our Chairman is a significant stockholder, which may make it possible for him to have significant influence over the outcome of matters submitted to our stockholders for approval and his interests may differ from the interests of other stockholders.
As of December 31, 2017 our Chairman of the Board beneficially owned approximately 17% of the outstanding shares of our common stock. He may have significant influence over the outcome of all matters submitted to our stockholders for approval, including the election of our directors and other corporate actions. Such influence could have the effect of discouraging others from attempting to purchase us or take us over and could reduce the market price offered for our common stock.
Delaware law and our charter documents may impede or discourage a takeover or change in control.
As a Delaware corporation, anti-takeover provisions may impose an impediment to the ability of others to acquire control of us, even if a change of control would be of benefit to our stockholders. In addition, certain provisions of our ArticlesCertificate of Incorporation and Bylaws also may impose an impediment or discourage others from a takeover. These provisions include:restrictions on the ability of a stockholder to call a special meeting, or nominate a director for election and our Board of Directors’ ability to authorize the issuance of preferred shares.
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These types of provisions may limit the ability of stockholders to obtain a premium for their shares.
ITEM 1B.UNRESOLVED STAFF COMMENTS
ITEM 1B. | UNRESOLVED STAFF COMMENTS |
None.
ITEM 1C. | CYBERSECURITY |
ITEM 2.PROPERTIESCybersecurity Risk Management and Strategy
We rely on computer, information, network, and communication technology and related systems to operate our business and to protect confidential, restricted, and sensitive company, customer, and partner information. We have a multi-layered cybersecurity risk management program designed to identify risks related to the organization’s digital and physical assets, review and assess existing security measures, and implement and manage solutions to mitigate cyber risks. These solutions are designed to protect our facilities, our systems, our partners, our customers, and our financial data in case we experience a cyber incident. Protection includes phishing detection, social engineering, executive targeting, brand impersonation, configuration mistakes, sensitive data leakage, leaked credentials, malicious attacks, third-party risks, vulnerabilities, insider threats (both intentional and unintentional), and password attacks. This type of ongoing vulnerability risk management is crucial as the organization and the external threat landscape evolves. This cybersecurity risk management program is incorporated as part of the Primoris Enterprise Risk Management Program.
Facilities
Our executive officescybersecurity policies and processes are located at 2100 McKinney Avenue, Suite 1500, Dallas, Texas 75201. The telephonebased on the controls within the National Institute of Standards and Technology (“NIST”) Framework, and we engage a number of external parties to enhance our cybersecurity oversight. For example, every other year, a third-party consulting firm performs an assessment of our cyber program, measuring our program against the NIST controls with a Capability Maturity Model Integration overlay to determine the program’s maturity. The assessment findings are disclosed to the Audit Committee of the Board of Directors and our cross-functional management Security Steering Committee (“SSC”). Any improvements resulting from the assessment are identified, along with action plans. We also use a third party to perform an annual Breach Assessment targeting our external and internal network environment to determine the strengths and any weaknesses within our cybersecurity processes. As part of the Breach Assessment, our Incident Response Plan is instigated and reviewed to ensure it remains current and effective for all situations. We also have multiple third-party managed Security Operations Centers (“SOC”) in place; including a SOC for logging and monitoring of security events; a SOC for endpoint managed detection and response, including identity protection; a SOC for executive office is (214) 740-5600. We have regional offices located in Baton Rouge, Louisiana; Lake Forest, Pittsburg, Hayward, Bakersfield, San Dimasdigital and San Diego, California; Houston, Belton, Deer Park,brand protection; and a SOC for protection of network credentials.
24In order to oversee and identify risks from cybersecurity threats associated with the Company’s use of vendors and other third-party service providers, we conduct continuous passive scanning of the Primoris network, as well as Primoris vendors’ external perimeter, on a regular basis to assess any potential vulnerabilities and weaknesses.
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Beaumont, Texas; Sarasota, Fort MyersWe face certain ongoing risks from cybersecurity threats that, if realized, could materially affect us, including our business operations, results of operations or financial condition.
Cybersecurity Governance and Fort Lauderdale, Florida; Little Canada, Minnesota; Hillsboro, Oregon; Denver, Colorado;Oversight
The Audit Committee of our Board of Directors provides direct oversight over cybersecurity risk and Calgary, Canada. governance. We also maintain a cross-functional management Security Steering Committee (“SSC”), with members consisting of executive leadership, internal audit, and enterprise risk. The SSC meets quarterly and has a formal charter outlining its responsibility to provide oversite of our comprehensive cybersecurity program. The Audit Committee of the Board of Directors is briefed quarterly by the Chief Information Officer (“CIO”) on the cybersecurity program, and both the Audit Committee and SSC are notified between such updates regarding significant new cybersecurity threats or incidents. The full Board of Directors also receives regular reports from the Audit Committee.
The CIO chairs the SSC and oversees Primoris’ cybersecurity risk management program. The CIO is supported by the head of cybersecurity, who is a direct report to the CIO. The training and experience of the head of cybersecurity includes a Harvard MBA along with professional experiences involving Forensics and Investigation, NIST controls assessments and implementation, ISO27001 assessments and implementation, Payment Card Industry Certification, and HITRUST implementation and certification. The head of cybersecurity and the security team are responsible for leading company-wide cybersecurity strategy, policy, standards, and processes and work across the organization to assess and prepare Primoris to address cybersecurity risks. Our head of cybersecurity and the security team are informed about and monitor the prevention, detection, mitigation, and remediation of cybersecurity incidents pursuant to our Incident Response Plan.
Our employees are also an important part of protecting our digital and technical environment. A key area of the cybersecurity program is the education of employees regarding cybersecurity using security awareness training, security bulletins and phishing simulations to reinforce training on a quarterly basis. Security awareness training covers all network users. On an annual basis an Acceptable Use Policy (“AUP”) is distributed to employees through our Learning Management System for understanding and acknowledgement. Additionally, all new employees are provided the AUP by Human Resources and receive initial security training upon being granted access to our network.
ITEM 2. | PROPERTIES |
Facilities
We lease most ofour executive offices in Dallas, Texas and own and lease other facilities throughout the United States and Canada. Our facilities andinclude offices, production yards, maintenance shops, and training and education facilities that are used in our operations. The leases are generally for 10 to 12-year terms, expiring through 2024. The aggregate lease payments made forAs of December 31, 2023, we owned 54 of our facilities in 2017 were approximately $6.1 million.and leased the remainder. We believe that our facilities are adequate to meet our current and foreseeable requirements for the next several years.requirements.
Prior to March 2017, we leased three properties in California from Stockdale Investment Group, Inc. (“SIGI”). Our Chairman of the Board of Directors, who is our largest stockholder, and his family hold a majority interest of SIGI. In March 2017, we exercised a right of first refusal and purchased the SIGI properties. The purchase was approved by our Board of Directors for $12.8 million. We assumed three mortgage notes totaling $4.2 million with the remainder paid in cash.
Property, Plant and Equipment
The construction industry is capital intensive, and we expect to continue making capital expenditures to meet anticipated needs for our services. In 2017,2023, capital expenditures were approximately $79.8$103.0 million. In addition, the companies acquired during the period added $12.4 million to property, plant and equipment. Total construction equipment purchases in 20172023 were $43.7 million We estimate that as of December 31, 2017, our capital equipment includes the following:$34.0 million.
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We believe the ownership or long-term leasing of equipment is generally preferable to leasingrenting to ensure the equipment is available as needed. In addition, ownershipthis approach has historically resulted in lower overall equipment costs. We attempt to obtain projects that will keep our equipment fully utilized in order to increase profit. All equipment is subject to scheduled maintenance to help ensure reliability. Maintenance facilities exist at most of our regional offices, as well as on-site on major jobsprojects to properly service and repair equipment. Major equipment not currently utilized is rented to third parties or sold whenever possible.
26
ITEM 3. | LEGAL PROCEEDINGS |
Legal Proceedings
For information regarding legal proceedings, see Note 1312 — “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K, which is incorporated herein by reference.
Government Regulations
Our operations are subject to compliance with regulatory requirements of federal, state, and municipal agencies and authorities, including regulations concerning labor relations, affirmative action and the protection of the environment. While compliance with applicable regulatory requirements has not adversely affected operations in the past, there can be no assurance that these requirements will not change and that compliance with such requirements will not adversely affect operations.
ITEM 4.MINE SAFETY DISCLOSURES
ITEM 4. | MINE SAFETY DISCLOSURES |
Not applicable.
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27
PART II
ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |
ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
On August 6, 2008, ourOur common stock began tradingis listed on the NASDAQ Global MarketNew York Stock Exchange under the symbol “PRIM”. We had outstanding 51,448,75353,436,884 shares of common stock and 365439 stockholders of record as of December 31, 2017.February 19, 2024. These stockholders of record include depositories that hold shares of stock for brokerage firms, which in turn, hold shares of stock for numerous beneficial owners.
The following table shows the range of market prices of our common stock during 2017 and 2016.Dividends
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Year Ended December 31, 2017 |
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First quarter |
| $ | 29.19 |
| $ | 21.98 |
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Second quarter |
| $ | 25.74 |
| $ | 21.83 |
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Third quarter |
| $ | 30.00 |
| $ | 23.73 |
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Fourth quarter |
| $ | 29.82 |
| $ | 25.45 |
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Year Ended December 31, 2016 |
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First quarter |
| $ | 25.25 |
| $ | 18.10 |
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Second quarter |
| $ | 24.86 |
| $ | 17.60 |
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Third quarter |
| $ | 21.07 |
| $ | 16.13 |
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Fourth quarter |
| $ | 24.53 |
| $ | 18.71 |
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Dividends
The following table showsWe have paid consecutive quarterly cash dividends since 2008, and currently expect that comparable cash dividends will continue to our common stockholders declared by us duringbe paid for the two years ended December 31, 2017:
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On February 21, 2018, the Board of Directors declared a $0.06 per common share dividend with a record date of March 30, 2018foreseeable future. The declaration and a payable date of on or about April 13, 2018. The payment of future dividends is contingent upon our revenuesrevenue and earnings, capital requirements, and general financial condition,conditions, as well as contractual restrictions and other considerations deemed to be relevant by the Board of Directors.
Equity Compensation Plan Information
In May 2013, our shareholders approved and we adopted the Primoris Services Corporation 2013 Long-term Incentive Equity Plan (“2013 Equity Plan”). As part of the compensation of the non-employee members of the Board of Directors, we issued 11,784 shares of common stock in February 2017 and 11,448 shares in August 2017. In
2628
February 2017 our management employees purchased 65,429 shares of stock as part of a management incentive compensation program. The issuance of the employee shares and the director shares was under the terms of the 2013 Equity Plan.
The following table gives information about our common stock that may be issued upon the exercise of options, warrants and rights under all of our existing equity compensation plans as of December 31, 2017.
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| Number of securities |
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| remaining available |
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| to be issued upon |
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| under equity |
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| exercise of |
| exercise price of |
| compensation plans |
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| outstanding options, |
| outstanding options, |
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| warrants and rights |
| warrants and rights |
| reflected in column (a)) |
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Plan category |
| (a) |
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| (c) |
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Equity compensation plans approved by security holders |
| 262,162 |
| — |
| 1,853,494 |
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Equity compensation plans not approved by security holders |
| — |
| — |
| — |
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Total |
| 262,162 |
| — |
| 1,853,494 |
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These securities represent shares of common stock available for issuance under our 2013 Equity Plan. The 2013 Equity Plan is discussed in Note 18 of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K.
Repurchases of Securities
In February 2017, our Board of Directors authorized a $5.0 million share repurchase program under which we could, depending on market conditions, share price and other factors, acquire shares of our common stock on the open market or in privately negotiated transactions. During the period from March 23, 2017 through March 28, 2017, we purchased and cancelled 216,350 shares of stock for $5.0 million at an average cost of $23.10 per share
In August 2016, our Board of Directors authorized a $5.0 million share repurchase program under which we could, depending on market conditions, share price and other factors, acquire shares of our common stock on the open market or in privately negotiated transactions. During the month of December 2016, we purchased and cancelled 207,800 shares of stock for $5.0 million at an average cost of $24.02 per share.
There were no share repurchases authorized during 2015.
Sales of Unregistered Securities
We did not issue any unregistered shares of our common stock during 2017, 2016 or 2015.
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Performance Graph
The following Performance Graph and related information shall not be deemed to be filed with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that we specifically incorporate it by reference into such filing.
The following graph compares the cumulative total return to holders of our common stock during the five-year period from December 31, 2012,2018, and in each quarter up through December 31, 2017.2023. The return is compared to the cumulative total return during the same period achieved on the Standard & Poor’s 500 Stock Index (the “S&P 500”) and a peer group index selected by our management that includes five public companies within our industry (the “Peer Group”). The Peer Group is composed of MasTec, Inc., Matrix Service Company, Quanta Services, Inc., Sterling Construction Company, Inc. and Willbros Group, Inc. The companies in the Peer Group were selected because they comprise a broad group of publicly held corporations, each of which has some operations similar to ours. When taken as a whole, management believes the Peer Group more closely resembles our total business than any individual company in the group. The Peer Group is composed of MasTec, Inc., MYR Group, Inc., Dycom Industries, Inc., Sterling Construction Company, Inc. and Granite Construction, Inc. The Peer Group was modified in 2023 to replace Quanta Services, Inc. and Matrix Service Company with Dycom Industries, Inc. and MYR Group, Inc. as the overall composition of our business has changed and we believe this new peer group more closely resembles us from both an operations and market capitalization perspective.
The returns are calculated assuming that an investment with a value of $100 was made in our common stock, the S&P 500 and in each stockthe Peer Group as of December 31, 2012.2018. All dividends were reinvested in additional shares of common stock, although none of the comparable companies paid dividends during the periods shown.stock. The Peer Group investment is calculatedweighted based on a weighted averagethe market capitalization of each company at the five company share prices.measurement period. The graph lines merely connect the measuring dates and do not reflect fluctuations between those dates. The stock performance shown on the graph is not intended to be indicative of future stock performance.
COMPARISON OF DECEMBER 31, 20122018 THROUGH DECEMBER 31, 20172023
CUMULATIVE TOTAL RETURN
Among Primoris Services Corporation (“PRIM”), the S&P 500 and the Peer Group
ITEM 6.[RESERVED]
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ITEM 6.SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our audited financial statements and the accompanying notes included elsewhere in this Annual Report on Form 10-K.
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Statement of Operations Data: |
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Revenues |
| $ | 2,380 |
| $ | 1,997 |
| $ | 1,929 |
| $ | 2,086 |
| $ | 1,944 |
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Cost of revenues |
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| 2,102 |
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| 1,796 |
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| 1,709 |
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| 1,850 |
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| 1,688 |
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Gross profit |
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| 278 |
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| 201 |
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| 220 |
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| 236 |
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| 256 |
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Selling, general and administrative expense |
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| 172 |
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| 140 |
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| 152 |
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| 132 |
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| 131 |
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Impairment of goodwill |
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Operating income |
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| 106 |
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| 58 |
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| 68 |
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| 104 |
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| 125 |
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Other income (expense) |
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Income before provision for income taxes |
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| 105 |
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| 49 |
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| 61 |
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| 102 |
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| 120 |
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Income tax provision |
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| (38) |
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Net income |
| $ | 77 |
| $ | 28 |
| $ | 37 |
| $ | 64 |
| $ | 75 |
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Net income attributable to Primoris |
| $ | 72 |
| $ | 27 |
| $ | 37 |
| $ | 63 |
| $ | 70 |
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Dividends per common share |
| $ | 0.225 |
| $ | 0.220 |
| $ | 0.205 |
| $ | 0.150 |
| $ | 0.135 |
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Earnings per share attributable to Primoris: |
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Basic |
| $ | 1.41 |
| $ | 0.52 |
| $ | 0.71 |
| $ | 1.22 |
| $ | 1.35 |
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Diluted |
| $ | 1.40 |
| $ | 0.51 |
| $ | 0.71 |
| $ | 1.22 |
| $ | 1.35 |
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Weighted average common shares outstanding: |
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Basic |
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| 51 |
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| 52 |
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| 52 |
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| 52 |
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| 52 |
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Diluted |
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| 52 |
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| 52 |
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| 52 |
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| 52 |
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| 52 |
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Balance Sheet Data: |
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Cash and cash equivalents |
| $ | 170 |
| $ | 136 |
| $ | 161 |
| $ | 139 |
| $ | 196 |
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| — |
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| — |
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| 31 |
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| 19 |
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Accounts receivable, net |
|
| 358 |
|
| 388 |
|
| 321 |
|
| 337 |
|
| 305 |
|
Total assets |
|
| 1,256 |
|
| 1,171 |
|
| 1,132 |
|
| 1,111 |
|
| 1,051 |
|
Total current liabilities |
|
| 481 |
|
| 450 |
|
| 416 |
|
| 419 |
|
| 430 |
|
Long-term debt/capital leases, net of current portion |
|
| 194 |
|
| 203 |
|
| 220 |
|
| 205 |
|
| 193 |
|
Stockholders’ equity |
|
| 562 |
|
| 499 |
|
| 483 |
|
| 454 |
|
| 398 |
|
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ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations in conjunction with the financial statements and the notes to those statements included as itemin Item 8 in this Annual Report on Form 10-K. This discussion includes forward-looking statements that are based on current expectations and are subject to uncertainties and unknown or changed circumstances. For a further discussion, please see “Forward Looking“Forward-Looking Statements” at the beginning of this Annual Report on Form 10-K. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those risks inherent with our business as discussed in “Item 1A Risk Factors”.
The following discussion starts with an overview of our business and a discussion of trends, including seasonality, that affect our industry. That is followed by an overview of the critical accounting policies and estimates that we use to prepare our financial statements. Next we discuss our results of operations and liquidity and capital resources, including our off-balance sheet transactionsarrangements and contractual obligations. We conclude with a discussion of our outlook and backlog.
Introduction
Primoris is a holding company of various subsidiaries, which formWe are one of the larger publicly traded specialty contractors andleading providers of infrastructure companiesservices operating mainly in the United States. Serving diverse end-markets, weStates and Canada. We provide a wide range of construction fabrication,services, maintenance, replacement, water and wastewater,fabrication and engineering services to major public utilities,a diversified base of customers.
Through the end of 2022, we segregated our business into three reportable segments: the Utilities segment, the Energy/Renewables segment, and the Pipeline segment. In the first quarter of 2023, we changed our reportable segments in connection with the realignment of our internal organization and management structure. The segment changes reflect the focus of our Chief Operating Decision Maker (“CODM”) on the range of services we provide to our end user markets. Our CODM regularly reviews our operating and financial performance based on these new segments.
The current reportable segments include the Utilities segment and the Energy segment, which is made up of our former Energy/Renewables and Pipeline Services segments. The Utilities segment operates throughout the United States and specializes in a range of services, including the installation and maintenance of new and existing natural gas and electric utility distribution and transmission systems, and communication systems.
The Energy segment operates throughout the United States and in Canada and specializes in a range of services that include engineering, procurement, and construction, retrofits, highway and bridge construction, demolition, site work, soil stabilization, mass excavation, flood control, upgrades, repairs, outages, pipeline construction and maintenance, pipeline integrity services, and maintenance services for entities in the renewable energy and energy storage, renewable fuels, and petroleum and petrochemical companies, energy companies, municipalities,industries, as well as 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.transportation.
We have longstanding customer 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 United States, major electrical and gas projects for a number of large utility companies in the United States, significant renewable energy projects for energy companies, 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 weeksdaily work orders to as long as 6036 months, orand occasionally longer, 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.revenue in any given year.
ThroughWe generate revenue under a range of contracting types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts, each of which has a different risk profile. For the endyears ended December 31, 2023, 2022, and 2021, $3.9 billion, $2.7 billion, and $2.1 billion, respectively of our revenue is derived from contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value. For these contracts, revenue is recognized over time as work is completed because of the year 2016,continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). For certain contracts, where scope is not adequately defined and we segregated our business into three reportable segments: the Energy segment, the East Construction Services segment and the West Construction Services segment. In the first quarter 2017, we changed our reportable segments in connection with a realignment of our internal organization and management structure. The segment changes reflect the focus of our chief operating decision maker (“CODM”)can’t reasonably estimate total contract value, revenue is recognized either on the range of services we provide to our end user markets. Our CODM regularly reviews our operating and financial performancean input basis, based on these segments.contract costs incurred as defined within the respective
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contracts, or an output basis based on units completed. Costs to obtain contracts are generally not significant and are expensed in the period incurred.
The current reportable segments include the Power, Industrial, and Engineering segment, the Pipeline and Underground segment, the Utilities and Distribution segment, and the Civil segment. See Note 14 – “Reportable Segments” of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K for a brief description of the reportable segments and their operations.
The classification of revenuesrevenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in
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multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses were made.
Acquisition of PLH
On August 1, 2022, we acquired PLH Group, Inc. (“PLH”) in an all-cash transaction valued at approximately $429.0 million, net of cash acquired. PLH is a utility-focused infrastructure services company with concentrations in key fast-growing regions of the United States. The following table liststransaction directly aligns with our primary business unitsstrategic focus on higher-growth, higher margin markets and their reportable segment:expands our capabilities in the utility markets including power delivery, communications, and gas utilities. The total purchase price was funded through a combination of borrowings under our Third Amended and Restated Credit Agreement, dated as of August 1, 2022, which increased our term loan to an aggregate principal amount of $945.0 million (the “ New Term Loan”) and borrowings under our revolving credit facility, in which the lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit for up to $325.0 million (the “Revolving Credit Facility”). We incorporated the majority of the PLH operations into our Utilities segment with the remaining operations going to our Energy segment.
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Acquisition of B Comm Holdco, LLC
On June 8, 2022, we acquired B Comm Holdco, LLC (“B Comm”) in an all-cash transaction of approximately $36.0 million, net of cash acquired. B Comm was incorporated into our Utilities segment and is a provider of maintenance, repair, upgrade and installation services to the communications markets. The transaction directly aligns with the strategy to grow our Master Services Agreement (“MSA”) revenue base and expand our communication services within the utility markets. The total purchase price was funded with borrowings under our Revolving Credit Facility.
Acquisition of Alberta Screw Piles, Ltd.
On March 1, 2022, we acquired Alberta Screw Piles, Ltd. (“ASP”) for a cash price of approximately $4.1 million. In addition, the sellers could receive a contingent earnout payment of up to $3.2 million based on achievement of certain operating targets over the one year periods ending March 1, 2023 and March 1, 2024, respectively. We incorporated the operations of ASP into our Energy segment.
Acquisition of Future Infrastructure Holdings, LLC.
On January 15, 2021, we acquired Future Infrastructure Holdings, LLC (“FIH”) for approximately $604.7 million, net of cash acquired. FIH was incorporated into our Utilities segment and is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the communications, regulated gas utility, and infrastructure markets. FIH furthers our strategic plan to expand our service lines, enter new markets, and grow our MSA revenue base. The transaction directly aligns with our strategy to grow in large, higher growth, higher margin markets, and expands our utility services capabilities. The total purchase price was funded through a combination of existing cash balances, borrowings under our Term Loan facility, and borrowings under our Revolving Credit Facility.
Business Environment
We ownbelieve there are growth opportunities across the industries we serve and we continue to have a 50% interestpositive long-term outlook. Although not without risks and challenges, including those discussed below and in two separate joint ventures, both formed in 2015. The Carlsbad Power Constructors joint venture (“Carlsbad”) is engineeringForward-Looking Statements and constructing a gas-fired power generation facility, and the “ARB Inc. & B&M Engineering Co.” joint venture (“Wilmington”) is also engineering and constructing a gas-fired power generation facility. Both projects are located in Southern California. The joint venture operations are included as part of the Power segment. As a result of determining that we are the primary beneficiary of the two variable interest entities (“VIEs”), the results of the Carlsbad and Wilmington joint ventures are consolidated in our financial statements. Both projects are expected to be completed in 2018.
We owned 50% of the Blythe Power Constructors joint venture (“Blythe”) created for the installation of a parabolic trough solar field and steam generation system in California, and its operations have been included as part of the Power segment. We determined that in accordance with FASB Topic 810, we were the primary beneficiary of a variable interest entity and have consolidated the results of Blythe in our financial statements. The project has been completed, the project warranty expired in May 2015, and dissolution of the joint venture was completed in the third quarter of 2015.
Financial information for the joint ventures is presented in Note 12— “Noncontrolling Interests” of the Notes to Consolidated Financial Statements included in Item 81A. Risk Factors, we believe, with our full-service operations, broad geographic reach, financial position and technical expertise, we are well positioned to capitalize on opportunities and trends in our industries.
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We have seen and continue to anticipate potential changes to the already stringent regulatory and environmental requirements for many of our clients’ infrastructure projects, which may improve the timing and certainty of the projects. While permitting and other regulatory challenges create uncertainty as to the timing of some of our opportunities, we continue to see bidding activity for numerous midstream pipeline projects. We believe that we have the financial and operational strength to meet the challenge of either short-term delays or the impact of significant increases in work. We continue to be acquisitive,optimistic about both short and the following outlines the various acquisitions made over the past three years. See Note 4— “Business Combinations”longer-term opportunities. Our current view of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-Koutlook for our major end markets is as follows:
On February 28, 2015, we acquired the net assets of Aevenia, Inc. for $22.3 million. Aevenia operations are included in the Utilities
● | Construction of alternative energy facilities, chemical processing facilities, renewable natural gas facilities, solar power facilities, wind farms, battery storage — We believe state and federal governments, investors and utilities remain committed to a changing fuel generation mix that continues to move toward more alternative energy sources. As this trend grows, along with the demand for power, we are seeing an increase in new power generation facilities powered by renewable energy sources, as well as energy storage systems. We are benefitting from the increased spending and long-term tax incentives in the Inflation Reduction Act (“IRA”) signed by the President in August of 2022. The IRA extends tax incentives for wind and solar facilities and includes provisions to support standalone battery energy storage systems. The long term extension of these credits and strong support of U.S. manufacturing has attracted a significant amount of new capital to finance renewable projects as well as to enhance the supply chain needed to meet increasing demand. Other trends we are seeing are major investments in industrial gases and agricultural chemicals. To the extent this dynamic continues, we anticipate continued engineering, procurement, and construction opportunities, primarily benefitting our Energy segment. |
● | Communications construction opportunities — We believe the federal government remains committed to improving or expanding broadband communications access. The IRA and other Federal and State programs provide critical funding to help construct and improve the infrastructure required to provide sufficient broadband access to areas that have historically had lower access to broadband services. We expect these opportunities, as well as ongoing spending by communications companies, to benefit our Utilities segment. |
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● | Power Delivery —We are experiencing strong tailwinds in our power delivery business as the industry continues to invest in grid resiliency, modernization, renewable generation integration, and the push for electrification. Our national position in this specific market allows for scalable coverage across the industry. Electric distribution undergrounding initiatives with clients in our key markets has been, and will continue to be, a strong opportunity for us as we see utilities customers continue to invest in grid reliability. Additionally, we are experiencing new opportunities as utilities providers invest in renewable energy and upgrade their transmission infrastructure. |
● | Inspection, maintenance and replacement of electric utility infrastructure — We expect the demand for electricity in the United States to grow over the long-term and believe enhancements to the electric utility infrastructure are needed to efficiently serve the power needs of the future. Renewable generation will require substations and transmission lines to connect the new generation sources to customers. In addition, current federal legislation also requires the power industry to meet federal reliability standards for its transmission and distribution systems. We also expect to benefit from the spending authorized in the 2021 Infrastructure Investment and Jobs Act intended to improve the electric grid. These opportunities, as well as ongoing electric utility repair and maintenance opportunities are expected to benefit our Utilities segment. |
● | Inspection, maintenance and replacement of gas utility infrastructure — We expect that ongoing safety enhancements to gas pipeline systems and the gas utility infrastructure will provide continuing opportunities for our Utilities segment. We also expect that ongoing gas utility repair and maintenance opportunities will continue. |
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● | Construction of natural gas-fired power plants and industrial plants — We expect continued construction opportunities for both base-load and peak shaving power plants; however, we are aware that environmental concerns over gas fired power plants may impact the timing and location of near-term construction opportunities in certain states. We believe that based on continuing population growth, the intermittency of renewable power resources, and the environmental requirements limiting using ocean water for cooling, gas power plants will be needed in spite of vocal opposition to these “non-green” generation sources. In addition, the generally historically low price of natural gas could result in the continued replacement of coal-fired power plants and the conversion and expansion at chemical plants and industrial facilities in other parts of the United States. These opportunities would benefit our Energy segment. |
● | Construction of petroleum, natural gas, natural gas liquid, and other liquid pipelines — We expect that the volatility in the price of oil could reduce activities in most, if not all of the shale basins. In addition, the ability of our customers to obtain permits for projects could impact the demand for our services, especially for larger interstate pipelines. However, production from the shale formations and increased demand for exporting liquified natural gas (“LNG”) could strain the current capacity limitations between production and processing locations which would provide opportunities for our Energy segment. |
On January 29, 2016, we acquired the net assets of Mueller Concrete Construction Company ("Mueller") for $4.1 million,
● | Inspection, maintenance and replacement of pipeline infrastructure — We believe that regulatory measures around the frequency or stringency of pipeline integrity testing requirements provides growth opportunity in our Energy segment. Regulatory requirements continue to mandate or require our customers to test, inspect, repair, maintain and replace pipeline infrastructure to ensure that it operates safely, reliably and in an environmentally conscious manner. In addition, permitting challenges associated with construction of new pipelines can make existing pipeline infrastructure more valuable, motivating owners to extend the useful life of existing pipeline assets through maintenance and integrity initiatives. As a result, we expect demand to continue to grow for our pipeline integrity services. |
Material Trends and on November 18, 2016, we acquired the net assets of Northern Energy & Power (“Northern”) for $6.9 million. On June 24, 2016, we purchased property, plant and equipment from Pipe Jacking Unlimited, Inc. (“Pipe Jacking”), consisting of specialty directional drilling and tunneling equipment for $13.4 million. We determined this purchase did not meet the definition of a business as defined under ASC 805. Mueller operations are included in the Utilities segment, Northern operations are included in the Power segment, and Pipe Jacking operations are included in the Pipeline segment.Uncertainties
On May 26, 2017, we acquired the net assets of Florida Gas Contractors (“FGC”) for $37.7 million; on May 30, 2017, we acquired certain engineering assets for approximately $2.3 million; and on June 16, 2017, we acquired the net assets of Coastal Field Services (“Coastal”) for $27.5 million. FGC operations are included in the Utilities segment, the engineering assets are included in the Power segment, and Coastal operations are included in the Pipeline segment.
In August 2017, we announced we are investing approximately $22.0 million to build, own, and operate a portfolio of solar projects in a California School District acquired from the developers, Spear Point Energy, LLC, and PFMG Solar, LLC. This investment amount includes the estimated cost of Engineering, Procurement, and Construction (“EPC”) work on the projects, which is projected to be completed in 2018. The solar projects are expected to generate a 25-year recurring revenue stream from the District's signed power purchase agreement. As an investment in a renewable energy project, the solar assets should provide us with investment tax credits valued at over $5.0 million. As of December 31, 2017, our investment for the solar projects was approximately $9.9 million. The $9.9 million investment is our construction in progress on the solar projects and is included in Property and equipment, net on the Consolidated Balance Sheets.
Material trends and uncertainties
We generate our revenue from both large and small construction and engineering projects. The awardprojects, as well as from providing a variety of these contracts is dependent on many factors, most of which are not within our control.infrastructure services. We depend in part on spending by companies in the communications, gas and electric utilities, energy, chemical, and oil and gaspipeline industries, the gas utility industry, as well as municipal water and wastewater customers.state departments of transportation. Over the past several years, each segment has benefited from demand for more efficient and more environmentally friendly energy and power facilities, more reliable gas and electric utility infrastructure, upgraded and expanded local highway and bridge needs, and from the activity level in the oil and gaspipeline industry. However, periodically, each of these industries and government agencies is adversely affected by macroeconomic conditions. Economic and other factors outside of our control may affect the amount and size of contracts we are awarded in any particular period.
We closelyactively monitor the impact of the dynamic macroeconomic environment, including the impact of inflation and the instability in the banking sector, on all aspects of our customers to assess the effect that changes in economic, market and regulatory conditions may have on them.business. We have experienced reduced spendingincreased fuel and labor costs and anticipate that elevated levels of cost inflation could persist in 2024. In an effort to mitigate the impacts of inflation on our operations, we attempt to recover increases in the cost of labor, equipment, fuel and materials through price escalation provisions that allow us to adjust billing rates for certain major contracts annually; 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. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been successful in renegotiating some of our customers overmajor contracts to address the last several years, which we attribute to negative economicincreased costs on future work and market conditions, and we anticipate that these negative conditions maywill continue to affect demand foraddress this with our servicescustomers going forward.
Fluctuations in the near-term. Fluctuations in market prices of oil, gas and other fuel sources have affected demand for our services. While we have seen signs of a recoveryVolatility in the price of oil, the significant volatility in the priceprices of oil, gas, and liquid natural gas that has occurred in the past few years has createdcould create uncertainty with respect to demand for our oil and gas pipeline services, both in the near-termnear term and for future projects. We believe that our upstream operations, such asWhile the construction of gathering lines within the oil shale formations willmay remain at lower levels for an extended period. While there was some stability in the price of oil in 2017, that stability has not resulted in a significant change in the contracting activities of our customers. Weperiod, we believe that over
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time, the need for pipeline infrastructure for mid-stream and gas utility companies will result in a continuing need for our services, but the impact of the low oil prices may delay midstream pipeline opportunities. services.
The continuing changes in the regulatory environment also affecthave affected the demand for our services, either by increasing our work, delaying projects, or delayingcancelling projects. For example, environmental laws and regulations have provided challenges to pipeline projects, resulting in delays or cancellations that impact the timing of revenue recognition. However, environmental laws and new pipeline regulations could increase the demand for our pipeline maintenance and integrity services. In addition, the regulatory environment in California may resultcertain states has resulted in delays for the construction of gas-fired power plants while regulators continue to searchplants. However, the increased demand for significant renewable resources but renewable resources mayis also create acreating demand for our constructioninfrastructure services, such as the need for battery storage and the construction of renewable generated electricity. Finally,utility scale solar facilities.
We are exposed to certain market risks related to changes in interest rates. To monitor and manage these market risks, we believe that regulated utility customers will continuehave established risk management policies and procedures. Our Revolving Credit Facility and New Term Loan bear interest at a variable rate which exposes us to investinterest rate risk. From time to time, we may use certain derivative instruments to hedge our exposure to variable interest rates. As of December 31, 2023, $300.0 million of our variable rate debt outstanding was economically hedged. Based on our variable rate debt outstanding as of December 31, 2023, a 1.0% increase or decrease in our maintenanceinterest rates would change annual interest expense by approximately $5.7 million.
Seasonality, Cyclicality and replacement services.Variability
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Seasonality, cyclicality and variability
Our results of operations are subject to quarterly variations. Some of the variation is the result of weather, particularly rain, ice, snow, and snow,named storms, which can impact our ability to perform constructioninfrastructure services. While the majority of our work is in the southern half of the United States, theseThese seasonal impacts can affect revenuesrevenue and profitability in all of our businesses since gas and other utilities defer routine replacement and repair during their period of peak demand.businesses. 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 in our Utilities segment tends to be lower during the early part of the calendar year due to clients’ internal budget cycles. As a result, we usually experience higher revenuesrevenue and earnings in the second, third and fourth quarters of the year as compared to the first two quarters.quarter.
Our project values range in size from several hundred dollars to several hundred million dollars. The bulk of our work is comprised of project sizes that average less than $3.0 million. We are also dependent on largeperform construction projects which tend not to be seasonal, but can fluctuate from year to year based on customer timing, project duration, weather, and 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 our financial condition and operating results may vary from quarter to quarter. Results from one quarter may not be indicative of our financial condition, or operating results for any other quarter, or for an entire year.
Critical Accounting Policies and Estimates
General—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 revenuesrevenue 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, estimates are particularly difficult to determine, and we must exercise significant judgment. Estimates may be used in our assessments ofaccounting for revenue recognition under percentage-of-completion accounting,recognized over time, 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 materially differ from those that result from using the estimates under different assumptions or conditions.
An accounting policy is deemed to be critical if i) it requires an accounting estimate to be based on assumptions about matters that are highly uncertain at the time the estimate is made, andii) different estimates that reasonably could have reasonably been used, or iii) changes in the accounting estimates that are reasonably likely to occur periodically could materially impact our consolidated financial statements.
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The following accounting policies require critical accounting estimates that are based on, among other things, judgments and assumptions made by management that include inherent risks and uncertainties. Management’s estimates are based on the relevant information available at the end of each period. We periodically review these accounting policies and critical accounting estimates with the Audit Committee of the Board of Directors.
Revenue recognition—We generate revenue under a range of contracting options,types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts.contracts, each of which has a different risk profile. A substantial portion of our revenue is derived from contracts that are fixed-price or unit-price, using the percentage-of-completion method.where scope is adequately defined, and therefore we can reasonably estimate total contract value. For time and material and cost reimbursable plus feethese contracts, revenue is recognized primarily based on contractual terms. Generally,over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). For certain contracts, where scope is not adequately defined and material and cost reimbursablewe can’t reasonably estimate total contract revenues arevalue, revenue is recognized either on an input basis, based on labor hourscontract costs incurred as defined within the respective contracts, or an output basis based on units completed. Costs to obtain contracts are generally not significant and on purchases made.are expensed in the period incurred.
InWe evaluate whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. ASC 606 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the percentage-of-completionperformance obligation is satisfied. Our evaluation requires significant judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. The majority of our contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, occasionally we have contracts with multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively our best estimate of the standalone selling price of each distinct performance obligation in the contract. The primary method estimated contract values,used to estimate standalone selling price is the expected cost plus a margin approach for each performance obligation.
Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. For long-term contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenuesrevenue earned. 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 revenuesrevenue 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,
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labor availability, governmental regulation, politics and politicsany prevailing impacts from pandemics or epidemics 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. As a significant change in one or more of these estimates could affect the profitability
The nature of our contracts gives rise to several types of variable consideration, including contract modifications (change orders and claims), liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount to which we reviewexpect to be entitled. We include estimated amounts in the transaction price to the extent we believe we have an enforceable right, and updateit is probable that a significant reversal of cumulative revenue recognized will not occur. Our estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts asanticipated performance and all information (historical, current and forecasted) that is reasonably available to us at this time.
Contract modifications result from changes in accounting estimates in the period in which the revisions are identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate.
If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full in the period it is identified and recognized as an “accrued loss provision” which is included in the accrued expenses and other current liabilities amount on the balance sheet. For contract revenue recognized under the percentage-of-completion method, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods. The provision for estimated losses on uncompleted contracts was $10.1 million and $12.8 million at December 31, 2017 and 2016, respectively.
specifications or requirements. We consider unapproved change orders to be contract variationsmodifications for which customers have not agreed to both scope and price. Costs associated with unapproved change orders are included in the estimated cost to complete and are treated as project costs as incurred. We will recognize a change in contract value if we believe it is probable that the contract price will be adjusted and can be reliably estimated. 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.
We consider claims to be amountscontract modifications for which we seek, 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. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. Costs associated with claimscontract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. ClaimsIn most instances, contract modifications are included infor
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goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue to the extent we haveon a reasonable legal basis, the related costs have been incurred, realization is probable, and amounts can be reliably estimated. Revenue in excesscumulative catch-up basis. In some cases, settlement of contract costs from claims is recognized after an agreement is reached with customers as to the value of the claims, which in some instancesmodifications may not occur until after completion of work under the contract.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full, including any previously recognized profit, in the period it is identified and recognized as an “accrued loss provision” which is included in “Contract liabilities” on the Consolidated Balance Sheets. For contract revenue recognized over time, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods.
At December 31, 2017,2023, we had approximately $203.5 million of unapproved change orders and claimscontract modifications included in the expectedaggregate transaction prices. These unapproved contract value that totaled approximately $67.8 million. These claimsmodifications were in the process of being negotiated in the normal course of business. Approximately $56.7$175.7 million of the unapproved change orders and claimscontract modifications had been recognized as revenue on a cumulative percentage-of-completioncatch-up basis through December 31, 2017.2023.
In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs. If we anticipate that there may be issues associated with the collectability of the full amount calculated as revenues,the transaction price, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. For example, when a cost reimbursable project exceeds the client’s expected budget amount, the client frequently requests an adjustment to the final amount. Similarly, some utility clients reserve the right to audit costs for significant periods after performance of the work. In these situations,
The timing of when we may choose to defer recognitionbill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of a portioncertain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue until the client pays for the services.recognition, resulting in unbilled revenue, which is a contract asset. However, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is a contract liability.
The caption “Costs and estimated earnings in excess of billings”“Contract assets” in the Consolidated Balance Sheets 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 or project milestone; (b) incurred costs to be billed under cost reimbursable type contracts, including amounts arising from routine lags in billing; or (c) the revenue associated with unapproved change orders or claims when realization is probable and amounts can be reliably estimated. For those contracts in which billings exceed contract revenues recognized to date, the excess amounts are includedfollowing:
● | unbilled revenue, which arise when revenue has been recorded, but the amount will not be billed until a later date; |
● | retainage amounts for 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; and |
● | contract materials for certain job specific materials not yet installed, which are valued using the specific identification method relating the cost incurred to a specific project. |
The caption “Contract liabilities” in the caption “Billings in excess of costs and estimated earnings”.Consolidated Balance Sheets represents the following:
● | deferred revenue on billings in excess of contract revenue recognized to date, and |
● | the accrued loss provision. |
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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.
Valuation of acquired businessesBusiness combinations—We use the fair value of the consideration paid and the fair value of the assets acquired and liabilities assumed to account for the purchase price of businesses.businesses we acquire. The determination of fair value requires estimates and judgments of future cash flow expectations for the assignment of the fair values to the identifiable tangible and intangible assets.
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Identifiable Tangible Assets. Significant identifiable tangible assets acquired would include accounts receivable, costs and earnings in excess of billings for projects, inventorycontract assets, leases and fixed assets (generally consisting of facilities and construction equipment) for each acquisition.. We determine the fair value of these assets as of the acquisition date. For current assets and current liabilities of an acquisition, we will evaluate whether the book value is equivalent to fair value due to their short term nature. We estimate the fair value of fixed assets using a market approach, based on comparable market values for similar equipment of similar condition and age.
Identifiable Intangible Assets. When necessary, we use the assistance of an independent third partythird-party valuation specialist to determine the fair value of the intangible assets acquired in the acquisitions.acquired. Third-party specialists are used to help us identify and separate intangible assets apart from goodwill such as customer relationships and tradenames. Fair value is determined by analyzing revenue trends, expected growth rates for existing customers, customer attrition rates, royalty rates, discount rates and intended use of future assets.
A liability for contingent consideration based on future earnings is estimated at its fair value at the date of acquisition, with subsequent changes in fair value recorded in earnings as a gain or loss. Fair value is estimated as of the acquisition date using estimated earnout payments based on management’s best estimate.estimate of estimated earnout payments.
Accounting principles generally accepted in the United States provide a “measurement period” of up to one year in which to finalize all fair value estimates associated with the acquisition of a business. Most estimates are preliminary until the end of the measurement period. During the measurement period, adjustments to initial valuations and estimates that reflect newly discovered information that existed at the acquisition date are recorded. After the measurement date, any adjustments would be recorded as a current period gain or loss.
Goodwill and Indefinite-Lived intangibleIntangible Assets—Goodwill and certain intangible assets acquired in a business combination and determined to have indefinite useful lives are not amortized but are assessed for impairment annually and more frequently if triggering events occur. In performing these assessments, management relies on various factors, including operating results, business plans, economic projections, anticipated future cash flows, comparable transactions and other market data. There are inherent uncertainties related to these factors and judgment in applying them to the analysis of goodwill for impairment. Since judgment is involved in performing fair value measurements used in goodwill impairment analyses, there is risk that the carrying values of our goodwill may not be properly stated.
We account for goodwill, including evaluation of any goodwill impairment under ASC 350, “Intangibles — Goodwill and Other”, performed at the reporting unit level for those units with recorded goodwill as of October 1 of each year, unless there are indications requiring a more frequent impairment test.
Goodwill has arisen from acquisitions and is recorded at our segments as follows at December 31 (in thousands):
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Reporting Segment |
| 2017 |
| 2016 |
| ||
Power |
| $ | 24,391 |
| $ | 24,512 |
|
Pipeline |
|
| 51,521 |
|
| 42,252 |
|
Utilities |
|
| 37,312 |
|
| 20,312 |
|
Civil |
|
| 40,150 |
|
| 40,150 |
|
Total Goodwill |
| $ | 153,374 |
| $ | 127,226 |
|
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Under ASC 350, “Intangibles — Goodwill and Other”, we can assess qualitative factors to determine if a quantitative impairment test of intangible assets is necessary. Typically, however,Our qualitative assessment is used to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying value, including goodwill. Factors used in our qualitative assessment include, but are not limited to, macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and Company and reporting unit specific events. If deemed necessary, we use the two-stepquantitative impairment test outlined in ASC 350. First, we compare350, which compares the fair value of a reporting unit with its carrying amount. Fair value for the goodwill impairment test is determined utilizing a discounted cash flow analysis based on our financial plan discounted using our weighted average cost of capital and market indicators of terminal year cash flows. Other valuation methods may be used to corroborate the discounted cash flow method. If the carrying amount of a reporting unit is in excess of its fair value, goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss. In the second step of the goodwill impairment test, we compare the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess, limited to the carryingtotal amount of goodwill over its implied fair value. The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination was determined. We allocate the fair value of a reporting unit to all of the assets and liabilities of that unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities represents the implied fair value of goodwill.unit.
During the third quarter of 2016, we made a decision to divest the Texas heavy civil business unit, a division of Primoris Heavy Civil within the Civil segment. We engaged a financial advisor to assist in the marketing and sale of the business unit, and planned to continue operating the business unit until completion of a sale. In April 2017, the Board of Directors determined that based on the information available, we would attain the best long-term value by withdrawing from the sales process and continuing to operate the business unit.
Under the provisions of ASC 350, the planned divestiture triggered an analysis of the goodwill amount of Primoris Heavy Civil. The analysis resulted in a pretax, non-cash goodwill impairment charge of approximately $2.7 million in the third quarter of 2016.
In the fourth quarter of 2015, an impairment expense of $0.4 million was recorded relating to the goodwill attributed to Cardinal Contractors, Inc., which is a part of the Power segment. There were no other impairments of goodwill for the years ended December 31, 2017, 20162023, 2022 and 2015.2021.
Disruptions to our business, such as end market conditions, protracted economic weakness, unexpected significant declines in operating results of reporting units and the divestiture of a significant component of a reporting unit, may result in our having to perform a goodwill impairment first step valuation analysis for some or all of our reporting units prior to the required annual assessment. These types of events and the resulting analysis could result in goodwill impairment charges in any periods in the future.
Reserve for uninsured risks—Estimates are inherent in the assessment of our exposure to uninsured risks. Significant judgments by us and, where possible, third-party experts are needed in determining probable and/or reasonably estimable amounts that should be recorded or disclosed in the financial statements. Semiannually, we obtain a third-party actuarial valuation for some of our uninsured risks. The results of any changes in accounting estimates are reflected in the financial statements of the period in which we determine we need to record a change.
We self-insure worker’s compensation claims up to $0.25 million per claim. We maintained a self-insurance reserve totaling approximately $18.5 million at December 31, 2017 and approximately $18.8 million at December 31, 2016. Claims administration expenses were charged to current operations as incurred. Our accruals are based on judgment, the probability of losses, and where applicable, the consideration of opinions of internal and/or external legal counsel and third party consultants. The amount is included in “Accrued expenses and other current liabilities” on our Consolidated Balance Sheets. Actual payments that may be made in the future could materially differ from such reserves.
Income taxes—We account for income taxes under the asset and liability method as set forth in ASC 740, “Income Taxes”, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements. Under this method, deferred tax assets and liabilities are determined based on the temporary differences between the financial reporting bases and tax bases of
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assets and liabilities using enacted tax rates in effect for the years in which the differences are expected to reverse. The
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effect of changes in tax rates on net deferred tax assets or liabilities is recognized as an increase or decrease in net income in the period the tax change is enacted.
Deferred tax assets may be reduced by a valuation allowance if, in the judgment of our management, it is more likely than not that all or a portion of a deferred tax asset will not be realized. In making such determination, we consider all available evidence, including recent financial operations, projected future taxable income, scheduled reversals of deferred tax liabilities, tax planning strategies, and the length of tax asset carryforward periods. The realization of deferred tax assets is primarily dependent upon our ability to generate sufficient future taxable earnings in certain jurisdictions. If we subsequently determine that some or all deferred tax assets that were previously offset by a valuation allowance are realizable, the value of the deferred tax assets would be increased by reducing the valuation allowance, thereby increasing income in the period when that determination is made. During 2017, we determined it is more likely than not that a portion of our deferred tax asset for foreign tax credits will not be realized. Accordingly, a valuation allowance of $0.6 million was recorded.
A tax position is recognized as a benefit only if it is more likely than not that the tax position would be sustained based on its technical merits in a tax examination, using the presumption that the tax authority has full knowledge of all relevant facts regarding the position. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on ultimate settlement with the tax authority. For tax positions not meeting the more likely than not test, no tax benefit is recorded.
Tax Cuts and Jobs Act—On December 22, 2017, Based on our results for the U.S. Government enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Act”). The Tax Act makes broad and complex changes to the U.S. tax code that affect our 2017 results, including the allowance of bonus depreciation that provides for immediate deduction of qualified property placed in service after September 27, 2017. The Tax Act also establishes new tax laws that may affect our 2018 and future results, including but not limited to:
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While the Tax Act also contains complex changes to the tax code for companies operating internationally, we are not materially impacted by the international provisions of the Tax Act.
Given the significant impact of the legislation, the SEC staff issued Staff Accounting Bulletin (“SAB”) 118 which provides guidance on accounting for uncertainties of the effects of the Tax Act. Specifically, SAB 118 allows companies to record provisional estimates of the impact of the Tax Act during a one year “measurement period” similar to that used when accounting for business combinations.
As a result of the Tax Act, we remeasured our deferred tax assets and liabilities using the newly enacted tax rates and recorded a one-time net tax benefit of $9.4 million in the period ended December 31, 2017. This2023, a one-percentage point increase in our effective tax benefit is a provisional estimate that could be revised once we finalizerate would have resulted in an increase in our deductions forincome tax depreciation and executive compensation accruals. We may also revise our estimate based on any additional guidance issued by the U.S. Treasury Department, the U.S. Internal Revenue Service, and other standard-setting bodies.expense of approximately $1.8 million.
Long-Lived Assets—Assets held and used by us, primarily property, plant and equipment, are reviewed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. We perform an undiscounted operation cash flow analysis to determine if an impairment exists. For purposes of recognition and measurement of an impairment for assets held for use, we group assets and liabilities at the lowest level for which cash flows are separately identified. If an impairment is determined to exist, any related
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impairment loss is calculated based on fair value. The calculation of the fair value of long-lived assets is based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates, reflecting varying degrees of perceived risk. Since judgment is involved in determining the fair value and useful lives of long-lived assets, the future carrying value of our long-lived assets may have differing future fair values.
Multiemployer plans — Various subsidiaries are signatories to collective bargaining agreements. These agreements require that we participate in and contribute to a number of multiemployer benefit plans for our 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. To the extent that any plans are underfunded, the Employee Retirement Income Security Act of 1974, as amended by the Multi-Employer Pension Plan Amendments Act of 1980, requires that if we were to withdraw from an agreement or if a plan is terminated, we may incur a withdrawal obligation. Since the withdrawal liability is based on estimates of our proportional share of the plan’s unfunded vested liability, as calculated by the plan’s actuaries, the potential withdrawal obligation may be significant.
In November 2011, members of the Pipe Line Contractors Association ���PLCA” including ARB, Rockford and Q3C (prior to our acquisition in 2012), withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan (“Plan”). These withdrawals were made in order to mitigate additional liability in connection with the significantly underfunded Plan. We recorded a withdrawal liability of $7.5 million, which was increased to $7.6 million after the acquisition of Q3C. During the first quarter of 2016, we received a final payment schedule. As a result of payments made and based on this schedule, the liability recorded at December 31, 2017 was $4.7 million. We expect to pay the remaining liability balance during 2018 and have no plans to withdraw from any other labor agreements.
Litigation and contingencies—Litigation and contingencies are included in our consolidated financial statements based on our assessment of the expected outcome of litigation proceedings or the expected resolution of the contingency. We provide forrecord costs related to contingencies when a loss from such claims is probable and the amount is reasonably estimable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, we review and evaluate 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 defensedefenses to the claims and believes that the reasonably possible outcome of such claims will not, individually or in the aggregate, have a materiallymaterial adverse effect on our consolidated results of operations, financial condition or cash flows. See Note 1312 — “Commitments and Contingencies” of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for further information.
Recently Issued Accounting Pronouncements
See Note 2 — “Summary of Significant Accounting Policies -– Recently Issued Accounting Pronouncements” of the Notes to Consolidated Financial Statements included in Item 8 of this Annual Report on Form 10-K for a discussion of recently issued accounting pronouncements.
Results of Operations
Consolidated Results
Two events had a material impact on our results of operations in 2016. In the third quarter we received a $38.0 million settlement for one of the construction projects that we had identified as part of our “Receivable Collection Actions”, discussed below. Because we had recorded the project with zero gross profit, the settlement added $27.5 million to revenuesRevenue
2023 and $26.7 million to gross profit. Also in the third quarter, we recorded a charge of $37.3 million primarily related to certain Belton, Texas area projects2022
Revenue for the Texas Department of Transportation (“TXDOT”), as a result of project delays and productivity issues.
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Revenues
2017 and 2016
Revenues for year ended December 31, 20172023 increased by $383.0 million,$1.3 billion, or 19.2%29.3%, compared to 2016. All2022. The increase was primarily due to growth in both our Energy and Utilities segments, reported year over year growth. Progress on three major pipeline jobs ($83.6 million), higher activity with major utility clients in California and the Midwest ($135.6 million)acquisitions of PLH and progress on our joint venture power plant projectsB Comm in Southern California2022.
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2022 and a Mid-Atlantic power plant project ($158.2 million combined) drove higher 2017 revenue. Also contributing to 2017 growth was higher volume on our Belton area (Civil) projects and a Louisiana methanol plant project. The overall increase was partially offset by decreases associated with projects substantially completed in 2017 and revenue recognized from2021
Revenue for the one-time benefit of the settlement of one of the “Receivable Collection Actions” in 2016. Revenue from 2017 acquisitions and incremental revenue from 2016 acquisitions (where we only owned a business for a portion of the year) totaled $53.6 million.
2016 and 2015
Revenues for year ended December 31, 20162022 increased by $67.5$923.0 million, or 3.5%26.4%, compared to 2015.2021. The increase was primarily due to growth in our Energy and Utilities segments, and the acquisitions of PLH and B Comm ($406.2 million combined) as described in the segment results below.
Gross Profit
2023 and 2022
For the year ended December 31, 2023, gross profit increased by $130.6 million, or 28.6%, compared to 2022. The increase was primarily due to an increase in revenue. Gross profit as a percentage of $64.1 million from Rockford’s pipeline work, $34.5 million for workrevenue remained consistent at a large petrochemical project in Louisiana and $35.4 million from a new collaboration MSA arrangement at ARB Underground. These increases were partially offset by a revenue reduction of $50.1 million at OnQuest, a reduction of $16.4 million at Saxon, and a reduction of $24.5 million in Heavy Civil projects. Revenues for 2016 also included the one-time benefit of $27.5 million from the settlement of one of the “Receivable Collection Actions”.
As discussed in Note 2 — “Summary of Significant Accounting Policies”, we had unapproved change orders and claims included in contract value that totaled approximately $67.8 million at December 31, 2017. Of this amount, approximately $49.7 million was claims related10.3% compared to the Belton area projects.same period in 2022.
Gross Profit2022 and 2021
2017 and 2016
For the year ended December 31, 2017,2022, gross profit increased by $77.1$40.2 million, or 38.3%9.7%, compared to 2016. All segments reported year over year improvement. Strong2021. The increase was primarily due to an increase in revenue growth and the favorable performance on the two large pipeline projects in Florida drove significant improvement. Also benefiting 2017 were higher volumes for the Power segmentacquisitions of PLH and better performance from Civil. The year over year increase wasB Comm ($46.4 million combined), partially offset by $26.7 million of gross profit recognizeda decrease in 2016 from the settlement of one of the “Receivable Collection Actions”. Gross Profit from 2017 acquisitions and incremental gross profit from 2016 acquisitions (where we only owned a business for a portion of the year) totaled $8.6 million.margins. Gross profit as a percentage of revenuesrevenue decreased to 10.3% from 11.9% in the same period in 2021 primarily as a result of negative gross margins experienced on pipeline projects in 2022, increased to 11.7%labor and fuel costs in 2017our Utilities segment, and the favorable impact from 10.1%the closeout of multiple pipeline projects in 20162021, as more fully described in the segment results below.
In addition, we had a favorable impact from the change in useful lives of certain equipment, which reduced our depreciation expense for the reasons noted above.
2016 and 2015
For the year ended December 31, 2016, gross profit decreased2022 by $18.6$19.3 million or 8.4% compared to 2015. The decrease was primarily from the decreasesame period in Heavy Civil projects2021. See Note 2 — “Summary of $38.2 million, of which $33.4 million was from a decrease at the Belton area projects. Gross profit decreased by $6.1 million at the Louisiana petrochemical project, in spite of an increase in revenue, as the scope of our work has changed to less equipment intensive, lower margin work. Gross profit also decreased at ARB Underground by $6.3 million and $8.6 million at ARB Industrial with these decreases offset by a gross profit increase of $15.4 million at Rockford. Our gross profit benefitted by $26.7 million from the settlement of oneSignificant Accounting Policies” of the “Receivable Collection Actions”. Gross profit as a percentageNotes to Consolidated Financial Statements included in Item 8 of revenues decreased from 11.4% in 2015 to 10.1% in 2016 for the reasons noted above.this Annual Report on Form 10-K.
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Selling, general and administrative expenses
Selling, general and administrative expenses (“SG&A”) consist primarily of compensation and benefits to executive, management level and administrative employees, marketing and communications, professional fees, office rent for facilities and utilitiesutilities.
2023 and acquisition costs. 2022
2017 and 2016
For 2017, SG&A expenses were $172.1 million, compared to $140.8$328.7 million for 2016,the year ended December 31, 2023, an increase of $31.3 million. Approximately $12.4$47.2 million, of the increase in SG&A is related to businesses acquired in 2017 and a full year of expense in 2017 for the Northern acquisitionor 16.7% compared to less than two months of expense in 2016. The remaining increase was2022, primarily due to a $12.6 million increase in compensation related expenses, includinghigher incentive compensation accruals;costs associated with improved operational performance and a $1.3 million increaseincreases in legal costs.
headcount from the acquisitions of PLH and B Comm. SG&A expense as a percentage of revenue for the year ended December 31, 2017 increased slightly2023 decreased to 7.2%5.8% compared to 7.1%6.4% for the year ended December 31, 2016. Excluding2022, primarily due to increased revenue.
2022 and 2021
SG&A expenses were $281.6 million for the impactyear ended December 31, 2022, an increase of $51.5 million, or 22.4% compared to 2021, primarily due to the increases in headcount from the acquisitions of PLH and B Comm ($28.3 million) and increased costs to support our strong organic growth. SG&A expense as a percentage of revenue for the year ended December 31, 2017,2022 decreased slightly to 6.9%6.4% compared to 7.1%6.6% for the year ended December 31, 2016.
2016 and 2015
For 2016, SG&A expenses were $140.8 million, compared to $151.7 million for 2015, a decrease of $10.9 million. The decrease was2021, primarily as a result of decreases in professional fees of $7.4 million due to reduced legal feesincreased revenue.
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Transaction and due to completion of the implementation of the integrated financial system. The reduction in SG&A was also the result of a $2.6 million prior year one-time valuation adjustment for the value of a long-term asset. Additionally, SG&A was reduced as a result of a decrease of $1.8 million in compensationrelated costs
2023 and staffing levels.2022
SG&A as a percentage of revenueTransaction and related costs for the year ended December 31, 2016 decreased to 7.1%2023 were $5.7 million, a decrease of $14.4 million or 71.7% compared to 7.9%2022. The decrease was due to professional fees paid to advisors for the acquisitions of B Comm and PLH in 2022.
2022 and 2021
Transaction and related costs for the year ended December 31, 20152022 were $20.1 million, an increase of $3.7 million or 22.3% compared to 2021, primarily due to an increase in professional fees paid to advisors for the acquisitions of PLH and B Comm.
Gain on Sale and Leaseback Transaction
On June 22, 2022, we completed a sale and leaseback transaction of land and buildings located in Carson, California for an aggregate sales price, net of closing costs, of $49.9 million. Under the transaction, the land, buildings and improvements were sold and leased back for an initial term of three years. The property qualified for sale and leaseback treatment and is classified as an operating lease. Therefore, we recorded a resultgain on the transaction of $40.1 million. The gain is included in Gain on sale and leaseback transaction on our Consolidated Statements of Income for the decreased expenses while revenues increased.year ended December 31, 2022. There were no such comparable transactions for the years ended December 31, 2023 and 2021.
Other income and expense
Non-operating income and expense items for the years ended December 31, 2017, 20162023, 2022 and 20152021 were as follows:
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| 2017 |
| 2016 |
| 2015 |
| |||
|
| (Millions) |
| (Millions) |
| (Millions) |
| |||
Investment income |
| $ | 5.8 |
| $ | — |
| $ | — |
|
Foreign exchange gain (loss) |
|
| 0.2 |
|
| 0.2 |
|
| (0.8) |
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Other income (expense) |
|
| 0.5 |
|
| (0.3) |
|
| 1.7 |
|
Interest income |
|
| 0.6 |
|
| 0.1 |
|
| 0.1 |
|
Interest expense |
|
| (8.1) |
|
| (8.9) |
|
| (7.7) |
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Total other income (expense) |
| $ | (1.0) |
| $ | (8.9) |
| $ | (6.7) |
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follows (in millions):
Investment income
| | | | | | | | |
| | | | | | | | |
| Year Ended December 31, | |||||||
| 2023 |
| 2022 |
| 2021 | |||
Foreign exchange gain (loss), net | $ | 1.2 | | $ | 1.1 | | $ | (0.1) |
Other income, net |
| 1.6 | |
| 2.1 | |
| 0.3 |
Interest expense, net |
| (78.2) | |
| (39.2) | |
| (18.5) |
Total other expense | $ | (75.4) | | $ | (36.0) | | $ | (18.3) |
Interest expense, net for the year ended December 31, 2017 is related to a gain from a short-term investment in marketable equity securities.We purchased the securities in the third quarter of 2017 and sold the securities in the fourth quarter of 2017.
Foreign exchange gains and losses reflect currency exchange fluctuations of the United States dollar compared to the Canadian dollar. Many of 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.
Other income for 20172023 was $0.5$78.2 million compared to other expense of $0.3$39.2 million for 2016.the year ended December 31, 2022. The $0.8increase of $39.0 million change was due primarily due to remeasurement ofhigher average debt balances from the contingent considerationborrowings related to the FGC performance target contemplated in their purchase agreement. Under ASC 805, we are required to estimatePLH acquisition and higher average interest rates.
Interest expense, net for the fair value of contingent consideration based on facts and circumstances that existed as of the acquisition date and remeasure to fair value at each
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reporting date until the contingency is resolved. As a result of that remeasurement, we reduced the contingent consideration liability by $0.5 million in the fourth quarter of 2017. Other expense for 2016year ended December 31, 2022 was $0.3$39.2 million compared to other income of $1.7$18.5 million for 2015.the year ended December 31, 2021. The $2.0increase of $20.7 million change was due primarily dueto higher average debt balances from the borrowings related to the net reversal of $1.9 million of contingent consideration in 2015 as Ram-Fab, VadnaisPLH acquisition and Surber missed financial targets contemplated in their respective purchase agreements.
Interest income is derived from interest earned on excess cash invested primarily in short term U.S. Treasury bills, backed by the federal government.
Interest expense decreased in 2017 compared to 2016 primarily due to a lower average debt balance. Interest expense increased in 2016 compared to 2015 primarily due to a higher average debt balance. interest rate.
The weighted average interest rate on total debt outstanding at December 31, 2017, 20162023, 2022 and 20152021 was 3.0%6.8%, 2.9%6.2% and 2.9%2.8%, respectively.
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Provision for income taxes
Our provision for income taxes increased $25.3 million to $51.5 million for 2023 compared to 2022. The increase was primarily driven by the tax benefit recognized in 2022 for capital losses, the 2023 expiration of a temporary law which allowed full deductibility of per diem expenses in 2021 and 2022, and increased pre-tax profits subject to tax. The 2023 effective tax rate was 29%.
Our provision for income tax increased $7.3taxes decreased $9.8 million to $28.4$26.3 million for 20172022 compared to 2016. Increased pretax profits2021. The decrease was primarily driven by the release of valuation allowances during the second and third quarters of 2022, partially offset by tax on increased pre-tax profits. Due to capital gains on the sale of California properties in 20172022, we have released all of $53.0 million drove an increasethe valuation allowance previously placed on capital losses and recognized a 5.8% decrease in income tax of $23.4 million using the 2016our 2022 annual effective tax rate. This increase in income tax was offset by a $9.4 million decrease in income tax from the remeasurement of our U.S. deferred tax liability and a $6.7 million decrease due to a decrease in 2017 effective tax rates. The remeasurement benefit is a provisional estimate under SAB 118 that could be revised once we finalize our deductions for tax depreciation and executive compensation accruals. We may also revise our estimate based on any additional guidance issued by the U.S. Treasury Department, the U.S. Internal Revenue Service, and other standard-setting bodies.
The 20172022 effective tax rate on income including noncontrolling interests was 27.0%16.5%. The 2017 effective tax rate on income attributable to Primoris (excluding noncontrolling interests) was 28.2%. Three factors contributed to the decrease in the 2017 effective tax rate compared to 2016. First, state effective tax rates decreased due to changes in the mix of profit by state and the implementation of state tax planning. Second, partially nondeductible per diem expenses stayed relatively constant year over year despite the increase in pretax profits. Lastly, the benefit of the domestic production activities deduction increased compared to 2016.
Our provision for income tax decreased $2.8 million to $21.1 million for 2016 compared to 2015 primarily as a result of the decrease in pretax profits.
41
Segment Results
Power Segment
Revenue and gross profit for the Power segment for the years ending December 31, 2017, 2016 and 2015 were as follows:
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Power Segment |
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Revenue |
| $ | 606.1 |
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| $ | 478.6 |
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| $ | 466.3 |
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Gross profit |
| $ | 65.7 |
| 10.8% |
| $ | 49.8 |
| 10.4% |
| $ | 53.6 |
| 11.5% |
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2017 and 2016
Revenue increased by $127.5 million, or 26.6%, during 2017 compared to 2016. The growth is primarily due to progress on our joint venture power plant projects in Southern California ($115.3 million), a power plant construction project in the Mid-Atlantic region that began late in the third quarter of 2016 ($42.9 million) and a methane plant project in Texas that started in 2017. In addition, we benefited from acquisitions completed in November 2016 and May 2017 ($20.3 million). The overall increase was partially offset by the substantial completion of a large petrochemical plant in Louisiana in the second quarter of 2017 ($42.0 million) and the completion of two large parking structures in 2016.
Gross profit increased by $15.9 million, or 31.9%, during 2017 compared to 2016. The increase is primarily attributable to the revenue growth and the impact of acquired operations ($1.6 million). Gross profit as a percentage of revenues increased to 10.8% in 2017 compared to 10.4% in 2016 primarily as a result of an improved revenue mix.
2016 and 2015
Revenue increased by $12.3 million, or 2.6%, during 2016 compared to 2015. The increase is primarily due to a $60.6 million increase at Primoris Industrial Constructors from a large petrochemical project in Louisiana, partially offset by a $50.1 million decrease at OnQuest and OnQuest Canada from the completion of projects in 2015 that were not fully replaced in 2016.
Gross profit decreased by $3.8 million, or 7.1%, during 2016 compared to 2015. The decrease is primarily due to a $8.6 million reduction at ARB Industrial from a reduction in revenues and a decrease of $6.7 million at OnQuest and OnQuest Canada as a result of reducted volumes. These decreases are partially offset by an $11.6 million increase at Primoris Industiral Constructors from increased volume at the large petrochemical project in Louisiana.
Gross profit as a percentage of revenues decreased to 10.4% in 2016 compared to 11.5% in 2015. The decline in margin is largely attributable to the low margin percentage realized by two joint venture projects in process, which accounted for 5.6% of the Power segment’s revenues in 2016 versus 0.9% in 2015.
42
Segment Results
Pipeline and Underground Segment
Revenue and gross profit for the Pipeline segment for the years ended December 31, 2017, 2016 and 2015 were as follows:
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Pipeline Segment |
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Revenue |
| $ | 465.6 |
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| $ | 401.9 |
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| $ | 299.4 |
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Gross profit |
| $ | 92.1 |
| 19.8% |
| $ | 68.1 |
| 16.9% |
| $ | 24.7 |
| 8.2% |
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As discussed in the section “Receivable Collection Actions”, during the third quarter of 2016, we collected a disputed receivable related to a major pipeline project completed in 2014, which resulted in recognizing revenue of approximately $27.5 million and gross profit of approximately $26.7 million. The following discussion excludes the impact of this collection, which was a one-time item.
2017 and 2016
Revenue increased by $91.2 million, or 24.4%, during 2017 compared to 2016. The increase is primarily due to two large pipeline jobs in Florida, which began in the third quarter of 2016 ($31.6 million) and activity on a pipeline project in Pennsylvania that began in 2017 ($52.0 million). In addition, impact of the acquired Coastal operations ($17.9 million) also benefited 2017. The overall increase was partially offset by a reduction in maintenance work ($31.1 million).
Gross profit increased by $50.7 million, or 122.5%, during 2017 compared to 2016. The increase is attributable to the combination of revenue growth and our strong performance on the two pipeline jobs in Florida, where we experienced good weather conditions resulting in no weather delays and high productivity. In addition, the acquisition of Coastal in 2017 contributed gross profit of $3.2 million. Gross profit as a percentage of revenue increased to 19.8% in 2017 compared to 11.1% in 2016. The increase is due to the good weather conditions noted above, which is not common and not to be expected in the future.
2016 and 2015
Revenue increased by $75.0 million, or 25.1%, during 2016 compared to 2015. The increase is primarily due to a $64.1 million increase at Rockford from two large pipeline projects in Florida which started in the third quarter of 2016 and a $6.1 million increase at Primoris Pipeline from several smaller diameter pipeline projects in Texas.
Gross profit increased by $16.7 million, or 67.6%, during 2016 compared to 2015 primarily due to a $15.4 million increase from the Rockford Florida projects described above. Gross profit as a percentage of revenues increased to 11.1% in 2016 compared to 8.2% in 2015 primarily as a result of the increase in revenues.
43
Utilities Segment
Revenue and gross profit for the Utilities segment for the years ended December 31, 2017, 20162023, 2022 and 20152021 were as follows:
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Utilities Segment |
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Revenue |
| $ | 806.5 |
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| $ | 637.2 |
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| $ | 587.0 |
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| $ | 2,380.2 | | | | $ | 2,024.3 | | | | $ | 1,658.0 | | |
Gross profit |
| $ | 113.0 |
| 14.0% |
| $ | 100.1 |
| 15.7% |
| $ | 96.5 |
| 16.4% |
| | 207.0 |
| 8.7% | | 210.7 |
| 10.4% | | 186.3 |
| 11.2% |
20172023 and 20162022
Revenue increased by $169.3$355.9 million, or 26.6%17.6%, during 20172023 compared to 2016.2022. The increase is primarily due to the acquisitions of PLH and B Comm in 2022 and increased activity in our power delivery and communications markets.
Gross profit decreased $3.7 million, or 1.8%, during 2023 compared to 2022. The decrease is primarily due to a decrease in margins, partially offset by growth in revenue. Gross profit as a percentage of revenue decreased to 8.7% in 2023 compared to 10.4% in 2022 primarily due to productivity issues on some legacy PLH projects that are nearing completion, higher costs associated with a communication project in 2023, and a shift in revenue mix in 2023.
2022 and 2021
Revenue increased by $366.3 million, or 22.1%, during 2022 compared to 2021. The increase is primarily due to the acquisitions of PLH and B Comm ($260.7 million combined) in 2022 and increased activity across the power delivery and communications markets.
Gross profit increased $24.4 million, or 13.1%, during 2022 compared to 2021. The increase is primarily attributable to higher activity with two major utility customers in California ($67.7 million) and two major utility customers in the Midwest ($32.3 million). In addition, higher revenue from a collaboration MSA arrangement for a major utility customer in California ($35.6 million) and theincremental impact of the acquired FGC operationsPLH and B Comm acquisitions ($15.526.2 million) also benefited 2017.
Gross profit increased $12.9 million, or 12.9%, during 2017 compared to 2016. The increase is primarily due the growth in revenue and the impact of acquired operations.partially offset by lower margins. Gross profit as a percentage of revenuesrevenue decreased to 14.0%10.4% in 20172022 compared to 15.7%11.2% in 2016 primarily as a result of lower gross margins on the collaboration MSA work.
2016 and 2015
Revenue increased by $50.2 million, or 8.6%, during 2016 compared to 2015. The increase is primarily due to a $35.4 million increase at ARB Underground from a new collaboration MSA arrangement as well as a $12.1 million increase at Q3C from increased volume.
Gross profit increased by $3.6 million, or 3.7%, during 2016 compared to 20152021 primarily due to increased profitability at Q3C. Gross profit asfuel and labor costs from the inflationary environment we experienced in 2022. A substantial majority of the work done in our Utilities segment is performed over longer term MSA contracts. These MSA contracts generally have escalation provisions that allow us to adjust billing rates annually, but typically the annual adjustment is subject to a percentagecap and there can be an extended period of revenues decreasedtime between the impact of inflation on our costs and when billing rates are adjusted. Due to 15.7%the inflationary environment we experienced in 2016 compared2022, our actual cost increases exceeded the contractual caps, and therefore negatively impacted gross margins. We were successful in renegotiating some of our major contracts to 16.4% in 2015. The decrease was primarilyaddress the result of lower marginsincreased fuel and labor costs on the collaboration MSA work.future work and continue to address this with our utility customers.
44
42
Energy Segment
Civil Segment
Revenue and gross profit for the CivilEnergy segment for the years ended December 31, 2017, 20162023, 2022 and 20152021 were as follows:
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Civil Segment |
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Revenue |
| $ | 501.8 |
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| $ | 479.2 |
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| $ | 576.7 |
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Gross profit |
| $ | 7.6 |
| 1.5% |
| $ | (16.7) |
| (3.5%) |
| $ | 45.1 |
| 7.8% |
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| Year Ended December 31, | |||||||||||||
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Energy Segment | | | | | | | | | | | | | | |
Revenue | $ | 3,335.1 | | | | $ | 2,396.3 | | | | $ | 1,839.7 | | |
Gross profit | | 380.5 |
| 11.4% | | | 246.2 |
| 10.3% | | | 230.4 |
| 12.5% |
In the third quarter of 2016, we recorded a $37.3 million write-down related to the Belton area projects. The following discussion excludes the impact of the write-down.
2023 and 2022
2017 and 2016
Revenue increased by $22.6$938.8 million, or 4.7%39.2%, during 20172023 compared to 2016. The increase is2022, primarily due to progress on a methanol plant project in Louisiana that began in 2017 ($31.9 million)increased renewable energy, industrial, and higher volume onpipeline activity and the Belton area projects ($23.3 million). The overall increase was partially offset by substantial completion of a large petrochemical plant project in Lousiana in the first half of 2017.PLH acquisition.
Gross profit decreasedincreased by $13.0$134.3 million, or 63.1%,54.5% during 20172023 compared to 2016. The decrease was primarily2022, due to higher costs on two Arkansas DOT projectsrevenue and one Louisiana DOT project, despite the revenue increase.
margins. Gross profit as a percentage of revenues decreasedrevenue increased to 1.5%11.4% in 20172023 compared to 4.3%10.3% in 2016. The decrease was2022, primarily due to significant growth in higher margin renewable energy work, strong performance on a pipeline project in the result ofmid-Atlantic in 2023, higher costs on a separate pipeline project in the project cost impacts noted above.mid-Atlantic from unfavorable weather conditions experienced in 2022 and higher relative carrying costs for equipment and personnel in 2022 caused by lower than anticipated pipeline volumes.
2022 and 2021
Revenue at the Belton area projects was $144.5 million for the year ended December 31, 2017, representing 28.9% of total Civil revenue. Revenue for which no margin was recognized was $134.7 million for the year ended December 31, 2017, of which $78.6 million was from the Belton area projects. During 2017, the four Belton area jobs in a loss position contributed $2.4 million gross profit as a result of lower anticipated costs. Two of the Belton area jobs in a loss position were completed during 2017, and the remaining two loss jobs are schedule to be completed in 2018. At December 31, 2017, the accrued loss provision for the four Belton area projects was $5.0 million and estimated remaining revenue for the two open jobs in a loss position was $49.0 million. The remaining Belton area job contributed $0.3 million gross profit during the year ended December 31, 2017. At December 31, 2017, estimated revenue for the job was $88.0 million, with completion scheduled for early 2019.
2016 and 2015
Revenue decreasedincreased by $97.5$556.6 million, or 16.9%30.3%, during 20162022 compared to 2015. Revenue at Primoris I&M (“I&M”) decreased by $76.4 million2021, due primarily to increased renewable energy activity ($430.1 million), the large petrochemical project in LouisianaPLH acquisition ($145.4 million), and decreases in Texas I&M work. Primoris Heavy Civil division revenue decreased by $24.5 million. Decreases in Louisiana DOT projects of $19.4 millionincreased activity on electric power plants and Mississippi DOT projects of $58.9 million werehydrogen plants, partially offset by increasesthe substantial completion of pipeline projects in Arkansas DOT projects of $6.7 million, Texas DOT projects of $8.4 million2021 and airport projects of $31.7 million.a decline in midstream pipeline market demand.
Gross profit decreasedincreased by $24.5$15.8 million, or 54.3%6.8%, during 20162022 compared to 20152021, primarily due to decreased revenue at Primoris I&M.
higher revenue. Gross profit as a percentage of revenuesrevenue decreased to 4.3%10.3% in 20162022 compared to 7.8%12.5% in 20152021, primarily asdue to the favorable impact from the closeout of multiple pipeline projects in 2021, higher costs on a result ofproject in the Mid-Atlantic from unfavorable weather conditions experienced in 2022 and lower than anticipated volumes in 2022, which lead to higher relative carrying costs for equipment and personnel. The decrease was partially offset by increased revenue on higher margin renewable energy projects in revenues.
45
2022 and higher costs associated with an LNG plant project in the Northeast in 2021.
43
Planned Divestiture of Texas Heavy Civil Business Unit
In October 2016, we announced that we planned to divest our Texas heavy civil business unit, which operates as a division of Primoris Heavy Civil. We engaged a financial advisor to assist in the marketing and sale of the business unit, and planned to continue to operate the business unit until completion of a sale. In April 2017, the Board of Directors determined that based on the information available, we would attain the best long-term value by withdrawing from the sales process and continuing operating the business unit. We will aggressively pursue claims for five Texas Department of Transportation projects that resulted in significant losses recorded in 2016. However, there can be no assurance as to the final amounts collected. As of December 31, 2017, we had approximately $49.7 million of claims related to the Belton area projects included in contract value.
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.flows from operating activities. If needed, we have availability under our lines of credit to augment liquidity needs. Our short-term and long-term cash requirements consist primarily of working capital, investments to support revenue growth and maintain our equipment and facilities, general corporate needs, and to service our debt obligations. At December 31, 2023, there were no outstanding borrowings under the Revolving Credit Facility, commercial letters of credit outstanding were $51.6 million, and available borrowing capacity was $273.4 million.
In June 2023, we entered into an Accounts Receivable Facility (the “Facility”) with PNC Bank, National Association (“PNC”) to reduce interest costs and improve cash flows from trade accounts receivable. The Facility has a one-year term, and the maximum purchase commitment by PNC is $100.0 million, at any one time. Under the Facility, certain of our designated subsidiaries may sell their trade accounts receivable as they are originated to a wholly owned bankruptcy remote Special Purpose Entity created specifically for this purpose. The total outstanding balance of trade accounts receivable that have been sold and derecognized is $75.0 million as of December 31, 2023. As of December 31, 2023, we had $25.0 million in available capacity under the Facility.
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 totaled $170.4$217.8 million at December 31, 20172023, compared to $135.8$248.7 million at December 31, 2016.2022. We anticipate that our cash and investments on hand, existing borrowing capacity under our credit facilityfacilities, and our future cash flows from operations will provide sufficient funds to enable us to meet our operating needs, our planned capital expenditures, and settle our commitments and contingencies for at least the next twelve months. In evaluating our liquidity needs, we do not consider cashmonths and cash equivalents held by our consolidated VIEs. These amounts, which totaled $60.3 million and $7.0 million as of December 31, 2017 and December 31, 2016, respectively, are not available for general corporate purposes.the foreseeable future.
The construction industry is capital intensive, and we expect to continue to make capital expenditures to meet anticipated needs for our services. Historically, we have invested an amount that approximated the sum of depreciation and amortization expenses plus proceeds from equipment sales. In 2017,2023, we spent approximately $79.8$103.0 million for capital expenditures, which included $9.9$34.0 million spent for our investment in the solar projects. In addition, the companies acquired during the period added $12.4 million to property, plant andconstruction equipment. For 2017, the amount of depreciation, amortization and equipment sales was approximately $75.0 million. Capital expensesexpenditures are expected to total $70.0 to $75.0between $80.0 million and $100.0 million for 2018.2024, which includes $20.0 million to $40.0 million for construction equipment.
Cash Flows
Cash flows during the years ended December 31, 2017, 20162023, 2022 and 20152021 are summarized as follows:follows (in millions):
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| Year Ended December 31, | |||||||
| 2023 |
| 2022 |
| 2021 | |||
Change in cash: | | | | | | | | |
Net cash provided by operating activities | $ | 198.6 | | $ | 83.3 | | $ | 79.7 |
Net cash used in investing activities |
| (30.0) | |
| (481.9) | |
| (691.3) |
Net cash (used in) provided by financing activities |
| (205.3) | |
| 452.0 | |
| 485.8 |
Effect of exchange rate changes | | 1.3 | | | (0.1) | | | 0.5 |
Net change in cash, cash equivalents and restricted cash | $ | (35.4) | | $ | 53.3 | | $ | (125.3) |
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Net cash provided by operating activities |
| $ | 188.9 |
| $ | 62.6 |
| $ | 48.4 |
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Net cash used in investing activities |
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| (131.4) |
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| (59.4) |
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| (48.5) |
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Net cash (used in) provided by financing activities |
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| (22.9) |
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| (28.5) |
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| 21.8 |
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Net change in cash and cash equivalents |
| $ | 34.6 |
| $ | (25.3) |
| $ | 21.7 |
|
46
44
Operating Activities
The sources and uses of cash flow associated with operating activities for the years ended December 31, 2017, 20162023, 2022 and 20152021 were as follows:follows (in millions):
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| 2022 |
| 2021 | |||||||||||||
Operating Activities: |
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Net income |
| $ | 76.9 |
| $ | 27.7 |
| $ | 37.2 |
| $ | 126.1 | | $ | 133.0 | | $ | 115.7 |
Depreciation and amortization |
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| 66.3 |
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| 68.0 |
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| 65.2 |
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| 107.0 | |
| 99.2 | |
| 105.6 |
Net deferred taxes |
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| 3.7 |
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| 10.9 |
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| (7.0) |
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Gain on sale and leaseback transaction |
| — | |
| (40.1) | |
| — | ||||||||||
Changes in assets and liabilities |
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| 50.4 |
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| (43.9) |
|
| (46.5) |
| | (0.1) | | | (79.0) | | | (132.7) |
Gain on sale of property and equipment | | (48.1) | | | (31.9) | | | (15.9) | ||||||||||
Other |
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| (8.4) |
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| (0.1) |
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| (0.5) |
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| 13.6 | |
| 2.1 | |
| 7.0 |
Net cash provided by operating activities |
| $ | 188.9 |
| $ | 62.6 |
| $ | 48.4 |
| $ | 198.6 | | $ | 83.3 | | $ | 79.7 |
20172023 and 20162022
Net cash provided by operating activities for 20172023 was $188.9$198.6 million, , an increase of $126.3$115.3 million compared to 2016.2022. The improvement year over yearchange year-over-year was primarily due to a favorable changeimprovement in the impact from the changes in assets and liabilities and significant growththe inclusion of $40.1 million of gain on a sale and leaseback transaction in 2022 net income.
The significant components of the $50.4$0.1 million change in assets and liabilities for the year ended December 31, 20172023 are summarized as follows:
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● | Accounts payable |
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2016
● | Other current assets decreased by $45.6 million primarily due to an income tax refund and the timing of prepaid material purchases. |
2022 and 20152021
Net cash provided by operating activities for 20162022 was $83.3 million, an increase of $62.6 million increased by $14.2$3.6 million compared to 2015.2021. The improvement year over yearchange year-over-year was primarily due to improvement in the impact from the changes in assets and liabilities, partially offset by a reductiondecrease in net income taxes paid. (after adjusting for cash from gains reported in investing activities).
The significant components of the $43.7$79.0 million change in assets and liabilities for the year ended December 31, 20162022 are summarized as follows:
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● | Contract assets increased |
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● | Other current assets increased by $70.3 million from December 31, 2021 primarily due to prepaid material purchases related to solar projects. |
Investing activities
Net cash used in investing activities was $30.0 million, $481.9 million, and $691.3 million in the years ended December 31, 2023, 2022 and 2021, respectively.
During 2023, we received $9.3 million from a net working capital true-up related to the PLH acquisition.
During 2022, we used $478.4 million for acquisitions, primarily for the acquisitions of PLH and B Comm.
During 2021, we used $607.0 million for the acquisition of FIH.
We purchased property and equipment for $79.8$103.0 million, $58.0$94.7 million and $67.1$133.8 million in the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively, principally for our construction activities.activities and facilities investment. We believe the ownership or long-term leasing of equipment is generally preferable to renting equipment on a project-by-project basis, as ownershipthis strategy helps to ensure the equipment is available for our projects when needed. In addition, ownershipthis approach has historically resulted in lower overall equipment costs.
We periodically sell equipment,assets, typically to update our fleet. We received proceeds from the sale of used equipmentassets of $8.7$63.7 million, $9.6$41.3 million and $9.9$49.5 million for 2017, 20162023, 2022 and 2015,2021, respectively. Additionally, we received net proceeds of $49.9 million from a sale and leaseback transaction of land and buildings during the year ended December 31, 2022.
During 2017, we invested $13.6 million in short-term investments. During 2016 and 2015, we did not purchase any short-term investments. We sold short-term investments amounting to $19.4 million, $0.0 million and $31.0 million in 2017, 2016 and 2015, respectively. Short-term investments consisted primarily of U.S. Treasury bills with various financial institutions and marketable equity securities.
During 2017, we used $66.2 million in cash for acquisitions, primarily related to FGC and Coastal. During 2016, we used $11.0 million in cash for the acquisitions of Mueller and Northern, and in 2015, we used $22.3 million in cash for the Aevenia acquisition.
Financing activities
Financing activities used cash of $22.9$205.3 million in 2017. Significant transactions impacting cash flows from financing activities included:2023, which was primarily due to the following:
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Financing activities used cash of $28.5 million in 2016. Significant transactions impacting cash flows from financing activities included:
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Financing activities provided cash of $21.8$452.0 million in 2015. Significant transactions impacting cash flows from financing activities included:2022, which was primarily due to the following:
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● | Net borrowings on our credit facilities of $100.0 million; |
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| Dividend payments |
Financing activities provided cash of $485.8 million in 2021, which was primarily due to the following:
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● | Proceeds from the issuance of debt secured by our equipment of $61.7 million; |
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● | Payment of long-term debt of $113.9 million; |
● | Purchase of common stock |
● | Dividend payments to our stockholders of $12.6 million. |
Debt Activities
Revolving Credit FacilityAgreement
On September 29, 2017,August 1, 2022, we entered into an amended and restated credit agreement (the “Credit Agreement”)the Amended Credit Agreement with CIBC Bank USA, as administrative agent (the “Administrative Agent”) and co-lead arranger, The Bank ofand the West, as co-lead arranger, and Branch Banking and Trust Company, IBERIABANK, Bank of America, and Simmons Bank (thefinancial parties thereto (collectively, the “Lenders”), which that increased our borrowing capacity from $125.0the Term Loan by $439.5 million to $200.0an aggregate principal amount of $945.0 million. The Amended Credit Agreement consists of ais scheduled to mature on August 1, 2027.
In addition to the New Term Loan, the Amended Credit Agreement increased the existing $200.0 million revolving credit facilityRevolving Credit Facility, whereby the Lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit, for upto $325.0 million. At December 31, 2023, there were no outstanding borrowings under the Revolving Credit Facility, commercial letters of credit outstanding were $51.6 million, and available borrowing capacity was $273.4 million.
Under the Amended Credit Agreement, we must make quarterly principal payments on the New Term Loan in an amount equal to approximately $11.8 million, with the balance due on August 1, 2027. The proceeds from the New Term Loan and additional borrowings under the Revolving Credit Facility were used to finance the acquisition of PLH.
We capitalized $6.5 million of debt issuance costs during the third quarter of 2022 associated with the Amended Credit Agreement that is being amortized as interest expense over the life of the Amended Credit Agreement. In addition, we recorded a loss on extinguishment of debt during the third quarter of 2022 of $0.8 million related to the $200.0 million committed amount. The termination date of theAmended Credit Agreement is September 29, 2022.Agreement.
The principal amount of anyall loans under the Amended Credit Agreement will bear interest at either: (i) LIBORthe Secured Overnight Financing Rate (“SOFR”) plus an applicable margin as specified in the Amended Credit Agreement (based on our net senior debt to EBITDAearnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio as defined in the Amended Credit Agreement), or (ii) the Base Rate (which is the greater of (a) the Federal Funds Rate plus 0.50% or (b) the prime rate as announced by the Administrative Agent). Non-use plus an applicable margin as specified in the Amended Credit Agreement. Quarterly non-use fees, letter of credit fees and administrative agent fees are payable at rates specified in the Amended Credit Agreement.
The principal amount of any loan drawn under the Amended Credit Agreement may be prepaid in whole or in part at any time, with a minimum prepayment of $5.0 million.
The Credit Agreement includes customary restrictive covenants for facilities of this type, as discussed below.
Commercial letters of credit outstanding were $19.5 million at December 31, 2017. Other than commercial letters of credit, there were no borrowings under the Credit Agreement or the previous credit agreement during the twelve months ended Decmeber 31, 2017, and available borrowing capacity at December 31, 2017 was $180.5 million.
Senior Secured Notes and Shelf Agreement
On December 28, 2012, we entered into a $50.0 million Senior Secured Notes purchase (“Senior Notes”) and a $25.0 million private shelf agreement (the “Notes Agreement”) by and among us, The Prudential Investment Management, Inc. and certain Prudential affiliates (the “Noteholders”). On June 3, 2015, the Notes Agreement was amended to provide for the issuance of additional notes of up to $75.0 million over the next three year period ending June 3, 2018 (“Additional Senior Notes”).
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 $5.0 million, at any time, subject to make-whole provisions.
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On July 25, 2013, we drew $25.0 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.
On November 9, 2015, we drew $25.0 million available under the Additional Senior Notes Agreement. The notes are due November 9, 2025 and bear interest at an annual rate of 4.6% paid quarterly in arrears. Seven annual principal payments of $3.6 million are required from November 9, 2019 with a final payment due on November 9, 2025.
Loans made under both the Amended Credit Agreement and the Notes Agreement are secured by our assets, including, among others, our cash, inventory, equipment (excluding equipment subject to permitted liens), and accounts receivable. All of our domesticCertain subsidiaries have issued joint and several guaranties in favor of the Lenders and Noteholders for all amounts under the Amended Credit Agreement.
The Amended Credit Agreement and Notes Agreement.
Both the Credit Agreement and the Notes Agreement containcontains various restrictive and financial covenants including, among others, a net senior debt/EBITDA ratio and debt service coverage requirements.minimum EBITDA to cash interest ratio. In addition, the agreements includeAmended Credit Agreement includes restrictions on investments, change of control provisions and provisions in the event we dispose of more than 20% of our total assets.
We were in compliance with the covenants for the Amended Credit Agreement and the Notes Agreement at December 31, 2017.2023.
On January 31, 2023, we entered into an interest rate swap agreement to manage our exposure to the fluctuations in variable interest rates. The swap effectively exchanged the interest rate on $300.0 million of the debt outstanding under our New Term Loan from variable to a fixed rate of 4.095% per annum, plus an applicable margin which was 2.25% at December 31, 2023. The interest rate swap matures on January 31, 2025.
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Canadian Credit FacilityFacilities
We have a demand credit facility for $8.0facilities totaling $14.0 million in Canadian dollars with a Canadian bank for the purposes of issuing commercial letters of credit in Canada. The credit facility has an annual renewal and providesproviding funding for the issuance ofworking capital. At December 31, 2023, 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 December 31, 2017, letters of credit outstanding totaled $0.5were $0.9 million in Canadian dollars. Atdollars and there were no outstanding borrowings. Available capacity at December 31, 2017, the available borrowing capacity2023 was $7.5$13.1 million in Canadian dollars. The credit facility contains a working capital restrictive covenant for our Canadian subsidiary, OnQuest Canada, ULC. At December 31, 2017, OnQuest Canada, ULC was in compliance with the covenant.
Contractual Obligations
As of December 31, 2017,2023, we had $259.2$964.7 million of outstanding long-term debt, and capital lease obligations, and there were no short-term borrowings.
A summary of contractual obligations as of December 31, 2017 was2023 is as follows:follows (in millions):
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| Total |
| 1 Year |
| 2 - 3 Years |
| 4 - 5 Years |
| After 5 Years | |||||
Long-term debt | | $ | 964.7 | | $ | 72.9 | | $ | 141.4 | | $ | 743.3 | | $ | 7.1 |
Interest on long-term debt (1) | |
| 225.4 | |
| 64.0 | |
| 122.3 | |
| 38.6 | |
| 0.5 |
Operating leases | |
| 406.6 | |
| 112.8 | |
| 171.5 | |
| 97.8 | |
| 24.5 |
| | $ | 1,596.7 | | $ | 249.7 | | $ | 435.1 | | $ | 879.8 | | $ | 32.1 |
Letters of credit | | $ | 52.3 | | $ | 52.3 | | $ | — | | $ | — | | $ | — |
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| 1 Year |
| 2 - 3 Years |
| 4 - 5 Years |
| After 5 Years |
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| (In Millions) |
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Long-term debt and capital lease obligations |
| $ | 259.2 |
| $ | 65.5 |
| $ | 113.0 |
| $ | 58.1 |
| $ | 22.6 |
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Interest on long-term debt (1) |
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| 24.4 |
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| 7.1 |
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| 9.4 |
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| 4.4 |
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| 3.5 |
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Pension plan withdrawal liability |
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| 4.7 |
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| 4.7 |
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| — |
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| — |
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| — |
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Equipment operating leases |
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| 31.1 |
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| 13.6 |
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| 14.9 |
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| 2.6 |
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| — |
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Contingent consideration obligations |
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| 0.7 |
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| 0.7 |
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| — |
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| — |
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| — |
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Real property leases |
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| 13.2 |
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| 5.0 |
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| 6.4 |
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| 1.8 |
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| — |
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| $ | 333.3 |
| $ | 96.6 |
| $ | 143.7 |
| $ | 66.9 |
| $ | 26.1 |
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Letters of credit |
| $ | 19.8 |
| $ | 19.8 |
| $ | — |
| $ | — |
| $ | — |
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(1)The interest amount represents interest payments for our fixed rate debt assuming that principal payments are made as originally scheduled.
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(1) | The interest amount represents interest payments for our fixed rate debt assuming that principal payments are made as originally scheduled. Our Credit Agreement bears interest at variable market rates, and estimated payments are based on the interest rate in effect as of December 31, 2023, including the impact of our interest rate swap. |
The tablesummary does not include potential 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.
In November 2011, members of the Pipe Line Contractors Association (“PLCA”) including ARB, Rockford and Q3C (prior to the acquisition in 2012), withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan (“Plan”). These withdrawals were made in order to mitigate additional liability in connection with the significantly underfunded Plan. We recorded a withdrawal liability of $7.5 million, which was increased to $7.6 million after the acquisition of Q3C. During the first quarter of 2016, we received a final payment schedule. As a result of payments made and based on this schedule, the liability recorded at December 31, 2017 was $4.7 million. We expect to pay the remaining liability balance during 2018 and have no plans to withdraw from any other agreements.
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 unknown and variable.
Related Party Transactions
Prior to March 2017, Primoris leased three properties in California from Stockdale Investment Group, Inc. (“SIGI”). Our Chairman of the Board of Directors, who is our largest stockholder, and his family hold a majority interest of SIGI. In March 2017, we exercised a right of first refusal and purchased the SIGI properties. The purchase was approved by our Board of Directors for $12.8 million. We assumed three mortgage notes totaling $4.2 million with the remainder paid in cash. During the years ended December 31, 2017, 2016 and 2015, we paid $0.2 million, $0.8 million, and $0.8 million, respectively, in lease payments to SIGI for the use of these properties.
Primoris leases properties from other individuals that were past sellers of acquisitions or are current employees. The amounts leased are not material and each arrangement was approved by the Board of Directors.
Off Balance Sheet TransactionsArrangements
As is common in our industry, weWe 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.VIEs. The following represents transactions, obligations or relationships that could be considered material off-balance sheet arrangements.
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| At December 31, |
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| 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 December 31, |
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| 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 |
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| We enter into employment agreements with certain employees 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. |
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| From time to time we make other guarantees, such as guaranteeing the obligations of our subsidiaries. |
Receivable Collection ActionsBacklog
As do all construction contractors, we negotiate payments with our customers from time to time, and we may encounter delays in receiving payments from our customers. We have been engaged in dispute resolution to collect money we believe we are owed for two construction projects completed in 2014. Because of uncertainties associated with the projects, including uncertainty of the amounts that would be collected, we used a zero profit margin approach to recording revenues during the construction period for both projects.
For the first project, a cost reimbursable contract, we have recorded a receivable of $32.9 million with a reserve of approximately $17.9 million included in “Billings in excess of costs and estimated earnings.” At this time, we cannot predict the amount that we will collect nor the timing of any collection. The dispute resolution for the receivable initially required international arbitration; however, in the first half of 2016, the owner sought bankruptcy protection in U.S. bankruptcy court. We have initiated litigation against the sureties who have provided lien and stop payment release bonds for the total amount owed. A trial date has been tentatively set for the second quarter of 2018.
For the second project, we had recorded a receivable of $17.9 million. During the third quarter 2016, we settled the dispute with an exchange of general releases and receipt of $38.0 million in cash. We changed our zero estimate of profit and accounted for the settlement as a change in accounting estimate which resulted in recognizing revenues of approximately $27.5 million and gross profit of approximately $26.7 million in the third quarter of 2016.
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2018 Outlook
We believe that our end markets will continue their growth in 2018. Our backlog at December 31, 2017 was $2.6 billion. We anticipate potential changes to the previously stringent regulatory and environmental requirements for many of our clients’ infrastructure projects, which may improve the timing and certainty of the projects. While fluctuating oil prices create uncertainty as to the timing of some of our opportunities, we are beginning to see preliminary bidding activity for larger gas, oil and derivatives projects. We believe that Primoris has the financial and operational strength to meet either short-term delays or the impact of significant increases in work. We continue to be optimistic about both short and longer-term opportunities. Our view of the outlook for our major end markets currently is as follows:
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Please note that our 2018 outlook and 2018 financial results could be adversely impacted by many factors including those discussed in Item 1A “Risk Factors” in this Annual Report on Form 10-K. This “2018 Outlook” consists
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of forward-looking statements and should be read in conjunction with the cautions about forward looking statements found at the beginning of this Annual Report on Form 10-K.
Backlog
For companies in the construction industry,services contractors, backlog can be an indicator of future revenue streams. Different companies define and calculate backlog in different manners. We define backlog as a combination of: (1) anticipated revenue from the uncompleted portions of existing contracts for whichwhere scope is adequately defined, and therefore we have known revenue amounts for fixed-price and unit-price contractscan reasonably estimate total contract value (“Fixed Backlog”), and (2) the estimated revenuesrevenue on MSA work for the next four quarters (“MSA Backlog”). We normallypresent two measures of backlog; one that includes Fixed Backlog and MSA Backlog for the next twelve months, and total backlog that includes all Fixed Backlog and MSA Backlog to the end of the MSA agreement. We do not consider renewals when estimating MSA Backlog. We do not include time-and-equipment, time-and-materials and cost reimbursable plus feecertain contracts in the calculation of fixed backlog since their final revenue amountwhere scope, and therefore contract value, is difficult to estimate in advance. However, we will include these types of contracts in backlog if the customer specifies an anticipated revenue amount.
The two components of backlog, Fixed Backlog and MSA Backlog, are detailed below.
Fixed Backlog
Fixed Backlog by reporting segment and the changes in Fixed Backlog for the periods ending December 31, 2017, 2016 and 2015 were as follows, (in millions):
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| Beginning Fixed |
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| Ending Fixed |
| Revenue |
| Total Revenue |
| ||||
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| Backlog at |
| Contract |
| Revenue |
| Backlog |
| Recognized from |
| for 12 Months |
| ||||||
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| December 31, |
| Additions to |
| Recognized from |
| at December 31, |
| Non-Fixed Backlog |
| ended December 31, |
| ||||||
Reportable Segment |
| 2016 |
| Fixed Backlog |
| Fixed Backlog |
| 2017 |
| Projects |
| 2017 |
| ||||||
Power |
| $ | 469.6 |
| $ | 464.7 |
| $ | 552.1 |
| $ | 382.2 |
| $ | 54.0 |
| $ | 606.1 |
|
Pipeline |
|
| 1,019.4 |
|
| 194.1 |
|
| 435.8 |
|
| 777.7 |
|
| 29.8 |
|
| 465.6 |
|
Utilities |
|
| 31.5 |
|
| 252.4 |
|
| 225.2 |
|
| 58.7 |
|
| 581.3 |
|
| 806.5 |
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Civil |
|
| 605.9 |
|
| 493.0 |
|
| 492.9 |
|
| 606.0 |
|
| 8.9 |
|
| 501.8 |
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Total |
| $ | 2,126.4 |
| $ | 1,404.2 |
| $ | 1,706.0 |
| $ | 1,824.6 |
| $ | 674.0 |
| $ | 2,380.0 |
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| Beginning Fixed |
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| Ending Fixed |
| Revenue |
| Total Revenue |
| ||||
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| Backlog at |
| Contract |
| Revenue |
| Backlog |
| Recognized from |
| for 12 months |
| ||||||
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| December 31, |
| Additions to |
| Recognized from |
| at December 31, |
| Non-Fixed Backlog |
| ended December 31, |
| ||||||
Reportable Segment |
| 2015 |
| Fixed Backlog |
| Fixed Backlog |
| 2016 |
| Projects |
| 2016 |
| ||||||
Power |
| $ | 549.3 |
| $ | 345.1 |
| $ | 424.8 |
| $ | 469.6 |
| $ | 53.8 |
| $ | 478.6 |
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Pipeline |
|
| 225.6 |
|
| 1,161.9 |
|
| 368.1 |
|
| 1,019.4 |
|
| 33.8 |
|
| 401.9 |
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Utilities |
|
| 42.8 |
|
| 140.7 |
|
| 152.0 |
|
| 31.5 |
|
| 485.2 |
|
| 637.2 |
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Civil |
|
| 699.5 |
|
| 370.9 |
|
| 464.5 |
|
| 605.9 |
|
| 14.7 |
|
| 479.2 |
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Total |
| $ | 1,517.2 |
| $ | 2,018.6 |
| $ | 1,409.4 |
| $ | 2,126.4 |
| $ | 587.5 |
| $ | 1,996.9 |
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| Beginning Fixed |
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| Ending Fixed |
| Revenue |
| Total Revenue |
| ||||
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| Backlog at |
| Contract |
| Revenue |
| Backlog |
| Recognized from |
| for 12 months |
| ||||||
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| December 31, |
| Additions to |
| Recognized from |
| at December 31, |
| Non-Fixed Backlog |
| ended December 31, |
| ||||||
Reportable Segment |
| 2014 |
| Fixed Backlog |
| Fixed Backlog |
| 2015 |
| Projects |
| 2015 |
| ||||||
Power |
| $ | 393.5 |
| $ | 569.1 |
| $ | 413.3 |
| $ | 549.3 |
| $ | 53.0 |
| $ | 466.3 |
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Pipeline |
|
| 161.5 |
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| 322.1 |
|
| 258.0 |
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| 225.6 |
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| 41.4 |
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| 299.4 |
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Utilities |
|
| 10.7 |
|
| 152.8 |
|
| 120.7 |
|
| 42.8 |
|
| 466.3 |
|
| 587.0 |
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Civil |
|
| 982.2 |
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| 282.0 |
|
| 564.7 |
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| 699.5 |
|
| 12.0 |
|
| 576.7 |
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Total |
| $ | 1,547.9 |
| $ | 1,326.0 |
| $ | 1,356.7 |
| $ | 1,517.2 |
| $ | 572.7 |
| $ | 1,929.4 |
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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 or are revenue from the sale of construction materials, such as rock or asphalt to outside third parties or sales of water services.
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At December 31, 2017, our total Fixed Backlog was $1.82 billion, representing a decrease of $301.8 million, or 14.2%, from $2.13 billion as of December 31, 2016.
MSA Backlog
The following table outlines historical MSA revenues for the twelve months ending December 31, 2017, 2016 and 2015 (in millions):
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Year: |
| MSA Revenues |
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2017 |
| $ | 665.3 |
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2016 |
|
| 576.2 |
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2015 |
|
| 565.1 |
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MSA Backlog includes anticipated MSA revenues for the next twelve months.not adequately defined. We estimate MSA revenuesBacklog based on historical trends, anticipated seasonal impacts and estimates of customer demand based on information from our customers.
The following table shows our estimated49
Fixed and MSA Backlog atby reporting segment for the periods ending December 31, 2017, 20162023 and 2015 by reportable segment2022 were as follows (in millions):
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| MSA Backlog |
| MSA Backlog |
| MSA Backlog | |||
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| at December 31, |
| at December 31, |
| at December 31, | |||
Reportable Segment: |
| 2017 |
| 2016 |
| 2015 | |||
Power |
| $ | 40.8 |
| $ | 42.3 |
| $ | 42.7 |
Pipeline |
|
| 35.3 |
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| 33.2 |
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| 56.0 |
Utilities |
|
| 680.5 |
|
| 575.0 |
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| 468.0 |
Civil |
|
| 18.2 |
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| 21.0 |
|
| 4.0 |
Total |
| $ | 774.8 |
| $ | 671.5 |
| $ | 570.7 |
| | | | | | | | | | | | | |
| | December 31, 2023 | | December 31, 2022 | | ||||||||
| | Next 12 Months | | Total | | Next 12 Months | | Total | 00 | ||||
Utilities | | | | | | | | | | | | | |
Fixed Backlog | | $ | 96.3 | | $ | 96.3 | | $ | 183.3 | | $ | 183.3 | |
MSA Backlog | | | 1,776.5 | | | 5,093.6 | | | 1,649.9 | | | 4,967.1 | |
Backlog | | $ | 1,872.8 | | $ | 5,189.9 | | $ | 1,833.2 | | $ | 5,150.4 | |
| | | | | | | | | | | | | |
Energy | | | | | | | | | | | | | |
Fixed Backlog | | $ | 2,599.0 | | $ | 5,102.6 | | $ | 1,920.8 | | $ | 3,391.8 | |
MSA Backlog | | | 308.2 | | | 602.4 | | | 258.5 | | | 552.8 | |
Backlog | | $ | 2,907.2 | | $ | 5,705.0 | | $ | 2,179.3 | | $ | 3,944.6 | |
| | | | | | | | | | | | | |
Total | | | | | | | | | | | | | |
Fixed Backlog | | $ | 2,695.3 | | $ | 5,198.9 | | $ | 2,104.1 | | $ | 3,575.1 | |
MSA Backlog | | | 2,084.7 | | | 5,696.0 | | | 1,908.4 | | | 5,519.9 | |
Backlog | | $ | 4,780.0 | | $ | 10,894.9 | | $ | 4,012.5 | | $ | 9,095.0 | |
Total Backlog
The following table shows total backlog (Fixed Backlog plus MSA Backlog), by reportable segment at December 31, 2017, 2016 and 2015 (in millions):
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Reportable Segment: |
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| 2017 |
| 2016 |
| 2015 |
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Power |
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| $ | 423.0 |
| $ | 511.9 |
| $ | 592.0 |
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Pipeline |
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| 813.0 |
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| 1,052.6 |
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| 281.6 |
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Utilities |
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| 739.2 |
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| 606.5 |
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| 510.8 |
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Civil |
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| 624.2 |
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| 626.9 |
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| 703.5 |
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Total |
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| $ | 2,599.4 |
| $ | 2,797.9 |
| $ | 2,087.9 |
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We expect that during 2018, we will recognize as revenue approximately 72% of the total backlog at December 31, 2017, comprised of backlog of approximately: 86% of the Power segment; 53% of the Pipeline segment; 100% of the Utilities segment; and 55% of the Civil segment.
Backlog should not be considered a comprehensive indicator of future revenues,revenue, as a percentage of our revenues arerevenue is derived from projects that are not part of a backlog calculation. The backlog estimates include amounts from estimated MSA revenues,MSAs, 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 unit-price, may be terminated by our customers on relatively short notice. In the event of a project cancellation, we may beare typically reimbursed for certainall of our costs through a specific date, as well as all reasonable costs associated with demobilizing from the jobsite, but typically we have no contractual right to the total revenuesrevenue 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 revenuesrevenue from projects completed under time-and-equipment, time-and-materialswhere scope, and cost-reimbursable-plus-fee contractstherefore contract value, is not adequately defined may not be included in our estimated backlog amount.
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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 inthat allow us to adjust billing rates for certain major contracts orannually; by considering the estimated effect of such increases when bidding or pricing new workwork; or by entering into back-to-back contracts with suppliers and subcontractors. However, the annual adjustment provided by certain contracts is typically subject to a cap and there can be an extended period of time between the impact of inflation on our costs and when billing rates are adjusted. In some cases, our actual cost increases have exceeded the contractual caps, and therefore negatively impacted our operations. We have been able to renegotiate some of our major contracts to address the increased costs on future work and will continue to address this with our customers going forward.
ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
ITEM 7A. | 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 have in the past included interest rate swaps and may in the future include foreign currency exchange contracts, and interest rate swaps.swaps and hedges against commodity price fluctuations.
We do not execute transactions or use financial derivative instruments for trading or speculative purposes. We generally enter into transactions with counter parties that are financial institutions in a matter to limit significant exposure with any one party.
At December 31, 2017, we had no derivative financial instruments.
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 December 31, 2017,2023, due to the generally short maturities of these items.
At50
Our Revolving Credit Facility and Term Loan bear interest at a variable rate which exposes us to interest rate risk. From time to time, we may use certain derivative instruments to hedge our exposure to variable interest rates. As of December 31, 2017, all2023, $300.0 million of our long-termvariable rate debt outstanding was subjecteconomically hedged. Based on our variable rate debt outstanding as of December 31, 2023, a 1.0% increase or decrease in interest rates would change annual interest expense by approximately $5.7 million.
We do not execute transactions or use financial derivative instruments for trading or speculative purposes. We generally enter into transactions with counter-parties that are financial institutions as a means to fixed interest rates.limit significant exposure with any one party.
ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA |
Our financial statements, supplementary financial data and financial statement schedules are included in a separate section at the end of this Annual Report on Form 10-K.10-K, and are incorporated herein by reference. The financial statements, supplementary data and schedules are listed in the index on page F-1 of this Annual Report on Form 10-K and are incorporated herein by reference.
ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
None.
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ITEM 9A. | CONTROLS AND PROCEDURES |
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, our management recognizes that any system of controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, as ours are designed to do, and our management necessarily is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Our disclosure controls and procedures are designed to provide reasonable assurance of achieving their stated objectives.
56
In connection with the preparation of this Annual Report on Form 10-K, as of December 31, 2017,2023, an evaluation was performed under the supervision and with the participation of our management, including our CEO and CFO, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) andor 15d-15(e) under the Exchange Act). Based on that evaluation, our CEO and CFO concluded that our disclosure controls and procedures were effective at the reasonable assurance level as of December 31, 2023, to ensure that the information required to be disclosed by us in our reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to ensure that the information required to be disclosed by us in reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosures.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) andor 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed 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. Our internal control over financial reporting includes those policies and procedures that:
(i) |
| pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; |
(ii) |
| provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and |
(iii) |
| provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our CEO and CFO, our management conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2017.2023. Management based this assessment on the framework in “Internal Control–Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our CEO and CFO concluded that our internal control over financial reporting was effective as of December 31, 2017.2023. Management reviewed the results of its assessment with the Audit Committee of our Board of Directors.
As discussed in Note 4 — “Business Combinations” of the Notes to Consolidated Financial Statements included in Item 8 of this Form 10-K, we acquired Florida Gas Contractors on May 26, 2017 and Coastal Field Services on June 16, 2017.
We have excluded FGC and Coastal from our assessment of the effectiveness of our internal control over financial reporting as of December 31, 2017. The combined Florida Gas Contractors and Coastal Field Services financial statements in aggregate constitute approximately 2.0% of total assets (excluding approximately $43.5 million of goodwill and intangible assets, which were integrated into the our systems and control environment) and approximately 1.4% of total revenues of the consolidated financial statement amounts as of and for the year ended December 31, 2017.
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Independent Registered Public Accounting Firm Report
Moss Adams LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued a report on our internal control over financial reporting as of December 31, 2017.2023. The report, which expresses an unqualified opinion on the effectiveness of our internal control over financial reporting as of December 31, 2017,2023, is included in “Item 8. Financial Statements and Supplemental Data” under the heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
ITEM 9B.OTHER INFORMATION
Our management, with the participation of our CEO and CFO, has evaluated any changes in our internal control over financial reporting that occurred during the quarter ended December 31, 2023. Based on this evaluation, our CEO and CFO concluded that, at December 31, 2023, there has not been any change in our internal control over financial reporting during the most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. | OTHER INFORMATION |
None.
ITEM 9C. | Disclosure Regarding Foreign Jurisdictions that Prevent Inspections. |
Not applicable.
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53
PART III
ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE |
ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
Information relating to the officers and directors of our company, other corporate governance matters and otherThe information required under this Item 10 is set forth in our Proxy Statement for our 2018the 2024 Annual Meeting of Stockholders (“Proxyto be filed with the SEC within 120 days of December 31, 2023 (the “Proxy Statement”) and the information is incorporated herein by reference.
ITEM 11. | EXECUTIVE COMPENSATION |
The following is a listing of certain information regarding our executive officers.
Executive Officers
David King. Mr. King has served as our President and Chief Executive Officer since August 2015 and has served as one of our Directors since May 2015. Mr. King directs strategy, establishes goals and oversees our operations. Prior to that, Mr. King was our Executive Vice President, Chief Operating Officer since March 2014. Prior to joining Primoris, Mr. King spent several years at CB&I, most recently as President of Lummus Engineered Products. From 2010 to 2013 he was President of CB&I Project Engineering & Construction based in The Hague, Netherlands responsible for P&L operations worldwide. From 2009 to 2010 he was Group Vice President for Downstream Operations for CB&I Lummus located in The Woodlands, Texas. Mr. King also managed and helped establish the Global Services Group for CB&I in 2008 to 2009. He has extensive EPF&C industry experience in energy-related projects, LNG, offshore, pipelines, refining, petrochemicals, gas processing, oil sands, synthesis gas and gas-to-liquids. Mr. King received his bachelor’s degree in Mechanical Engineering from Texas Tech University, an MBA from the University of Texas, Tyler, and an Advanced Executive Management Degree from Insead University in Fontainebleau, France. Mr. King is 65 years old.
Peter J. Moerbeek. Mr. Moerbeek was named as our Executive Vice President, Chief Financial Officer effective February 6, 2009. He has served as one of our Directors since July 2008. Previously, he served as Chief Executive Officer of a private-equity funded company engaged in the acquisition and operation of water and wastewater utilities. As a founder of the company from June 2006 to February 2007, he was involved in raising equity capital for the company. From August 1995 to June 2006, Mr. Moerbeek held several positions with publicly traded Southwest Water Company, including a Director from 2001 to 2006; President and Chief Operating Officer from 2004 to 2006; President of the Services Group from 1997 to 2006; Secretary from 1995 to 2004; and Chief Financial Officer from 1995 to 2002. From 1989 to 2005, Mr. Moerbeek was the Chief Financial and Operations Officer for publicly-traded Pico Products, Inc. Mr. Moerbeek received a B.S. in Electrical Engineering in 1969 and a MBA in 1971 from the University of Washington. Mr. Moerbeek is 70 years old.
Thomas E. McCormick. Mr. McCormick was named as our Chief Operating Officer, effective April 7, 2016. He has extensive engineering & construction industry experience in projects for many energy-related end markets, including pipelines, refining, petrochemicals, gas processing, LNG, oil sands and industrial gases. Since February 2007, he has held a variety of executive positions with CB&I. Such positions included President for Oil & Gas, Senior Vice President – Gas Processing & Oil Sands, Global Vice President –Downstream Operations, and Vice President Operations. Prior to 2007, Mr. McCormick worked for more than 17 years at BE&K Engineering on a variety of heavy civil projects. Mr. McCormick has a Bachelor of Science degree in Civil Engineering from Florida State University and an Advanced Executive Management Degree from Insead University in Fontainebleau, France. Mr. McCormick is 55 years old.
John M. Perisich. Mr. Perisich has served as our Executive Vice President and General Counsel effective May 3, 2013. He previously served as our Senior Vice President and General Counsel from July 2008. Prior to that, he served as Vice President and General Counsel of Primoris Corporation beginning in February 2006, and previous to that was Vice President and General Counsel of Primoris Corporation and its predecessor, ARB, Inc. Mr. Perisich joined ARB in 1995. Prior to joining ARB, Mr. Perisich practiced law at Klein, Wegis, a full service law firm based in Bakersfield, California. He received a B.A. degree from UCLA in 1987, and a J.D. from the University of Santa Clara in 1991. Mr. Perisich is 53 years old.
59
ITEM 11.EXECUTIVE COMPENSATION
Information required under this Item 11 is set forth in our Proxy Statement and is incorporated herein by reference, except for the information required by Item 402(v) of Regulation S-K or set forth under the caption, “Compensation Committee Report” of our Proxy Statement, which specifically is not incorporated herein by reference.
ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS |
ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
InformationThe information required under this Item 12 is set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE |
The information required under this Item 13 is set forth in our Proxy Statement and is incorporated herein by reference.
ITEM 14. | PRINCIPAL ACCOUNTANT FEES AND SERVICES |
ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES
Information regarding principal accounting fees and services and otherThe information required under this Item 14 is set forth in our Proxy Statement and is incorporated herein by reference.
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54
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A)We have filed the following documents as part of this Report:
(A) | We have filed the following documents as part of this Report: |
1. | Consolidated Balance Sheets of Primoris Services Corporation and subsidiaries as of December 31, |
2. |
| Report of Moss Adams LLP, independent registered public accounting firm, related to the consolidated financial statements in part (A)(1) above. |
3. |
| Notes to the consolidated financial statements in part (A)(1) above. |
4. |
| List of exhibits required by Item 601 of Regulation S-K. See part (B) below. |
(B) The following is a complete list of exhibits filed as part of this Report, some of which are incorporated herein by reference from certain other of our reports, registration statements and other filings with the SEC, as referenced below:
Exhibit No. | | Description | |||
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Exhibit 2.1 | | ||||
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Exhibit | | ||||
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Exhibit |
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Exhibit 3.1 | | |
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Exhibit 3.2 | | |
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Exhibit 4.1 | | |
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Exhibit 4.2 | | |
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Exhibit 10.1 | |
55
Exhibit No. | | Description | ||
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Exhibit 10.2 | | |||
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Exhibit 10.3 | | |||
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Exhibit | | |
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Exhibit | | |
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Exhibit 10.7 | | |
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Exhibit 10.8 | | |
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Exhibit 10.9 | | |
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Exhibit 10.10 | | |
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Exhibit | | |
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Exhibit | | |
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Exhibit 21.1 | | Subsidiaries and equity investments of Primoris Services Corporation (*) |
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Exhibit 23.1 | | Consent of Moss Adams LLP, independent registered public accounting firm (*) |
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56
Exhibit No. | | Description |
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Exhibit 31.1 | | |
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Exhibit 31.2 | | |
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Exhibit 32.1 | | |
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Exhibit 32.2 | | |
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Exhibit 97 | | |
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Exhibit 101 INS | | Inline XBRL Instance Document – The instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document (*) |
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Exhibit 101 SCH | | Inline XBRL Taxonomy Extension Schema Document (*) |
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Exhibit 101 CAL | | Inline XBRL Taxonomy Extension Calculation Linkbase Document (*) |
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Exhibit 101 LAB | | Inline XBRL Taxonomy Extension Label Linkbase Document (*) |
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Exhibit 101 PRE | | Inline XBRL Taxonomy Extension Presentation Linkbase Document (*) |
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Exhibit 101 DEF | | Inline XBRL Taxonomy Extension Definition Linkbase Document (*) |
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Exhibit 104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
(#) | Management contract or compensatory plan, contract or arrangement. |
(*) | Filed herewith. |
(**) | This certification will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liability of that section. Such certification will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act, except to the extent specifically incorporated by reference into such filing. |
| |
(#)Management contract or compensatory plan, contract or arrangement.
(*)Filed herewith.
ITEM 16. FORM 10-K SUMMARY
None.
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57
SIGNATURES
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 (Registrant)
Date: | February 26, 2024 | BY: | /s/ Kenneth M. Dodgen |
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| Executive Vice President, Chief Financial Officer | ||
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Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities indicated and on the date indicated.
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| Signature | | Title | |
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By: |
| | President, Chief Executive Officer and Director | |
| Thomas E. McCormick | | (Principal Executive Officer) | |
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By: | /s/ Kenneth M. Dodgen | | Executive Vice President, Chief Financial Officer | |
| Kenneth M. Dodgen | | (Principal Financial Officer) | |
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By: | /s/ Travis L. Stricker | | Senior Vice President, Chief Accounting Officer | |
| Travis L. Stricker | | (Principal Accounting Officer) | |
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By: | /s/ David L. King | | Chairman of the Board of Directors | |
| David L. King | | | |
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By: |
| | Director | |
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| /s/ | | Director | |
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By: | /s/ Carla S. Mashinski | | Director | |
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By: |
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| Terry D. McCallister | | | |
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By: |
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| /s/ | | Director | |
| John P. Schauerman | | | |
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By: | /s/ Patricia K. Wagner | | Director | |
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Date: |
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65
58
PRIMORIS SERVICES CORPORATION
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Report of Independent Registered Public Accounting Firm (Moss Adams LLP, Dallas, TX, PCAOB ID:659) | F-2 |
Consolidated Balance Sheets as of December 31, |
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Consolidated Statements of Income for the Years Ended December 31, |
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Consolidated Statements of Comprehensive Income for the Years Ended December 31, 2023, 2022 and 2021 | F-7 |
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F-1
Report of Independent Registered Public Accounting Firm
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
TheTo the Board of Directors and Stockholders of
Primoris Services Corporation
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Primoris Services Corporation (the “Company”) as of December 31, 20172023 and 2016,2022, the related consolidated statements ofincome, comprehensive income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2017,2023, and the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company’s internal control over financial reporting as of December 31, 2017,2023, based on criteria established in Internal Control - Integrated Framework (2013)(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 20172023 and 2016,2022, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2023, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2023, based on criteria established inInternal Control - Integrated Framework (2013)(2013) issued by COSO.
Basis for Opinions
The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Annual Report on Internal Control Overover Financial Reporting appearing underincluded in Item 9A.9A. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures to respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
As discussed in Management’s Annual Report on Internal Control Over Financial Reporting, on May 26, 2017 and June 16, 2017, the Company acquired Florida Gas Contractors and Coastal Field Services, respectively. For the purposes of assessing internal control over financial reporting, management excluded Florida Gas Contractors and Coastal Field Services, whose financial statements collectively constitute 2.0% of the Company’s consolidated total assets (excluding $43.5 million of goodwill and intangible assets, which were integrated into the Company’s control environment) and 1.4% of consolidated net revenues, as of and for the year ended December 31, 2017. Accordingly, our audit did not include the internal control over financial reporting of Florida Gas Contractors and Coastal Field Services.
F-2
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed 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. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
F-2
recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Estimated contract costs and variable consideration estimates: As described in Note 5 to the consolidated financial statements, for the year ended December 31, 2023, the Company’s consolidated revenue was $5,715 million, of which, $3,900 million was derived from contracts where scope was adequately defined, and was recognized over time as work is completed because of the continuous transfer of control to the customer. Under this method, the costs incurred to date as a percentage of total estimated costs at completion are used to calculate revenue. Total estimated costs at completion, and thus revenue and margin, are impacted by many factors, which can cause significant changes in estimates during the life cycle of a project. Changes in these estimates could have a significant impact on the amount of revenue and profit recognized. Additionally, the nature of the Company’s contracts give rise to several types of variable consideration. The Company’s estimate of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on their assessment of anticipated performance and all information (historical, current and forecasted) that is reasonably available.
Based on the significant judgment required by management and high degree of subjectivity involved in the determination of both total estimated costs at completion and variable consideration, which in turn led to a high degree of auditor judgment, effort and subjectivity in performing procedures and evaluating audit evidence, we have identified auditing these estimates as a critical audit matter.
The primary procedures we performed to address this critical audit matter included:
• | Tested the design and operating effectiveness of internal controls over the contract management cycle, including those related to the accumulation of the estimated costs to complete a contract and the estimation of variable consideration. |
• | Tested a selection of contracts where scope was adequately defined, including evaluating the reasonableness of the significant assumptions and judgments underlying the accounting for these selected contracts as follows: |
o | Inquired with and inspected questionnaires prepared by project personnel to understand the status of the contract, changes from prior periods, key assumptions underlying the revenue and costs, and the existence of any claims or litigation and corroborating such information. |
o | Assessed the reasonableness of estimated costs to complete by analyzing historical contract performance relative to overall contractual commitments and estimated gross margin at year end. We assessed management’s assumptions on future contract costs by comparing them with executed change |
F-3
orders, estimate documentation, correspondence with the customer, and job cost details with supporting third-party evidence. |
o | Tested management’s estimation process by performing lookback analyses at the contract level to evaluate estimated costs and variable consideration settled in the current year compared to management’s prior year estimates. |
o | Evaluated the appropriateness of the Company’s inclusion or exclusion of variable consideration from the work-in-process schedule in the selection of contracts. |
/s/ Moss Adams LLP
Los Angeles, CaliforniaDallas, Texas
February 26, 20182024
We have served as the Company’s auditor since 2006.
F-3
F-4
PRIMORIS SERVICES CORPORATION
(In Thousands, Except Share Amounts)
|
|
|
|
|
|
|
|
|
| December 31, |
| ||||
|
| 2017 |
| 2016 |
| ||
ASSETS |
|
|
|
|
|
|
|
Current assets: |
|
|
|
|
|
|
|
Cash and cash equivalents ($60,256 and $7,045 related to VIEs. See Note 12) |
| $ | 170,385 |
| $ | 135,823 |
|
Customer retention deposits |
|
| 1,000 |
|
| 481 |
|
Accounts receivable, net |
|
| 358,175 |
|
| 388,000 |
|
Costs and estimated earnings in excess of billings |
|
| 160,092 |
|
| 138,618 |
|
Inventory and uninstalled contract materials |
|
| 40,922 |
|
| 49,201 |
|
Prepaid expenses and other current assets |
|
| 12,640 |
|
| 18,985 |
|
Total current assets |
|
| 743,214 |
|
| 731,108 |
|
Property and equipment, net |
|
| 311,777 |
|
| 277,346 |
|
Intangible assets, net |
|
| 44,800 |
|
| 32,841 |
|
Goodwill |
|
| 153,374 |
|
| 127,226 |
|
Other long-term assets |
|
| 2,575 |
|
| 2,046 |
|
Total assets |
| $ | 1,255,740 |
| $ | 1,170,567 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
Current liabilities: |
|
|
|
|
|
|
|
Accounts payable |
| $ | 140,943 |
| $ | 168,110 |
|
Billings in excess of costs and estimated earnings |
|
| 159,034 |
|
| 112,606 |
|
Accrued expenses and other current liabilities |
|
| 111,387 |
|
| 108,006 |
|
Dividends payable |
|
| 3,087 |
|
| 2,839 |
|
Current portion of capital leases |
|
| 132 |
|
| 188 |
|
Current portion of long-term debt |
|
| 65,464 |
|
| 58,189 |
|
Current portion of contingent earnout liabilities |
|
| 716 |
|
| — |
|
Total current liabilities |
|
| 480,763 |
|
| 449,938 |
|
Long-term capital leases, net of current portion |
|
| 196 |
|
| 15 |
|
Long-term debt, net of current portion |
|
| 193,351 |
|
| 203,150 |
|
Deferred tax liabilities |
|
| 13,571 |
|
| 9,830 |
|
Other long-term liabilities |
|
| 5,676 |
|
| 9,064 |
|
Total liabilities |
|
| 693,557 |
|
| 671,997 |
|
Commitments and contingencies (See Note 13) |
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
Common stock—$.0001 par value; 90,000,000 shares authorized; 51,448,753 and 51,576,442 issued and outstanding at December 31, 2017 and December 31, 2016 |
|
| 5 |
|
| 5 |
|
Additional paid-in capital |
|
| 160,502 |
|
| 162,128 |
|
Retained earnings |
|
| 395,961 |
|
| 335,218 |
|
Noncontrolling interest |
|
| 5,715 |
|
| 1,219 |
|
Total stockholders’ equity |
|
| 562,183 |
|
| 498,570 |
|
Total liabilities and stockholders’ equity |
| $ | 1,255,740 |
| $ | 1,170,567 |
|
| | | | | | |
| | | December 31, | | | December 31, |
|
| 2023 |
| 2022 | ||
ASSETS | | | | | | |
Current assets: | | | | | | |
Cash and cash equivalents | | $ | 217,778 | | $ | 248,692 |
Accounts receivable, net | |
| 685,439 | |
| 663,119 |
Contract assets | |
| 846,176 | |
| 616,224 |
Prepaid expenses and other current assets | |
| 135,840 | |
| 176,350 |
Total current assets | |
| 1,885,233 | |
| 1,704,385 |
Property and equipment, net | |
| 475,929 | |
| 493,859 |
Operating lease assets | | | 360,507 | | | 202,801 |
Intangible assets, net | |
| 227,561 | |
| 249,381 |
Goodwill | |
| 857,650 | |
| 871,808 |
Other long-term assets | |
| 20,547 | |
| 21,786 |
Total assets | | $ | 3,827,427 | | $ | 3,544,020 |
LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | |
Current liabilities: | | | | | | |
Accounts payable | | $ | 628,962 | | $ | 534,956 |
Contract liabilities | |
| 366,476 | |
| 275,947 |
Accrued liabilities | |
| 263,492 | |
| 245,837 |
Dividends payable | |
| 3,202 | |
| 3,187 |
Current portion of long-term debt | |
| 72,903 | |
| 78,137 |
Total current liabilities | |
| 1,335,035 | |
| 1,138,064 |
Long-term debt, net of current portion | |
| 885,369 | |
| 1,065,315 |
Noncurrent operating lease liabilities, net of current portion | | | 263,454 | | | 130,787 |
Deferred tax liabilities | |
| 59,565 | |
| 57,101 |
Other long-term liabilities | |
| 47,912 | |
| 43,915 |
Total liabilities | |
| 2,591,335 | |
| 2,435,182 |
Commitments and contingencies (See Note 12) | | | | | | |
Stockholders’ equity | | | | | | |
Common stock—$0.0001 par value; 90,000,000 shares authorized; 53,366,327 and 53,124,899 issued and outstanding at December 31, 2023 and December 31, 2022, respectively | |
| 6 | |
| 6 |
Additional paid-in capital | |
| 275,846 | |
| 263,771 |
Retained earnings | |
| 961,028 | |
| 847,681 |
Accumulated other comprehensive income | | | (788) | | | (2,620) |
Total stockholders’ equity | |
| 1,236,092 | |
| 1,108,838 |
Total liabilities and stockholders’ equity | | $ | 3,827,427 | | $ | 3,544,020 |
See accompanying notes.
F-4
F-5
PRIMORIS SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Revenue |
| $ | 2,379,995 |
| $ | 1,996,948 |
| $ | 1,929,415 |
|
Cost of revenue |
|
| 2,101,561 |
|
| 1,795,641 |
|
| 1,709,542 |
|
Gross profit |
|
| 278,434 |
|
| 201,307 |
|
| 219,873 |
|
Selling, general and administrative expenses |
|
| 172,146 |
|
| 140,842 |
|
| 151,703 |
|
Impairment of goodwill |
|
| — |
|
| 2,716 |
|
| 401 |
|
Operating income |
|
| 106,288 |
|
| 57,749 |
|
| 67,769 |
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
Investment income |
|
| 5,817 |
|
| — |
|
| — |
|
Foreign exchange gain (loss) |
|
| 253 |
|
| 202 |
|
| (763) |
|
Other income (expense), net |
|
| 484 |
|
| (315) |
|
| 1,723 |
|
Interest income |
|
| 587 |
|
| 149 |
|
| 56 |
|
Interest expense |
|
| (8,146) |
|
| (8,914) |
|
| (7,688) |
|
Income before provision for income taxes |
|
| 105,283 |
|
| 48,871 |
|
| 61,097 |
|
Provision for income taxes |
|
| (28,433) |
|
| (21,146) |
|
| (23,946) |
|
Net income |
|
| 76,850 |
|
| 27,725 |
|
| 37,151 |
|
|
|
|
|
|
|
|
|
|
|
|
Less net income attributable to noncontrolling interests |
|
| (4,496) |
|
| (1,002) |
|
| (279) |
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Primoris |
| $ | 72,354 |
| $ | 26,723 |
| $ | 36,872 |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per common share |
| $ | 0.225 |
| $ | 0.220 |
| $ | 0.205 |
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
Basic |
| $ | 1.41 |
| $ | 0.52 |
| $ | 0.71 |
|
Diluted |
| $ | 1.40 |
| $ | 0.51 |
| $ | 0.71 |
|
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
Basic |
|
| 51,481 |
|
| 51,762 |
|
| 51,647 |
|
Diluted |
|
| 51,741 |
|
| 51,989 |
|
| 51,798 |
|
| | | | | | | | | |
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Revenue | | $ | 5,715,309 | | $ | 4,420,599 | | $ | 3,497,632 |
Cost of revenue | |
| 5,127,818 | |
| 3,963,714 | |
| 3,080,972 |
Gross profit | |
| 587,491 | |
| 456,885 | |
| 416,660 |
Selling, general and administrative expenses | |
| 328,733 | |
| 281,577 | |
| 230,110 |
Transaction and related costs | | | 5,685 | | | 20,054 | | | 16,399 |
Gain on sale and leaseback transaction | | | — | | | (40,084) | | | — |
Operating income | |
| 253,073 | |
| 195,338 | |
| 170,151 |
Other income (expense): | | | | | | | | | |
Foreign exchange gain (loss), net | | | 1,163 | | | 1,088 | | | (95) |
Other income, net | |
| 1,604 | |
| 2,072 | |
| 299 |
Interest expense, net | |
| (78,171) | |
| (39,212) | |
| (18,498) |
Income before provision for income taxes | |
| 177,669 | |
| 159,286 | |
| 151,857 |
Provision for income taxes | |
| (51,524) | |
| (26,265) | |
| (36,118) |
Net income | | | 126,145 | | | 133,021 | | | 115,739 |
| | | | | | | | | |
Dividends per common share | | $ | 0.24 | | $ | 0.24 | | $ | 0.24 |
| | | | | | | | | |
Earnings per share: | | | | | | | | | |
Basic | | $ | 2.37 | | $ | 2.50 | | $ | 2.19 |
Diluted | | $ | 2.33 | | $ | 2.47 | | $ | 2.17 |
| | | | | | | | | |
Weighted average common shares outstanding: | | | | | | | | | |
Basic | |
| 53,297 | |
| 53,200 | |
| 52,674 |
Diluted | |
| 54,223 | |
| 53,759 | |
| 53,161 |
See accompanying notes.
F-5
F-6
PRIMORIS SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In Thousands)
| | | | | | | | | |
| | | | | | | | |
|
| Year Ended December 31, | | |||||||
| 2023 |
| 2022 |
| 2021 |
| |||
Net income | $ | 126,145 | | $ | 133,021 | | $ | 115,739 | |
Other comprehensive income (loss), net of tax: | | | | | | | | | |
Foreign currency translation adjustments | | 1,832 | | | (3,318) | | | (260) | |
Comprehensive income | $ | 127,977 | | $ | 129,703 | | $ | 115,479 | |
See accompanying notes.
F-7
PRIMORIS SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In Thousands, Except Share Amounts)
| | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | Accumulated | | | |||
| | | | | | | Additional | | | | | Other | | Total | |||
| | Common Stock | | Paid-in | | Retained | | Comprehensive | | Stockholders’ | |||||||
|
| Shares |
| Amount |
| Capital |
| Earnings | | Income (Loss) |
| Equity | |||||
Balance, December 31, 2020 |
| 48,110,442 | | $ | 5 | | $ | 89,098 | | $ | 624,731 | | $ | 958 | | $ | 714,792 |
Net income |
| — | |
| — | |
| — | |
| 115,739 | |
| — | |
| 115,739 |
Foreign currency translation adjustments, net of tax | | — | | | — | | | — | | | — | | | (260) | | | (260) |
Issuance of shares, net of issuance costs |
| 5,597,216 | |
| 1 | |
| 178,474 | |
| — | |
| — | |
| 178,475 |
Conversion of Restricted Stock Units, net of shares withheld for taxes | | 122,690 | | | — | | | (1,398) | | | — | | | — | | | (1,398) |
Stock-based compensation | | — | | | — | | | 10,462 | | | — | | | — | | | 10,462 |
Dividend equivalent Units accrued - Restricted Stock Units | | — | | | — | | | 2 | | | (2) | | | — | | | — |
Purchase of stock |
| (635,763) | |
| — | |
| (14,720) | |
| — | |
| — | |
| (14,720) |
Distribution of noncontrolling entities |
| — | |
| — | |
| — | |
| (165) | |
| — | |
| (165) |
Dividends declared ($0.24 per share) |
| — | |
| — | |
| — | |
| (12,870) | |
| — | |
| (12,870) |
Balance, December 31, 2021 |
| 53,194,585 | | $ | 6 | | $ | 261,918 | | $ | 727,433 | | $ | 698 | | $ | 990,055 |
Net income |
| — | |
| — | |
| — | |
| 133,021 | |
| — | |
| 133,021 |
Foreign currency translation adjustments, net of tax | | — | | | — | | | — | | | — | | | (3,318) | | | (3,318) |
Issuance of shares |
| 75,805 | |
| — | |
| 1,726 | |
| — | |
| — | |
| 1,726 |
Conversion of Restricted Stock Units, net of shares withheld for taxes | | 131,709 | | | — | | | (1,324) | | | — | | | — | | | (1,324) |
Stock-based compensation | | — | | | — | | | 7,441 | | | — | | | — | | | 7,441 |
Purchase of stock |
| (277,200) | |
| — | |
| (5,990) | |
| — | |
| — | |
| (5,990) |
Dividends declared ($0.24 per share) |
| — | |
| — | |
| — | |
| (12,773) | |
| — | |
| (12,773) |
Balance, December 31, 2022 |
| 53,124,899 | | $ | 6 | | $ | 263,771 | | $ | 847,681 | | $ | (2,620) | | $ | 1,108,838 |
Net income |
| — | |
| — | |
| — | |
| 126,145 | |
| — | |
| 126,145 |
Foreign currency translation adjustments, net of tax | | — | | | — | | | — | | | — | | | 1,832 | | | 1,832 |
Issuance of shares |
| 72,823 | | | — | | | 1,978 | | | — | | | — | |
| 1,978 |
Conversion of Restricted Stock Units, net of shares withheld for taxes |
| 168,605 | | | — | | | (1,736) | | | — | | | — | |
| (1,736) |
Stock-based compensation | | — | | | — | | | 11,833 | | | — | | | — | | | 11,833 |
Dividends declared ($0.24 per share) |
| — | | | — | | | — | | | (12,798) | | | — | |
| (12,798) |
Balance, December 31, 2023 |
| 53,366,327 | | $ | 6 | | $ | 275,846 | | $ | 961,028 | | $ | (788) | | $ | 1,236,092 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Additional |
|
|
|
| Non |
| Total |
| |||
|
| Common Stock |
| Paid-in |
| Retained |
| Controlling |
| Stockholders’ |
| |||||||
|
| Shares |
| Amount |
| Capital |
| Earnings |
| Interest |
| Equity |
| |||||
Balance, December 31, 2014 |
| 51,561,396 |
| $ | 5 |
| $ | 160,186 |
| $ | 293,628 |
| $ | (33) |
| $ | 453,786 |
|
Net income |
| — |
|
| — |
|
| — |
|
| 36,872 |
|
| 279 |
|
| 37,151 |
|
Issuance of shares to employees and directors |
| 114,744 |
|
| — |
|
| 2,096 |
|
| — |
|
| — |
|
| 2,096 |
|
Amortization of Restricted Stock Units |
| — |
|
| — |
|
| 1,050 |
|
| — |
|
| — |
|
| 1,050 |
|
Dividend equivalent Units accrued - Restricted Stock Units |
| — |
|
| — |
|
| 12 |
|
| (12) |
|
| — |
|
| — |
|
Distribution of non-controlling entities |
| — |
|
| — |
|
| — |
|
| — |
|
| (29) |
|
| (29) |
|
Dividends |
| — |
|
| — |
|
| — |
|
| (10,589) |
|
| — |
|
| (10,589) |
|
Balance, December 31, 2015 |
| 51,676,140 |
| $ | 5 |
| $ | 163,344 |
| $ | 319,899 |
| $ | 217 |
| $ | 483,465 |
|
Net income |
| — |
|
| — |
|
| — |
|
| 26,723 |
|
| 1,002 |
|
| 27,725 |
|
Issuance of shares to employees and directors |
| 108,102 |
|
| — |
|
| 2,133 |
|
| — |
|
| — |
|
| 2,133 |
|
Amortization of Restricted Stock Units |
| — |
|
| — |
|
| 1,627 |
|
| — |
|
| — |
|
| 1,627 |
|
Dividend equivalent Units accrued - Restricted Stock Units |
| — |
|
| — |
|
| 23 |
|
| (23) |
|
| — |
|
| — |
|
Repurchase of stock |
| (207,800) |
|
| — |
|
| (4,999) |
|
| — |
|
| — |
|
| (4,999) |
|
Dividends |
| — |
|
| — |
|
| — |
|
| (11,381) |
|
| — |
|
| (11,381) |
|
Balance, December 31, 2016 |
| 51,576,442 |
| $ | 5 |
| $ | 162,128 |
| $ | 335,218 |
| $ | 1,219 |
| $ | 498,570 |
|
Net income |
| — |
|
| — |
|
| — |
|
| 72,354 |
|
| 4,496 |
|
| 76,850 |
|
Issuance of shares to employees and directors |
| 88,661 |
|
| — |
|
| 2,210 |
|
| — |
|
| — |
|
| 2,210 |
|
Amortization of Restricted Stock Units |
| — |
|
| — |
|
| 1,126 |
|
| — |
|
| — |
|
| 1,126 |
|
Dividend equivalent Units accrued - Restricted Stock Units |
| — |
|
| — |
|
| 37 |
|
| (37) |
|
| — |
|
| — |
|
Repurchase of stock |
| (216,350) |
|
| — |
|
| (4,999) |
|
| — |
|
| — |
|
| (4,999) |
|
Dividends declared |
| — |
|
| — |
|
| — |
|
| (11,574) |
|
| — |
|
| (11,574) |
|
Balance, December 31, 2017 |
| 51,448,753 |
| $ | 5 |
| $ | 160,502 |
| $ | 395,961 |
| $ | 5,715 |
| $ | 562,183 |
|
See accompanying notes.
F-6
F-8
PRIMORIS SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
| | | | | | | | | |
| | Year Ended | |||||||
| | December 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Cash flows from operating activities: | | | | | | | | | |
Net income | | $ | 126,145 | | $ | 133,021 | | $ | 115,739 |
Adjustments to reconcile net income to net cash provided by operating activities (net of effect of acquisitions): | | | | | | | | | |
Depreciation and amortization | |
| 107,041 | |
| 99,157 | |
| 105,559 |
Stock-based compensation expense | |
| 11,833 | |
| 7,441 | |
| 10,462 |
Gain on sale of property and equipment | |
| (48,104) | |
| (31,890) | |
| (15,921) |
Gain on sale and leaseback transaction | | | — | | | (40,084) | | | — |
Unrealized gain on interest rate swap | | | (397) | | | (5,581) | | | (4,859) |
Other non-cash items | | | 2,181 | | | 277 | | | 1,381 |
Changes in assets and liabilities: | | | | | | | | | |
Accounts receivable | |
| (16,885) | |
| (98,724) | |
| 10,540 |
Contract assets | |
| (229,826) | |
| (118,806) | |
| (66,999) |
Other current assets | |
| 45,578 | |
| (70,275) | |
| (54,725) |
Net deferred tax liabilities | | | 29,429 | | | 14,695 | | | 25,564 |
Other long-term assets | | | 459 | | | 932 | | | (1,683) |
Accounts payable | | | 93,433 | | | 191,532 | | | 15,701 |
Contract liabilities | |
| 84,745 | |
| (7,869) | |
| (29,111) |
Operating lease assets and liabilities, net | |
| (1,194) | |
| (505) | |
| (2,605) |
Accrued liabilities | |
| (6,832) | |
| 5,707 | |
| (24,700) |
Other long-term liabilities | |
| 946 | |
| 4,318 | |
| (4,596) |
Net cash provided by operating activities | |
| 198,552 | |
| 83,346 | |
| 79,747 |
Cash flows from investing activities: | | | | | | | | | |
Purchase of property and equipment | |
| (103,005) | |
| (94,690) | |
| (133,842) |
Proceeds from sale of assets | |
| 63,695 | |
| 41,302 | |
| 49,548 |
Proceeds from sale and leaseback transaction, net of related expenses | | | — | | | 49,887 | | | — |
Cash paid for acquisitions, net of cash and restricted cash acquired | | | 9,300 | | | (478,438) | | | (606,974) |
Net cash used in investing activities | |
| (30,010) | |
| (481,939) | |
| (691,268) |
Cash flows from financing activities: | | | | | | | | | |
Borrowings under revolving lines of credit | | | 440,223 | | | 188,560 | | | 100,000 |
Payments on revolving lines of credit | |
| (540,223) | |
| (88,560) | |
| (100,000) |
Proceeds from issuance of long-term debt | |
| 10,000 | |
| 469,531 | |
| 461,719 |
Payments on long-term debt | |
| (96,987) | |
| (86,769) | |
| (113,851) |
Proceeds from issuance of common stock | | | 681 | | | 585 | | | 178,707 |
Debt issuance costs | | | — | | | (6,643) | | | (4,876) |
Dividends paid | |
| (12,783) | |
| (12,778) | |
| (12,565) |
Purchase of common stock | | | — | | | (5,990) | | | (14,720) |
Other | | | (6,190) | |
| (5,893) | |
| (8,681) |
Net cash (used in) provided by financing activities | |
| (205,279) | |
| 452,043 | |
| 485,733 |
Effect of exchange rate changes on cash, cash equivalents and restricted cash | | | 1,288 | | | (102) | | | 456 |
Net change in cash, cash equivalents and restricted cash | |
| (35,449) | |
| 53,348 | |
| (125,332) |
Cash, cash equivalents and restricted cash at beginning of the year | |
| 258,991 | |
| 205,643 | |
| 330,975 |
Cash, cash equivalents and restricted cash at end of the year | | $ | 223,542 | | $ | 258,991 | | $ | 205,643 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
| Year Ended |
| |||||||
|
| December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
Net income |
| $ | 76,850 |
| $ | 27,725 |
| $ | 37,151 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
| 57,614 |
|
| 61,433 |
|
| 58,408 |
|
Amortization of intangible assets |
|
| 8,689 |
|
| 6,597 |
|
| 6,793 |
|
Goodwill and intangible asset impairment |
|
| 477 |
|
| 2,716 |
|
| 401 |
|
Stock-based compensation expense |
|
| 1,126 |
|
| 1,627 |
|
| 1,050 |
|
Gain on short-term investments |
|
| (5,817) |
|
| — |
|
| — |
|
Gain on sale of property and equipment |
|
| (4,434) |
|
| (4,677) |
|
| (2,116) |
|
Net deferred tax liabilities (assets) |
|
| 3,741 |
|
| 10,905 |
|
| (7,004) |
|
Other non-cash items |
|
| 203 |
|
| 174 |
|
| 165 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
Customer retention deposits |
|
| (519) |
|
| 2,117 |
|
| (2,117) |
|
Accounts receivable |
|
| 40,546 |
|
| (65,806) |
|
| 19,528 |
|
Costs and estimated earnings in excess of billings |
|
| (20,894) |
|
| (22,163) |
|
| (47,499) |
|
Other current assets |
|
| 16,976 |
|
| 17,491 |
|
| 4,784 |
|
Other long-term assets |
|
| 28 |
|
| (1,792) |
|
| 189 |
|
Accounts payable |
|
| (30,547) |
|
| 42,934 |
|
| (5,086) |
|
Billings in excess of costs and estimated earnings |
|
| 45,981 |
|
| (27,519) |
|
| (19,619) |
|
Contingent earnout liabilities |
|
| (484) |
|
| — |
|
| (6,722) |
|
Accrued expenses and other current liabilities |
|
| (972) |
|
| 14,492 |
|
| 11,729 |
|
Other long-term liabilities |
|
| 378 |
|
| (3,677) |
|
| (1,658) |
|
Net cash provided by operating activities |
|
| 188,942 |
|
| 62,577 |
|
| 48,377 |
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
Purchase of property and equipment |
|
| (79,782) |
|
| (58,027) |
|
| (67,097) |
|
Proceeds from sale of property and equipment |
|
| 8,736 |
|
| 9,603 |
|
| 9,889 |
|
Purchase of short-term investments |
|
| (13,588) |
|
| — |
|
| — |
|
Sale of short-term investments |
|
| 19,405 |
|
| — |
|
| 30,992 |
|
Cash paid for acquisitions |
|
| (66,205) |
|
| (10,997) |
|
| (22,302) |
|
Net cash used in investing activities |
|
| (131,434) |
|
| (59,421) |
|
| (48,518) |
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of long-term debt |
|
| 55,000 |
|
| 45,000 |
|
| 75,278 |
|
Repayment of capital leases |
|
| (322) |
|
| (793) |
|
| (1,336) |
|
Repayment of long-term debt |
|
| (61,816) |
|
| (57,719) |
|
| (43,927) |
|
Payment of debt issuance costs for amended and restated credit agreement |
|
| (631) |
|
| — |
|
| — |
|
Proceeds from issuance of common stock purchased under a long-term incentive plan |
|
| 1,148 |
|
| 1,440 |
|
| 1,621 |
|
Cash distribution to non-controlling interest holder |
|
| — |
|
| — |
|
| (29) |
|
Repurchase of common stock |
|
| (4,999) |
|
| (4,999) |
|
| — |
|
Dividends paid |
|
| (11,326) |
|
| (11,384) |
|
| (9,809) |
|
Net cash (used in) provided by financing activities |
|
| (22,946) |
|
| (28,455) |
|
| 21,798 |
|
Net change in cash and cash equivalents |
|
| 34,562 |
|
| (25,299) |
|
| 21,657 |
|
Cash and cash equivalents at beginning of the period |
|
| 135,823 |
|
| 161,122 |
|
| 139,465 |
|
Cash and cash equivalents at end of the period |
| $ | 170,385 |
| $ | 135,823 |
| $ | 161,122 |
|
See accompanying notes.notes
F-7
F-9
PRIMORIS SERVICES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
(In Thousands)
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
|
|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Cash paid: |
|
|
|
|
|
|
|
|
|
|
Interest |
| $ | 7,965 |
| $ | 8,819 |
| $ | 7,688 |
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes, net of refunds received |
| $ | 25,984 |
| $ | 8,624 |
| $ | 18,696 |
|
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Cash paid for interest | | $ | 82,264 | | $ | 37,177 | | $ | 22,224 |
Cash paid for income taxes, net of refunds received | | | 5,072 | | | 3,574 | | | 39,256 |
Leased assets obtained in exchange for new operating leases | | | 260,396 | | | 98,127 | | | 17,149 |
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING ACTIVITIES
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|
|
|
|
|
|
|
|
|
|
|
| Year Ended December 31, |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
|
|
|
|
|
|
|
|
|
|
|
Obligations incurred for the acquisition of property |
| $ | 4,163 |
| $ | — |
| $ | 25 |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and not yet paid |
| $ | 3,087 |
| $ | 2,839 |
| $ | 2,842 |
|
| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Dividends declared and not yet paid | | $ | 3,202 | | $ | 3,187 | | $ | 3,192 |
See accompanying notes.
F-8
F-10
PRIMORIS SERVICES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands, except share and per share amounts
Note 1—Nature of Business
Organization and operations — Primoris Services Corporation is one of the leading providers of infrastructure services operating mainly in the United States and Canada. We provide a holding companywide range of various construction and product engineering subsidiaries. Our underground and directional drilling operations install, replace and repair natural gas, petroleum, telecommunications and water pipeline systems, including large diameter pipeline systems. Our industrial, civilservices, maintenance, replacement, fabrication and engineering operations build and provide maintenance services to industrial facilities includinga diversified base of customers through our two segments.
We have longstanding customer relationships with utility, refining, petrochemical, power, plants, petrochemical facilities,midstream, and other processing plants; construct multi-level parking structures;engineering companies, and engage in thestate departments of transportation. We provide our services to a diversified base of customers, under a range of contracting options. A portion of our services are provided under Master Service Agreements (“MSA”), which are generally multi-year agreements. The remainder of our services are generated from contracts for specific construction of highways, bridges and other environmental construction activities. or installation projects.
We are incorporated in the State of Delaware, and our corporate headquarters are located at 2100 McKinney Avenue,2300 N. Field Street, Suite 1500,1900, Dallas, Texas 75201. 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.
Reportable Segments— Through the end of the year 2016,2022, we segregated our business into three reportable segments: the EnergyUtilities segment, the East Construction ServicesEnergy/Renewables segment, and the West ConstructionPipeline Services (“Pipeline”) segment. In the first quarter 2017,of 2023, we changed our reportable segments in connection with athe realignment of our internal organization and management structure. The segment changes reflect the focus of our chief operating decision makerChief Operating Decision Maker (“CODM”) on the range of services we provide to our end user markets. Our CODM regularly reviews our operating and financial performance based on these new segments.
The current reportable segments include the Power, Industrial and Engineering (“Power”) segment, the Pipeline and Underground (“Pipeline”) segment, the Utilities and Distribution (“Utilities”) segment and the Civil segment. Segment information for prior periods has been restated to conform to the newEnergy segment, presentation.which is made up of our former Energy/Renewables and Pipeline segments. See Note 1413 – “Reportable Segments” for a brief description of the reportable segments and their operations.
The classification of revenuesrevenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made.
F-9
The following table lists the our primary business units and their reportable segment:
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We owned 50% of the Blythe Power Constructors joint venture (“Blythe”) created for the installation of a parabolic trough solar field and steam generation system in California, and its operations have been included as part of the Power segment. We determined that in accordance with FASB Topic 810, we were the primary beneficiary of a variable interest entity (“VIE”) and have consolidated the results of Blythe in our financial statements. The project has been completed, the project warranty expired in May 2015, and dissolution of the joint venture was completed in the third quarter of 2015.
We own a 50% interest in two separate joint ventures, both formed in 2015. The Carlsbad Power Constructors joint venture (“Carlsbad”) is engineering and constructing a gas-fired power generation facility, and the “ARB Inc. & B&M Engineering Co.” joint venture (“Wilmington”) is also engineering and constructing a gas-fired power generation facility. Both projects are located in Southern California. The joint venture operations are included as part of the Power segment. As a result of determining that we are the primary beneficiary of the two VIEs, the results of the Carlsbad and Wilmington joint ventures are consolidated in our financial statements. Both projects are expected to be completed in 2018.
Financial information for the joint ventures is presented in Note 12— “Noncontrolling Interests”.
On February 28, 2015, we acquired the net assets of Aevenia, Inc. for $22.3 million. Aevenia operations are included in the Utilities segment.
On January 29, 2016, we acquired the net assets of Mueller Concrete Construction Company (“Mueller”) for $4.1 million and on November 18, 2016, we acquired the net assets of Northern Energy & Power (“Northern”) for $6.9 million. On June 24, 2016, we purchased property, plant and equipment from Pipe Jacking Unlimited, Inc. (“Pipe Jacking”), consisting of specialty directional drilling and tunneling equipment for $13.4 million. We determined this purchase did not meet the definition of a business as defined under ASC 805. Mueller operations are included in the Utilities segment, Northern operations are included in the Power segment, and Pipe Jacking operations are included in the Pipeline segment.
F-10
On May 26, 2017, we acquired the net assets of Florida Gas Contractors (“FGC”) for $37.7 million; on May 30, 2017, we acquired certain engineering assets for approximately $2.3 million; and on June 16, 2017, we acquired the net assets of Coastal Field Services (“Coastal”) for $27.5 million. FGC operations are included in the Utilities segment, the engineering assets are included in the Power segment, and Coastal operations are included in the Pipeline segment. See Note 4— “Business Combinations”.
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.
Seasonality—Primoris’ Our results of operations are subject to quarterly variations. MostSome of the variation is the result of weather, particularly rain, ice, snow, and snow,named storms, which can impact our ability to perform constructioninfrastructure services. While the majorityThese seasonal impacts can affect revenue and profitability in all of our 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.businesses. 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 in our Utilities segment tends to be lower during the early part of the calendar year due to clients’ internal budget cycles. As a result, we usually experiencesexperience higher revenuesrevenue and earnings in the second, third and fourth quarters of the year as compared to the first two quarters, with the fourth quarter revenues and earnings usuallyquarter.
Variability — Our project values range in size from several hundred dollars to several hundred million dollars. The bulk of our work is comprised of project sizes that average less than the third quarter revenues and earnings but higher than the second quarter revenues and earnings.
Variability—In addition to seasonality, we are dependent on$3.0 million. We also perform large construction projects which tend not to be seasonal but can fluctuate from year to year based on customer timing, project duration, weather, and general economic conditions and client requirements.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 our financial condition and operating results may vary from quarter-to-quarter.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.
F-11
Note 2—Summary of Significant Accounting Policies
Basis of presentation—The accompanying consolidated financial statements were prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and the financial statement rules and regulations of the Securities and Exchange Commission (“SEC”). References for Financial Accounting Standards Board (“FASB”) standards are made to the FASB Accounting Standards Codification (“ASC”).
Principles of consolidation—The accompanying Consolidated Financial Statements include the accounts of Primoris and our wholly-owned subsidiaries and the noncontrolling interests of the Blythe, Carlsbad and Wilmington joint ventures, which are VIEs for which we are the primary beneficiary as determined under the provisions of ASC 810.subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.
Reclassification—Certain previously reported amounts have been reclassified to conform to the current year presentation.
Restricted cash — Restricted cash consists primarily of cash balances that are restricted as to withdrawal or usage and contract retention payments made by customers into escrow bank accounts and are included in prepaid expenses and other current assets in our Consolidated Balance Sheets. Escrow cash accounts are released to us by customers as projects are completed in accordance with contract terms. As a result of the PLH acquisition (as defined below), we acquired cash pledged to secure letters of credit, which was recorded as restricted cash at December 31, 2022. As of December 31, 2023, all of the restricted cash from the PLH acquisition had been released. The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Balance Sheets to the totals of such amounts shown in the Consolidated Statements of Cash Flows (in thousands):
| | | | | | | | | | | | |
| | December 31, | ||||||||||
|
| 2023 |
| 2022 | a | 2021 |
| 2020 | ||||
Cash and cash equivalents | | $ | 217,778 | | $ | 248,692 | | $ | 200,512 | | $ | 326,744 |
Restricted cash included in prepaid expenses and other current assets | | | 5,764 | | | 10,299 | | | 5,131 | | | 4,231 |
Total cash, cash equivalents and restricted cash shown in the consolidated statements of cash flows | | $ | 223,542 | | $ | 258,991 | | $ | 205,643 | | $ | 330,975 |
Accounts Receivable Securitization Facility —In June 2023, we entered into an Accounts Receivable Securitization Facility (“the Facility”) with PNC Bank, National Association ("PNC") to reduce interest costs and improve cash flows from trade accounts receivable. The Facility has a one-year term, and the maximum purchase commitment by PNC is $100.0 million, at any one time. Fees associated with the Facility for the year ended December 31, 2023 were $1.9 million and are included in interest expense in the Consolidated Statement of Income.
Under the Facility, certain of our designated subsidiaries may sell their trade accounts receivable as they are originated to a wholly owned bankruptcy remote Special Purpose Entity (“SPE”) created specifically for this purpose. We control and, therefore, consolidate the SPE in our consolidated financial statements. The SPE transfers ownership and control of qualifying accounts receivable to PNC up to the maximum purchase commitment. We and our related subsidiaries have no continuing involvement in the transferred accounts receivable, other than collection and administrative responsibilities, and, once sold, the accounts receivable are no longer available to satisfy our creditors or our related subsidiaries. We account for accounts receivable sold to the banking counterparty as a sale of financial assets and derecognize the trade accounts receivable from our Consolidated Balance Sheets.
The total outstanding balance of trade accounts receivable that have been sold and derecognized is $75.0 million as of December 31, 2023. The SPE owned $112.2 million of trade accounts receivable as of December 31, 2023, which are included in Accounts receivable, net on the Consolidated Balance Sheet. For the year ended December 31, 2023, we received $75.0 million in cash proceeds from the Facility, which are included in cash from operating activities in the Consolidated Statement of Cash Flows. As of December 31, 2023, we had $25.0 million available capacity under the Facility.
F-12
Use of estimates—The preparation of our Consolidated Financial Statements in conformity with GAAP requires management 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 consolidated financial statements and the reported amounts of revenuesrevenue and expenses during the reporting periods. As a construction contractor, we use estimates for costs to complete construction projects and the contract value of certain construction projects. These estimates have a direct effect on gross profit as reported in these consolidated financial statements. Actual results could materially differ from our estimates.
Operating cycle— In the accompanying Consolidated Balance Sheets, assets and liabilities relating to long-term construction contracts (e.g. costscontract assets and estimated earnings in excess of billings, billings in excess of costs and estimated
F-11
earnings)contract liabilities) are considered current assets and current liabilities, since they are expected to be realized or liquidated in the normal course of contract completion, although completion may require more than one calendar year.
Consequently, we have significant working capital invested in assets that may have a liquidation period extending beyond one year. We have claims receivable and retention due from various customers and others that are currently in dispute, the realization of which is subject to binding arbitration, final negotiation or litigation, all of which may extend beyond one calendar year.
Cash and cash equivalents—We consider all highly liquid investments with an original maturity of three months or less when purchased as cash equivalents.
Short-term investments—We classify as short-term investments all securities or other assets acquired which have ready marketability and can be liquidated, if necessary, within the current operating cycle and which have readily determinable fair values. Short-term investments are classified as trading and are recorded at fair value using the first-in, first-out method. Our short-term investments are generally short-term dollar-denominated bank deposits, U.S. Treasury Bills and marketable equity securities.
Customer retention deposits— In some state jurisdictions, customer retention deposits consist of contract retention payments made by customers into bank escrow cash accounts as required. Investments for these amounts are limited to highly graded U.S. and municipal government debt obligations, investment grade commercial paper and CDs, which limits credit risk on these balances. Escrow cash accounts are released to us by customers as projects are completed in accordance with contract terms.
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 net realizable value. Uninstalled contract materials are certain job specific materials not yet installed, primarily for highway construction projects, which are valued using the specific identification method relating the cost incurred to a specific project. We are able to invoice a state agency for the materials, but in most cases title does not pass to the state agency until the materials are installed.
Business combinations—Business combinations are accounted for using the acquisition method of accounting. We use the fair value of the assets acquired and liabilities assumed to account for the purchase price of businesses. The determination of fair value requires estimates and judgments of future cash flow expectations to assign fair values to the identifiable tangible and intangible assets. GAAP provides a “measurement period” of up to one year in which to finalize all fair value estimates associated with the acquisition of a business. Most estimates are preliminary until the end of the measurement period. During the measurement period, any material, newly discovered information that existed at the acquisition date would be reflected as an adjustment to the initial valuations and estimates. After the measurement date,period, any adjustments would be recorded as a current period income or expense.
Contingent Earnout Liabilities—As part of certain acquisitions, we agreed to pay cash to certain sellers upon meeting specific operating performance targets for specified periods subsequent to the acquisition date. Each quarter we evaluate the fair value of the estimated contingency and record a non-operating charge for the change in the fair value. Upon meeting the target, we reflect the full liability on the balance sheet and record a charge to “Selling, general and administration expense”Other income (expense), net” for the change in the fair value of the liability from the prior period. See Note 3 — “Fair Value Measurements” for further discussion.
Goodwill and other intangible assets—We account for goodwill in accordance with ASC 350, “Intangibles — Goodwill and Other”. Under ASC 350, goodwill is subject to an annual impairment test, which we perform as of the first day of the fourth quarter of each year, with more frequent testing if indicators of potential impairment exist. The impairment review is performed at the reporting unit level for those units with recorded goodwill. We can assessOur qualitative factorsassessment is used to determine ifwhether it is more likely than not (that is, a quantitative impairment testlikelihood of intangible assetsmore than 50 percent) that the fair value of the reporting unit is necessary. Typically, however,less than its carrying value, including goodwill. Factors used in our qualitative assessment include, but are not limited to, macroeconomic conditions, industry and market conditions, cost factors, overall financial performance and Company and reporting unit specific events. If deemed necessary, we use the two-stepquantitative impairment test outlined in ASC 350. First, we compare350, which compares the fair value of a reporting unit with its carrying amount. Fair value for the goodwill impairment test is determined utilizing a discounted cash flow analysis based on our financial plan discounted using our weighted average cost of capital and market indicators of terminal year
F-12
cash flows. Other valuation methods may be used to corroborate the discounted cash flow method. If the carrying amount of a reporting unit is in excess of its fair value, goodwill is considered potentially impaired and further tests are performed to measure the amount of impairment loss. In the second step of the goodwill impairment test, we compare the implied fair value of reporting unit goodwill with the carrying amount of the reporting unit’s goodwill. If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss is recognized in an amount equal to that excess, limited to the carryingtotal amount of goodwill over its implied fair value. The implied fair value of goodwill is determined in the same manner that the amount of goodwill recognized in a business combination was determined. We allocate the fair value of a reporting unit to all of the assets and liabilities of that unit, including intangible assets, as if the reporting unit had been acquired in a business combination. Any excess of the fair value of a reporting unit over the amounts assigned to its assets and liabilities represents the implied fair value of goodwillunit.
During the third quarter of 2016, we made a decision to divest our Texas heavy civil business unit, a division of Primoris Heavy Civil within the Civil segment. We engaged a financial advisor to assist in the marketing and sale of the business unit, and planned to continue operating the business unit until completion of a sale. In April 2017, the Board of Directors determined that based on the information available, we would attain the best long-term value by withdrawing from the sales process and continuing to operate the business unit. In accordance with ASC 350, the planned divestiture triggered an analysis of the goodwill at Primoris Heavy Civil, resulting in a pretax, non-cash goodwill impairment charge of approximately $2.7 million in the third quarter of 2016.
In the fourth quarter of 2015, an impairment expense of $0.4 million was recorded relating to the goodwill attributed to Cardinal Contractors, Inc., which is part of the Power Segment.
There was no impairment of goodwill for the year ended December 31, 2017.
Income tax—Current income tax expense is the amount of income taxes expected to be paid for the financial results of the current year. A deferred tax liability or asset is established for the expected future tax consequences resulting from the differences in financial reporting bases and tax bases of assets and liabilities between GAAP andusing enacted tax rates in effect for the tax codes.years in which the differences are expected to reverse. A valuation allowance is provided if it is more likely than not that some or all of the deferred tax assets will not be realized. We provide for uncertain tax positions
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when such tax positions do not meet the recognition thresholds or measurement standards as set forth in ASC 740.740, “Income Taxes”. The difference between a tax position taken or expected to be taken on our income tax returns and the benefit recognized onin our financial statements is referred to as an unrecognized tax benefit. Amounts for uncertain tax positions are adjusted in periods when new information becomes available or when positions are effectively settled. We recognize accrued interest and penalties related to uncertain tax positions, if any, as a component of income tax expense.
Staff Accounting Bulletin (“SAB”) 118 provides guidance on accounting for uncertainties of the effectsAs a result of the Tax Cuts and Jobs Act (the “Tax Act”). Specifically, SAB 118 allows companies new taxes were created on certain foreign earnings. Namely, U.S. shareholders are now subject to record provisional estimates ofa current tax on global intangible low-taxed income (“GILTI”) earned by specified foreign subsidiaries. Available guidance related to GILTI provides for an accounting policy election to either recognize deferred taxes for temporary basis differences expected to reverse as GILTI in future years, or provide for the impact oftax expense related to GILTI in the Tax Act duringyear the tax is incurred as a one year “measurement period” similarperiod expense. We have elected to that used when accounting for business combinations.
As a result ofrecognize the Tax Act, we remeasured deferredcurrent tax assets and liabilities using the newly enacted tax rates and recorded a one-time net tax benefit of $9.4 millionon GILTI as an expense in the period ended December 31, 2017. Thisthe tax benefit is a provisional estimate that could be revised once we finalizeincurred. The current tax impacts of GILTI are included in our deductions foreffective tax depreciation and executive compensation accruals. We may also revise our estimate based on any additional guidance issued by the U.S. Treasury Department, the U.S. Internal Revenue Service, and other standard-setting bodies.rate.
Comprehensive income—We account for comprehensive income in accordance with ASC 220, “Comprehensive Income”, which specifies the computation, presentation and disclosure requirements for comprehensive income (loss). DuringComprehensive income (loss) consists of net income (loss) and foreign currency translation adjustments, primarily from fluctuations in foreign currency exchange rates of our foreign subsidiaries with a functional currency other than the reported periods, we had no other comprehensive income.U.S. dollar.
Foreign operations—At December 31, 2017, we had operations in Canada with assets aggregating approximately $12.7 million, compared to $11.8 million at December 31, 2016. The Canadian operations had revenues of $8.3 million and a loss before tax of $0.3 million for the year ended December 31, 2017; revenues of $11.2 million
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and income before tax of $0.8 million for the year ended December 31, 2016, and revenues of $17.8 million and income before tax of $0.3 million for the year ended December 31, 2015.
Functional currencies and foreign currency translation— We For foreign operations where substantially all monetary transactions are in the local currency, we use the United States dollarlocal currency as our functional currency. The effects of translating financial statements of foreign operations into our reporting currency forare recognized as a cumulative translation adjustment, net of tax in “Accumulated other comprehensive income” in the CanadianConsolidated Statements of Stockholders’ Equity. For certain foreign operations of OnQuest Canada, aswhere substantially all monetary transactions are made in United States dollars, we use the U.S. dollars, and other significant economic facts and circumstances currently support that position. Since these factors may change, we periodically assessdollar as our position with respect to the functional currency, of our foreign subsidiary. Non-monetary balance sheet items and gain, expense and loss accounts are valued using historical rates. All other items are remeasured using the current exchange ratewith gains or losses on translation recorded in effect at the balance sheet date. Foreign exchange gains of $0.2 million and $0.2 million in 2017 and 2016, respectively, and losses of $0.8 million in 2015 are includedincome in the “Foreign exchange gain (loss)” line ofperiod in which they are incurred. Gains or losses on foreign currency transactions are recorded in income in the Consolidated Statements of Income.period in which they are incurred.
Partnerships and joint ventures — As is normal in the construction industry, we We are periodically a member of a partnership or a joint venture. These partnerships or joint ventures are used primarily for the execution of single contracts or projects. Our ownership can vary from a small noncontrolling ownership to a significant ownership interest. We evaluate each partnership or joint venture to determine whether the entity is considered a VIEvariable interest entity (“VIE”) as defined in ASC 810,“Consolidation”, and if a VIE, whether we are the primary beneficiary of the VIE, which would require us to consolidate the VIE within our financial statements. When consolidation occurs, we account for the interests of the other parties as a noncontrolling interest and disclosesdisclose the net income attributable to noncontrolling interests. See Note 12 — “Noncontrolling Interests" for further information.
Equity method of accounting— We account for our interest in an investment using the equity method of accounting per ASC 323 if we are not the primary beneficiary of a VIE or do not have a controlling interest. The investment is recorded at cost and the carrying amount is adjusted periodically to recognize our proportionate share of income or loss, additional contributions made and dividends and capital distributions received. We record the effect of any impairment or an other than temporary decrease in the value of its investment.
In the event a partially owned equity affiliate were to incur a loss and our cumulative proportionate share of the loss exceeded the carrying amount of the equity method investment, application of the equity method would be suspended and our proportionate share of further losses would not be recognized unless we committed to provide further financial support to the affiliate. We would resume application of the equity method once the affiliate became profitable and our proportionate share of the affiliate’s earnings equals our cumulative proportionate share of losses that were not recognized during the period the application of the equity method was suspended.
Cash concentration—We place our cash in short termdemand deposit accounts and short-term U.S. Treasury bonds and certificates of deposit (“CDs”).bonds. At December 31, 20172023 and 2016,2022, we had cash balances of $170.4$217.8 million and $135.8$248.7 million, respectively. At December 31, 2017, the $170.4 millionOur cash balance consisted of $155.4 million in U.S. Treasury bill funds, backed by the federal government, and the remaining $15.0 millionbalances are held in high credit quality financial institutions in order to mitigate the risk of holding funds not backed by the federal government or in excess of federally backed limits. At December 31, 2016, the $135.8 million cash balance consisted of $100.5 million held in U.S. Treasury bill funds and $35.3 million with high credit quality financial institutions. Cash balances associated with VIEs, which totaled $60.3 million and $7.0 million as of December 31, 2017 and December 31, 2016, respectively, are not available for general corporate purposes.
Collective bargaining agreements—Approximately 52%30.6% of our hourly employees, primarily consisting of field laborers, were covered by collective bargaining agreements in 2017.2023. Upon renegotiation of such agreements, we could be exposed to increases in hourly costs and work stoppages. Of the 97 collective bargaining agreements to which we are a party to, 75 will require renegotiation during 2018. We have not had a significant work stoppage in more than 20 years.
Multiemployer plans — Various subsidiaries are signatories to collective bargaining agreements. These agreements require that we participate in and contribute to a number of multiemployer benefit plans for our 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
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requires that ifIf we were to withdraw from an agreement, we wouldcould incur a withdrawal obligation. Theobligation, and the potential withdrawal obligation may be significant. In accordance with GAAP, any withdrawal liability would be recorded when it is probable that a liability exists and can be reasonably estimated. In November 2011, we withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan, as discussed in Note 13 — “Commitments and Contingencies”. We have no plans to withdraw from any other agreements.
Worker’s compensation insuranceInsurance—We self-insure worker’s compensation claimsand general liability up to a certain level.$0.5 million per claim. We maintained a self-insurance reserve totaling $18.5$47.6 million and $18.8$45.7 million at December 31, 20172023 and 2016, respectively. The amount is included in “Accrued expenses2022,
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respectively, with the current portion recorded to “Accrued liabilities” and other current liabilities”the long-term portion recorded to “Other long-term liabilities” on the accompanying Consolidated Balance Sheets. Claims administration expenses are charged to current operations as incurred. FutureOur accruals are based on judgment and the probability of losses, with the assistance of third-party actuaries. Actual payments that may be made in the future could materially differ from such reserves.
Derivative instruments and hedging activities— We recognize all derivative instruments as either assets or liabilities on the reserve amounts.
Fair valuebalance sheet at their respective fair values. Our use of financial instruments—derivatives currently consists of interest rate swap agreements. The consolidated financial statements include financial instrumentsinterest rate swap agreements were entered into to improve the predictability of cash flows from interest payments related to variable rate debt for whichthe duration of the term loan and is not designated as a hedge for accounting purposes. Therefore, the change in the fair value may differ from amounts reflected on a historical basis. Our financial instruments consist of cash, accounts receivable, short-term investments, accounts payable and certain accrued liabilities. These financial instruments generally approximate fair market value based on their short-term nature. The carrying value of our long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities.
The fair value of financial instruments is measured and disclosure is made in accordance with ASC 820, “Fair Value Measurements and Disclosures”.
Revenue recognition—We generate revenue under a range of contracting options, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts. A substantial portion of our revenue is derived from contracts that are fixed-price or unit-price, using the percentage-of-completion method. For time and material and cost reimbursable plus fee contracts, revenue is recognized primarily based on contractual terms. Generally, time and material and cost reimbursable contract revenues are recognized on an input basis, based on labor hours incurred and on purchases made.
In the percentage-of-completion method, estimated contract values, estimated cost at completion and total costs incurred to date are used to calculate revenues earned. 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 andderivative asset or liability is reflected in net 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. As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts as changes in accounting estimates in the period in which the revisions are identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate.
If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full in the period it is identified and recognized as an “accrued loss provision” which is included in the accrued expenses and other current liabilities amount on the balance sheet. For contract revenue recognized under the percentage-of-completion method, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods. The provision for estimated losses on uncompleted contracts was $10.1 million and $12.8 million at December 31, 2017 and 2016, respectively.
We consider unapproved change orders to be contract variations for which customers have not agreed to both scope and price. Costs associated with unapproved change orders are included in the estimated cost to complete and are treated as project costs as incurred. We will recognize a change in contract value if we believe it is probable that the
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contract price will be adjusted and can be reliably estimated. 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.
We consider claims to be amounts we seek, 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. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. Costs associated with claims are included in the estimated costs to complete the contracts and are treated as project costs when incurred. Claims are included in revenue to the extent we have a reasonable legal basis, the related costs have been incurred, realization is probable, and amounts can be reliably estimated. Revenue in excess of contract costs from claims is recognized after 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.
At December 31, 2017, we had unapproved change orders and claims included in the expected contract value that totaled approximately $67.8 million. These claims were in the process of being negotiated in the normal course of business. Approximately $56.7 million of unapproved change orders and claims had been recognized as revenue on a cumulative percentage-of-completion basis through December 31, 2017.
In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs. If we anticipate that there may be issues associated with the collectability of the full amount calculated as revenues, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. For example, when a cost reimbursable project exceeds the client’s expected budget amount, the client frequently requests an adjustment to the final amount. Similarly, some utility clients reserve the right to audit costs for significant periods after performance of the work. In these situations, we may choose to defer recognition of a portion of the revenue until the client pays for the services.
The caption “Costs and estimated earnings in excess of billings” in the Consolidated Balance Sheets 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 arisingStatements of Income (mark-to-market accounting). Cash flows 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 or project milestone; (b) incurred costs to be billed under cost reimbursable type contracts, including amounts arisingderivatives settled are reported as cash flow from routine lags in billing; or (c) the revenue associated with unapproved change orders or claims when realization is probable and amounts can be reliably estimated. 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”.operating activities.
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.
Accounts receivable—Accounts receivable and contract receivables are primarily with public and private companies and governmental agencies located in the United States.States and Canada. Credit terms for payment of products and services are extended to customers in the normal course of business and no interest is charged.business. Contract receivables are generally progress billings on projects, and as a result, are short term in nature. Generally, we require no collateral from our customers, but file statutory liens or stop notices on any construction projects when collection problems are anticipated. While a project is underway, we estimate the collectability of contract amounts at the same time that we estimate project costs. As discussed in the “Revenue recognition” section above,Note 5 — “Revenue”, realization of the eventual cash collection may be recognized as adjustments to the contract revenue and profitability, otherwise, we use theprofitability. We provide an allowance method of accounting for credit losses to estimate losses from uncollectible accounts. Under this method an allowance is providedrecorded based upon historical experience and management’s evaluation of, outstanding contract receivables atamong other factors, current and reasonably supportable expected future economic conditions and the end of each year.customer’s willingness or ability to pay. Receivables are written off in the period deemed uncollectible. The allowance for doubtful accountscredit losses at December 31, 20172023 and 20162022 was $0.5$1.5 million and $1.0$2.0 million, respectively.
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Significant revision in contract estimates — Revenue recognition We recognize revenue over time for contracts where scope is based on the percentage-of-completion method for firm fixed-price contracts.adequately defined, and therefore we can reasonably estimate total contract value. 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 revenuesrevenue 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 at the end of the prior year, there can be a difference in revenuesrevenue and profitsprofit that would have been recognized in the prior year had current year estimates of costs to complete been known at the end of the prior year.
The following table presents the approximate financial impact of the changes in estimates that would have been reflected in the prior years had the revised estimates been applied to the particular year (in thousands):
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|
|
|
|
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| Net impact of change in estimate |
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| for the years ended December 31, |
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| 2017 |
| 2016 |
| 2015 |
| |||
Revised estimates in 2017 that impact 2016 |
| $ | 6,435 |
| $ | (6,435) |
| $ | — |
|
Revised estimates in 2016 that impact 2015 |
|
| — |
|
| 1,685 |
|
| (1,685) |
|
Revised estimates in 2015 that impact 2014 |
|
| — |
|
| — |
|
| (1,540) |
|
Net impact to gross margin |
| $ | 6,435 |
| $ | (4,750) |
| $ | (3,225) |
|
EPS impact to year |
| $ | 0.09 |
| $ | (0.05) |
| $ | (0.04) |
|
During the third quarter 2016, we settled a dispute with a customer on collection of a receivable of $17.9 million, receiving $38.0 millionyear ended December 31, 2023, certain contracts had revisions in cash. Prior to settlement, we recorded revenues with zero margin. We recognized the settlement as acost estimates from those projected at December 31, 2022. This change in accounting estimate which resulted in recognizing revenuesa decrease in net income of approximately $27.5$15.0 million, or $0.28 per share (basic and gross profit of approximately $26.7 million in the third quarter of 2016.
In October 2016, we announced that we planned to divest our Texas heavy civil business unit, which operates as a division of Primoris Heavy Civil. We engaged a financial advisor to assist in the marketing and sale of the business unit, and planned to continue operating the business unit until completion of a sale. In April 2017, the Board of Directors determined that based on the information available, we would attain the best long-term value by withdrawing from the sales process and continuing to operate the business unit. As a result of the planned divestiture, we recorded a charge of $37.3 million during the third quarter of 2016. This charge includes a reduction of the expected profitability of certain projects in the Belton, Texas areadiluted) for the division and a reduction of costs and estimated earnings in excess of billings and an increase to the reserve for anticipated job losses. year ended December 31, 2023.
The settlement of the disputed project and the charge related to the planned divestiture were not included in the table above.
Customer concentration — We operate in multiple industry segments encompassing the construction of commercial, utility, industrial and public works infrastructure assets primarily throughout the United States. Typically, the top ten customers in any one calendar year generate revenues in excess of 50%account for approximately 40.0% to 50.0% of total revenues;revenue; however, the group that comprisecomprises the top ten customers varies from year to year. See Note 15 — “Customer Concentrations”For the years ended December 31, 2023, 2022 and 2021, approximately 41.1%, 46.1% and 42.9%, respectively, of total revenue was generated from our top ten customers in each year. In each of the years, a different group of customers comprised the top ten customers by revenue, and no one customer accounted for further discussion.more than 10% of total revenue.
Property and equipment—Property and equipment are recorded at cost and are depreciated using the straight-line method over the estimated useful lives of the related assets, usually ranging from three to thirty years. Maintenance and repairs are charged to expense as incurred. Significant renewals and betterments are capitalized. At the time of retirement or other disposition of property and equipment, the cost and accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in operating income.
We assess the recoverability of property and equipment whenever events or changes in business circumstances indicate that the carrying amount of the asset may not be fully recoverable. We perform an analysis to determine if an impairment exists. The amount of property and equipment impairment, if any, is measured based on fair value and is
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charged to operations in the period in which property and equipmentthe impairment is determined by management. As ofFor the years ended December 31, 20172023, 2022 and 2016,2021, our management has not identified any material impairment of its property and equipment.
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Depreciation — Effective January 1, 2022, we changed our estimates of the useful lives of certain equipment to better reflect the estimated periods during which these assets will remain in service. The estimated useful lives of equipment that previously ranged three to seven years were increased to a range of three to ten years. The effect of this change in estimate reduced depreciation expense by $19.3 million, increased net income by $16.1 million, and increased basic and diluted earnings per share by $0.30 for the year ended December 31, 2022.
Taxes collected from customers—Sales and use taxes collected from our customers are recorded on a net basis.
Share-based payments and stock-based compensation—In May 2013, the shareholders approved and we adopted the Primoris Services Corporation 2013 Long-termEquity Incentive Plan (“2013 Equity Plan”). Detailed discussion of shares issued under the 2013 Equity Plan are included in Note 16 — “Deferred Compensation Agreements and Stock-Based Compensation” and in Note 19—“Stockholders’ Equity”. Such share issuances include grants of Restricted Stock Units (“RSU”) and Performance Stock Units (“PSU”) to executives and certain senior managers and issuances of stock to non-employee members of the Board of Directors.
In May 2023, the shareholders approved and we adopted the Primoris Services Corporation 2023 Equity Incentive Plan (“2023 Equity Plan”). Detailed discussion of shares issued under the Equity Plan are included in Note 1816 — “Deferred Compensation Agreements and Stock-Based Compensation” and in Note 22—19—“Stockholders’ Equity”. Such share issuances include grants of Restricted Stock UnitsRSUs and PSUs to executives issuance of stock toand certain senior managers and executives and issuances of stock to non-employee members of the Board of Directors.
Recently Issued Accounting Pronouncements
In May 2014,October 2021, the FASB issued ASU No. 2014-09, “RevenueNo.2021-08, “Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers (Topic 606)”, with several clarifying updates issued during 2016 and 2017. The new standard is effectiveCustomers” which changes the accounting for reporting periods beginning after December 15, 2017. The new standard will supersede all current revenue recognition standards and guidance. Revenue recognition will occur when promised goods or services are transferred to customers in amounts that reflect the consideration to which the company expects to be entitled to in exchange for those goods or services. The mandatory adoption will require new qualitative and quantitative disclosures about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including significant judgments and changes in judgments, information about contract balances and performance obligations, and assets recognized from costs incurred to obtain or fulfill a contract. The standard permits the “modified retrospective method”, which requires prospective application of the new standard as a cumulative-effect adjustment. We will adopt this new standard using the modified retrospective method, which requires a cumulative-effect adjustment to retained earnings as of the date of adoption, if material. The adoption will only apply to customer contracts that are not substantially complete as of January 1, 2018.
We have substantially completed our evaluation of the impact of adopting the standard on our financial position, results of operations, cash flows and related disclosures. Based on our evaluation, the cumulative impact of adopting Topic 606 is expected to be immaterial and will not require an adjustment to retained earnings. The impact to our results is not material because Topic 606 generally supports the recognition of revenue over time under the cost-to-cost method for the majority of our contracts, which is consistent with our current percentage of completion revenue recognition model.
We do not expect the new standard to materially affect the timing and amount of total revenue that can be recognized over the life of a construction project; however, the revenue recognized on a quarterly basis during the construction period may change. We believe that Topic 606 is likely to be more impactful to certain of our lump sum projects as a result of the following required changes from our current practices:
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We do not expect Topic 606 to have a material impact on our Consolidated Balance Sheets, though we expect certain reclassifications among financial statement accounts to align with the new standard. We also expect significant expanded disclosures relating to revenue recognized during each period.
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In February 2016, the FASB issued ASU 2016-02 “Leases (Topic 842)”. The ASU will require recognition of operating leases with lease terms of more than twelve months on the balance sheet as both assets for the rights and liabilities for the obligations created by the leases. The ASU will require disclosures that provide qualitative and quantitative information for the lease assets and liabilities recordedacquired in the financial statements. The standarda business combination by requiring an acquiring entity to measure contract assets and liabilities in accordance with FASB Accounting Standards Codification 606, Revenue from Contracts with Customers. This ASU is effective for fiscal years beginning after December 15, 2018. We have already revised our credit agreements2022, and interim periods within those fiscal years with early adoption permitted. The amendments should be applied prospectively to addressbusiness combinations occurring on or after the impact of ASU 2016-02 and are currently evaluating other impacts of adopting the standard on our financial position, results of operations, cash flows, and related disclosures. See Note 13 — “Commitments and Contingencies” for more information about the timing and amount of future operating lease payments, which we believe is indicative of the materiality of adoption of the ASU to our financial statements.
In March 2016, the FASB issued ASU 2016-09 “Compensation — Stock Compensation (Topic 718) — Improvements to Employee Share-Based Payment Accounting”. The ASU modifies the accounting for excess tax benefits and tax deficiencies associated with share-based payments by requiring that excess tax benefits or deficiencies be included in the income statement rather than in equity. Additionally, the tax benefits for dividends on share-based payment awards will also be reflected in the income statement. As a result of these modifications, the ASU requires that the tax-related cash flows resulting from share-based payments will be shown on the cash flow statement as operating activities rather than as financing activities.effective date. We adopted the ASU as ofnew standard on January 1, 2017,2023, on a prospective basis and it did not have a material impact on our consolidated financial statements.position, results of operations or cash flows.
In January 2017,November 2023, the FASB issued ASU 2017-01, "Business CombinationsNo.2023-07, “Segment Reporting (Topic 805)280): Clarifying the Definition of a Business"Improvements to Reportable Segment Disclosures” which changes the definitionaccounting and reporting of a business to assist entitiessegment disclosure requirements primarily through enhanced disclosure about significant segment expenses in accordance with evaluating when a set of transferred assets and activities is a business.FASB Accounting Standards Codification 280, Segment Reporting. This ASU 2017-01 requires an entity to evaluate if substantially all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or a group of similar identifiable assets; if so, the set of transferred assets and activities is not a business. ASU 2017-01 is effective for interim and annual reporting periodsfiscal years beginning after December 15, 2017.2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively on or after the effective date. We adopted the new standard on January 1, 2024, on a prospective basis and it did not have a material impact on our consolidated financial position, results of operations or cash flows.
In December 2023, the FASB issued ASU No.2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures”that requires presentation of specific categories of reconciling items, as well reconciling items that meet a quantitative threshold, in the reconciliation between the income tax provision and the income tax provision using statutory tax rates. The standard also requires disclosure of income taxes paid disaggregated by jurisdiction with separate disclosure of income taxes paid to individual jurisdictions that meet a quantitative threshold. This ASU is effective for fiscal years beginning after December 15, 2024, with early adoption permitted. The amendments should be applied prospectively; however entities have the option to apply retrospectively for each period presented. We do not expect the adoption of ASU 2017-01this new standard in 2025 to have anyan impact on our consolidated financial position, results of operations or cash flows.
In January 2017, the Financial Accounting Standards Board ("FASB") issued ASU 2017-04, "Simplifying the Test for Goodwill Impairment". ASU 2017-04 removes the second step of the goodwill impairment test, which requires a hypothetical purchase price allocation. A goodwill impairment will now be the amount by which a reporting unit's carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for interim and annual reporting periods beginning after December 15, 2019 and will be applied prospectively. We do not expect the adoption of ASU 2017-04 to have an impact on our financial position, results of operations or cash flows.
In May 2017, the FASB issued ASU 2017-09, “Compensation — Stock Compensation (Topic 718) — Scope of Modification Accounting”. The ASU amends the scope of modification accounting for share-based payment arrangements. The amendments in the ASU provide guidance on types of changes to the terms or conditions of share-based payment awards that would be required to apply modification accounting under ASC 718, “Compensation — Stock Compensation”. The ASU is effective for interim and annual reporting periods beginning after December 15, 2017 with early adoption permitted. We do not expect the adoption of ASU 2017-09 to have an impact on our financial position, results of operations or cash flows
Other new pronouncements issued but not effective until after December 31, 20172023, are not expected to have a material impact on our consolidated results of operations, financial position or cash flows.
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Note 3—Fair Value Measurements
ASC 820, “Fair Value Measurements and Disclosures” defines fair value, establishes a framework for measuring fair value in GAAP and requires certain disclosures about fair value measurements. ASC 820 addresses fair value GAAP for financial assets and financial liabilities that are remeasured and reported at fair value at each reporting period and for non-financial assets and liabilities that are remeasured 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
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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 820, our financial assets and certain liabilities that are required to be measured at fair value at December 31, 20172023 and 20162022 (in thousands):
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| Fair Value Measurements at Reporting Date |
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| Significant |
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| Amount |
| Quoted Prices |
| Other |
| Significant |
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| Recorded |
| in Active Markets |
| Observable |
| Unobservable |
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| on Balance |
| for Identical Assets |
| Inputs |
| Inputs |
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| Sheet |
| (Level 1) |
| (Level 2) |
| (Level 3) |
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Assets as of December 31, 2017: |
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Cash and cash equivalents |
| $ | 170,385 |
| $ | 170,385 |
| $ | — |
| $ | — |
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Liabilities as of December 31, 2017: |
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Contingent consideration |
| $ | 716 |
| $ | — |
| $ | — |
| $ | 716 |
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Assets as of December 31, 2016: |
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Cash and cash equivalents |
| $ | 135,823 |
| $ | 135,823 |
| $ | — |
| $ | — |
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Liabilities as of December 31, 2016: |
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None |
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| | | | | | | | | |
| | Fair Value Measurements at Reporting Date | |||||||
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| Significant |
| | | |
| | Quoted Prices | | Other | | Significant | |||
| | in Active Markets | | Observable | | Unobservable | |||
| | for Identical Assets | | Inputs | | Inputs | |||
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| (Level 1) |
| (Level 2) |
| (Level 3) | |||
Assets as of December 31, 2023: | | | | | | | | | |
Cash and cash equivalents | | $ | 217,778 |
| $ | — |
| $ | — |
Interest rate swap | | | — | | | 1,633 | | | — |
Liabilities as of December 31, 2023: | | | | | | | | | |
Contingent consideration | | | — | | | — | | | — |
| | | | | | | | | |
Assets as of December 31, 2022: | | | | | | | | | |
Cash and cash equivalents | | | 248,692 |
| | — |
| | — |
Interest rate swap | | | — | | | 1,235 | | | — |
Liabilities as of December 31, 2022: | | | | | | | | | |
Contingent consideration | | $ | — | | $ | — | | $ | 925 |
Other financial instruments 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 our long-term debt approximates fair value based on a comparison with current prevailing market rates for loans of similar risks and maturities.
The following table provides changes to our contingent consideration liability Level 3interest rate swap is measured at fair value measurements duringusing the years ended December 31, 2017income approach, which discounts the future net cash settlements expected under the derivative contracts to a present value. These valuations primarily utilize indirectly observable inputs, including contractual terms, interest rates and 2016 (in thousands):yield curves observable at commonly quoted intervals. See Note 10 – “Derivative Instruments” for additional information.
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| Significant Unobservable Inputs |
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Contingent Consideration Liability |
| 2017 |
| 2016 |
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Beginning balance, January 1, |
| $ | — |
| $ | — |
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Florida Gas Contractors acquisition |
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| 1,200 |
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| — |
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Change in fair value of contingent consideration liability during year |
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| (484) |
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| — |
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Ending balance, December 31, |
| $ | 716 |
| $ | — |
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On a quarterly basis, we assess the estimated fair value of the contractual obligation to pay the contingent consideration and any changes in estimated fair value are recorded as a non-operating chargeincome or expense in our Statement of Income. Fluctuations in the fairFair value of contingent consideration are impacted by two unobservable inputs,is determined utilizing a discounted cash flow analysis based on 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 approximatesdiscounted using our weighted average cost of capital).capital. Significant changes in either management’s estimate of those inputs in isolationthe probability of meeting the performance target or our estimated discount rate would result in a 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 used of the estimated discount rate is accompanied by a directionally opposite change in the fair value of contingent consideration liability.
Upon meeting the target, we reflect the full liability on the balance sheet and record a chargean adjustment to “Selling, general and administration expense”“Other income (expense), net” for the change in the fair value of the liability from the prior period.
F-17
The May 2017March 1, 2022 acquisition of Florida Gas Contractors includedAlberta Screw Piles, Ltd. (“ASP”) (as discussed in Note 4 – “Business Combinations”) includes an earnout of $1.5up to $3.2 million, payable in May 2018, contingent upon meeting certain performance targets.targets over the one-year periods ending March 1, 2023 and March 1, 2024, respectively. The estimated fair value of the contingent consideration on the acquisition date was $1.2$2.8 million. Under ASC 805, “Business Combinations” (“ASC 805”), we are required to estimate the fair value of contingent consideration based on facts and circumstances that existed as of the acquisition date and remeasure to fair value at each reporting date until the contingency is resolved. As a result of that remeasurement, we reduced the fair value of the contingent
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consideration in the fourth quarter of 20172023 related to the FGCASP performance target contemplated in their purchase agreement and decreased the liability by $0.5$0.9 million with a corresponding increase in non-operating income.
We paid $5.0 million to the sellers of Q3C in March 2015 based on achievement of their operating performance targets each year, as outlined in the purchase agreement.
Note 4—Business Combinations
2017 AcquisitionsAcquisition of PLH
On May 26, 2017,August 1, 2022, we acquired certain assetsPLH Group, Inc. (“PLH”) in an all-cash transaction valued at approximately $429.0 million, net of Florida Gas Contractors,cash acquired (the “PLH acquisition”). PLH is a utility contractor specializingutility-focused specialty construction company with concentrations in underground natural gas infrastructure, for approximately $33.0 million in cash. In addition, the sellers could receive a contingent earnout amount of up to $1.5 million over a one-year period ending May 26, 2018, based asgrowing regions of the achievement of certain operating targets.United States. The estimated fair value of the potential contingent considerationtransaction directly aligns with our strategic focus on the acquisition date was $1.2 million. FGC operates in the Utilities segmenthigher-growth, higher margin markets and expands our presencecapabilities in the Floridapower delivery, communications, and Southeastgas utilities markets. The total purchase price was accounted for using the acquisition methodfunded through a combination of accounting. borrowings under our term loan facility and borrowings under our revolving credit facility.
During the fourthsecond quarter of 2017,2023, we finalized the estimate of fair values of the assets acquired and liabilities assumed of PLH. The table below represents the purchase consideration and the estimated fair values of the assets acquired and liabilities assumed from PLH as of the acquisition date. Significant changes since our initial estimates reported in the third quarter of 2022 primarily relate to $24.1 million of project adjustments increasing the fair value of contract liabilities acquired, a $18.8 million change in deferred taxes, a $13.7 million reduction in the fair value of acquired assets of FGC, which included $4.8intangibles, a $9.3 million decrease in the purchase consideration for a working capital true-up, and a $11.7 million reduction in the fair value of fixed assets; $3.3assets acquired. As a result of this and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill increased by approximately $34.8 million since the third quarter of working capital; $9.1 million2022. Adjustments recorded to the estimated fair values of intangible assets;the assets acquired and $17.0 millionliabilities assumed are recognized in the period in which the adjustments are determined and calculated as if the accounting had been completed as of goodwill. In connectionthe acquisition date.
F-18
| | | |
Purchase consideration (in thousands) | | | |
Total purchase consideration | | $ | 472,193 |
Less cash and restricted cash acquired | | | (43,152) |
Net cash paid | | $ | 429,041 |
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Identifiable assets acquired and liabilities assumed (in thousands) | | | |
Cash, cash equivalents and restricted cash | | $ | 43,152 |
Accounts receivable | | | 74,739 |
Contract assets | | | 74,700 |
Prepaid expenses and other current assets | | | 10,858 |
Property, plant and equipment | | | 51,824 |
Operating lease assets | | | 16,340 |
Deferred tax asset | | | 21,731 |
Intangible assets: | |
| |
Customer relationships | | | 77,300 |
Tradename | | | 11,600 |
Other long-term assets | |
| 6,466 |
Accounts payable and accrued liabilities | | | (105,427) |
Contract liabilities | | | (49,629) |
Long-term debt (including current portion) | | | (3,313) |
Noncurrent operating lease liabilities, net of current | | | (12,004) |
Other long-term liabilities | | | (7,445) |
Total identifiable net assets | | | 210,892 |
Goodwill | | | 261,301 |
Total purchase consideration | | $ | 472,193 |
We incorporated the majority of the PLH operations into our Utilities segment with the FGC acquisition, we also paid $3.5 millionremaining operations going to acquire certain land and buildings. Intangible assets primarily consist of customer relationships.our Energy segment. Goodwill associated with the FGCPLH acquisition principally consists of expected benefits from providing expertise forthe expansion of our construction efforts inservices into the underground utility business as well asutilities market and the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce that FGC provides to us.workforce. Based on the current tax treatment, goodwill willis not expected to be deductible for income tax purposes.
The intangible assets acquired with the PLH acquisition consisted of Customer relationships of $77.3 million and Tradenames of $11.6 million. The Customer relationships and Tradenames are being amortized over a weighted average useful life of 15 years and 1.9 years, respectively. For the period from August 1, 2022, the acquisition date, to December 31, 2022, PLH contributed revenue of $367.9 million and gross profit of $38.2 million. It is impractical to segregate and identify revenue and gross profit for PLH in 2023 as we have integrated PLH into our existing operations.
Acquisition costs related to PLH were $15.7 million for the year ended December 31, 2022, and are included in “Transaction and related costs” on the Condensed Consolidated Statements of Income. Such costs primarily consisted of professional fees paid to advisors.
Acquisition of B Comm, LLC
On June 8, 2022 we acquired B Comm, LLC (“B Comm”) in an all-cash transaction of approximately $36.0 million, net of cash acquired. B Comm is a provider of maintenance, repair, upgrade and installation services to the communications markets. The transaction directly aligns with the strategy to grow our MSA revenue base and expand our communication services within the utility markets. During the second quarter of 2023, we finalized the estimate of fair values of the assets acquired and liabilities assumed of B Comm. The fair values of the assets acquired and liabilities assumed as of the acquisition date consisted of $4.8 million of fixed assets, $13.2 million of working capital, $10.2 million of intangible assets and $10.0 million of goodwill. We incorporated the operations of B Comm into our Utilities segment. Goodwill associated with the B Comm acquisition principally consists of the value of the assembled
F-19
workforce. Based on the current tax treatment, goodwill is expected to be deductible for income tax purposes over a fifteen-year15-year period. From
Acquisition of Alberta Screw Piles, Ltd.
On March 1, 2022, we acquired ASP for a cash price of approximately $4.1 million. In addition, the sellers could receive a contingent earnout payment of up to $3.2 million based on achievement of certain operating targets over the one-year periods ending March 1, 2023 and March 1, 2024, respectively. The estimated fair value of the contingent consideration on the acquisition date through December 31, 2017, FGC contributed revenueswas $2.8 million.
During the first quarter of $15.5 million2023, we finalized the estimate of fair values of the assets acquired and gross marginliabilities assumed of $3.8 million.
On May 30, 2017, weASP. The preliminary estimated fair values of the assets acquired certain engineering assets for approximately $2.3 million in cash which further enhances our ability to provide quality service for engineering and design projects. The purchase was accounted for usingliabilities assumed as of the acquisition method of accounting. The allocation of the total purchase pricedate consisted of $0.2$2.6 million of fixed assets and $2.1working capital, and $4.8 million of intangible assets. Intangible assets primarily consist of customer relationships. Thegoodwill. We incorporated the operations of this acquisition were fully integratedASP into our operations and no separate financial results were maintained. Therefore, itEnergy segment. Goodwill associated with the ASP acquisition principally consists of the value of the assembled workforce. Based on the current Canadian tax treatment, goodwill is impracticable for usexpected to report the amountsbe deductible at a rate of revenues and gross profit included in the Consolidated Statements5% per year.
Acquisition of Income.Future Infrastructure Holdings, LLC.
On June 16, 2017,January 15, 2021, we acquired certain assets and liabilities of Coastal Field ServicesFuture Infrastructure Holdings, LLC (“FIH”) for approximately $27.5$604.7 million, net of cash acquired. FIH is a provider of non-discretionary maintenance, repair, upgrade, and installation services to the communications, regulated gas utility, and infrastructure markets. FIH furthers our strategic plan to expand our service lines, enter new markets, and grow our MSA revenue base. The transaction directly aligns with our strategy to grow in cash. Coastal provides pipeline constructionlarge, higher growth, higher margin markets, and maintenance, pipe and vessel coating and insulation, and integrity supportexpands our utility services for companies incapabilities.
During the oil and gas industry. Coastal operates in the Pipeline segment and increases our market share in the Gulf Coast energy market. The purchase was accounted for using the acquisition methodfourth quarter of accounting. The preliminary allocation of the total purchase price consisted of $4.0 million of fixed assets; $4.6 million of working capital; $9.9 million of intangible assets; $9.3 million of goodwill; and $0.3 million of long-term capital leases. We continue to assess the final cutoff data and expect to finalize2021, we finalized the estimate of fair valuevalues of the assets acquired and liabilities assumed of FIH. The tables below represent the purchase consideration and estimated fair values of the assets acquired and liabilities assumed. Significant changes since our initial estimates reported in the first quarter of Coastal during 2018. Intangible2021 primarily relate to a $6.5 million reduction in the purchase consideration for the final working capital true-up and a $4.0 million increase in the final valuation of intangible assets. As a result of these and other adjustments to the initial estimated fair values of the assets primarily consistacquired and liabilities assumed, goodwill decreased by approximately $7.2 million since the first quarter of customer relationships2021. Adjustments recorded to the estimated fair values of the assets acquired and tradename.liabilities assumed are recognized in the period in which the adjustments are determined and calculated as if the accounting had been completed as of the acquisition date.
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Purchase consideration (in thousands) | | |
Total purchase consideration | $ | 615,249 |
Less cash and restricted cash acquired | | (10,525) |
Net cash paid | $ | 604,724 |
F-20
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Identifiable assets acquired and liabilities assumed (in thousands) | | |
Cash and cash equivalents | $ | 10,525 |
Accounts receivable | | 54,337 |
Contract assets | | 32,343 |
Prepaid expenses and other current assets | | 483 |
Property, plant and equipment | | 56,128 |
Operating lease assets | | 13,105 |
Intangible assets: |
| |
Customer relationships | | 122,000 |
Tradename | | 4,400 |
Other long-term assets |
| 6,976 |
Accounts payable and accrued liabilities | | (29,838) |
Contract liabilities | | (2,256) |
Long-term debt (including current portion) | | (959) |
Noncurrent operating lease liabilities, net of current | | (10,975) |
Other long-term liabilities | | (7,581) |
Total identifiable net assets | | 248,688 |
Goodwill | | 366,561 |
Total purchase consideration | $ | 615,249 |
We incorporated the operations of FIH into our Utilities segment. Goodwill associated with the CoastalFIH acquisition principally consists of expected benefits from providing expertise for ourthe expansion of our services ininto the pipeline constructioncommunications market and maintenance business.the expansion of our geographic presence. Goodwill also includes the value of the assembled workforce that Coastal provides to us.workforce. Based on the current tax treatment, goodwill willis expected to be deductible for income tax purposes over a fifteen-year15-year period.
The intangible assets acquired with the FIH acquisition consisted of Customer relationships of $122.0 million and Tradenames of $4.4 million. The Customer relationships and Tradenames are being amortized over a weighted average useful life of 19 years and one year, respectively.
For the period. From from January 15, 2021, the acquisition date, throughto December 31, 2017, Coastal2021, FIH contributed revenuesrevenue of $17.9$266.6 million and gross marginprofit of $3.2$43.6 million.
2016 Acquisitions
On January 29, 2016, we acquired certain assetsAcquisition related costs were $14.6 million for the year ended December 31, 2021, and liabilities of Mueller Concrete Construction Company for $4.1 million. The purchase was accounted for using the acquisition method of accounting. During the second quarter of 2016, we finalized the estimate of fair value of the acquired assets of Mueller, which included $2.0 million of fixed assets, $2.0 million of goodwill and $0.1 million of inventory. Mueller operates within the Utilities segment. Goodwill
F-21
largely consists of expected benefits from providing foundation expertise for our construction efforts in underground line work, substations and telecom/fiber. Goodwill also includes the value of the assembled workforce that Mueller provides to our business. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. The operations of Mueller were fully integrated into our operations and no separate financial results were maintained. Therefore, it is impracticable for us to report the amounts of revenues and gross profitare included in “Transaction and related costs” on the Consolidated Statements of Income.
On June 24, 2016, we purchased property, plant Such costs primarily consisted of professional fees paid to advisors and equipment from Pipe Jacking Unlimited, Inc., consisting of specialty directional drilling and tunneling equipment for $13.4 million in cash. We determined this purchase did not meet the definition of a business as defined under ASC 805. The estimated fair value of the equipment was equal to the purchase price. We believeexpense associated with the purchase of the equipment will aid in our pipeline construction projects and enhance the work provided to our utility clients. Pipe Jacking operations are included in the Pipeline segment.Primoris common stock by certain employees of FIH at a 15 percent discount.
On November 18, 2016, we acquired certain assets and liabilities of Northern Energy & Power for $6.9 million. Northern operates in the Power segment and serves the renewable energy sector with a specific focus on solar photovoltaic installations in the United States. The purchase was accounted for using the acquisition method of accounting. During the second quarter of 2017, we finalized our estimated fair value of the acquired assets of Northern, which resulted in a $0.1 million reduction in goodwill compared to amounts previously recorded. The allocation of the total purchase price included $3.0 million of intangible assets, $3.7 million of goodwill and $0.1 million of fixed assets. Intangible assets consist of customer relationships. Goodwill is derived from the expected benefits of services in the renewable energy sector with a specific focus on Solar Photovoltaic installations in the United States. Goodwill also includes the value of the assembled workforce that Northern provides to our business. Based on the current tax treatment, goodwill will be deductible for income tax purposes over a fifteen-year period. For the year ended December 31, 2017, Northern contributed revenues of $19.1 million and gross profit of $1.1 million. From the acquisition date through December 31, 2016, Northern contributed revenues of $2.0 million and gross margin of $0.6 million.
2015 Acquisitions
On February 28, 2015, we acquired the net assets of Aevenia, Inc. (“Aevenia”) for $22.3 million in cash, which operates as part of our Utilities segment. The acquisition provides electrical construction expertise and provides a greater presence and convenient access to the central plains area of the United States. The purchase was accounted for using the acquisition method of accounting. The allocation of the total purchase price consisted of $11.2 million of fixed assets; $2.1 million of working capital; $3.8 million of intangible assets; and $5.2 million of goodwill. Goodwill largely consists of expected benefits from providing electrical construction expertise for us and the greater presence and convenient access to the central plains area of the United States. Goodwill also includes the value of the assembled workforce that Aevenia provides to our business. For the year ended December 31, 2017, Aevenia contributed revenues of $24.5 million and gross profit of $1.4 million. For the year ended December 31, 2016, Aevenia contributed revenues of $26.4 million and gross profit of $1.0 million. From the acquisition date through December 31, 2015, Aevenia contributed revenues of $23.7 million and gross margin of $2.4 million.
Summary of Cash Paid for Acquisitions
The following table summarizes the cash paid for acquisitions under ASC 805 for the years ended December 31, 2017, 2016, and 2015 (in thousands):
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| Year ended December 31, |
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| 2017 |
| 2016 |
| 2015 |
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Coastal — purchased June 16, 2017 |
| $ | 27,519 |
| $ | — |
| $ | — |
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Engineering — purchased May 30, 2017 |
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| 2,315 |
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| — |
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| — |
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Florida Gas — purchased May 26, 2017 |
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| 36,492 |
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| — |
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| — |
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Northern — purchased November 18, 2016 |
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| (121) | * |
| 6,889 |
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| — |
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Mueller — purchased January 29, 2016 |
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| 4,108 |
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| — |
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Aevenia — purchased February 28, 2015 |
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| — |
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| — |
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| 22,302 |
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Cash paid |
| $ | 66,205 |
| $ | 10,997 |
| $ | 22,302 |
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* In the second quarter of 2017, we finalized the estimated fair value of the Northern acquisition, which resulted in receipt of $0.1 million in cash and a reduction in goodwill.
Schedule of Assets Acquired and Liabilities Assumed
The following table summarizes the fair value of the assets acquired and the liabilities assumed at the acquisition date (in thousands):
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| Year ended December 31, |
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| 2017 |
| 2016 |
| 2015 |
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| Acquisitions |
| Acquisitions |
| Acquisitions |
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Accounts receivable | $ | 10,721 |
| $ | 1,606 |
| $ | 2,734 |
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Costs and estimated earnings in excess of billings |
| 580 |
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| — |
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| — |
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Inventory and other assets |
| 2,352 |
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| 64 |
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| 1,476 |
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Property, plant and equipment |
| 12,402 |
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| 2,133 |
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| 11,173 |
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Intangible assets |
| 21,125 |
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| 3,000 |
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| 3,850 |
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Goodwill |
| 26,269 |
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| 5,781 |
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| 5,152 |
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Accounts payable |
| (3,380) |
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| (726) |
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| (743) |
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Billings in excess of costs and estimated earnings |
| (447) |
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| — |
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| — |
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Accrued expenses |
| (2,096) |
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| (861) |
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| (1,340) |
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Total | $ | 67,526 |
| $ | 10,997 |
| $ | 22,302 |
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Identifiable Tangible Assets. For each of the acquisitions, significant identifiable tangible assets acquired include accounts receivable, inventory and fixed assets, consisting primarily of construction equipment. We determined that the recorded value of accounts receivable and inventory reflect fair value of those assets. We estimated the fair value of fixed assets on the effective dates of the acquisitions using a market approach, based on comparable market values for similar equipment of similar condition and age.
Identifiable Intangible Assets. We generally use the assistance of an independent third party valuation specialist to estimate the fair value of the intangible assets acquired for the acquisitions. Based on our assessment, the acquired intangible asset categories, average amortization periods, generally on a straight-line basis, and fair values are as follows (in thousands):
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| Amortization |
| 2017 |
| 2016 |
| 2015 |
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| Period |
| Fair Value |
| Fair Value |
| Fair Value |
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Tradename |
| 1 to 3 years |
| $ | 2,150 |
| $ | — |
| $ | — |
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Non-compete agreements |
| 2 to 5 years |
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| 550 |
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| — |
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| 1,350 |
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Customer relationships |
| 5 to 10 years |
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| 18,150 |
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| 3,000 |
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| 2,500 |
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Other |
| 3 years |
|
| 275 |
|
| — |
|
| — |
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Total |
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| $ | 21,125 |
| $ | 3,000 |
| $ | 3,850 |
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The fair value of the tradename was determined based on the “relief from royalty” method. A royalty rate was selected based on consideration of several factors, including external research of third party trade name licensing agreements and their royalty rate levels, and management estimates.
The fair value for the non-compete agreements was valued based on a discounted “income approach” model, including estimated financial results with and without the non-compete agreements in place. The agreements were analyzed based on the potential impact of competition that certain individuals could have on the financial results, assuming the agreements were not in place. An estimate of the probability of competition was applied and the results were compared to a similar model assuming the agreements were in place.
The customer relationships were valued utilizing the “excess earnings method” of the income approach. The estimated discounted cash flows associated with existing customers and projects were based on historical and market participant data. Such discounted cash flows were net of fair market returns on the various tangible and intangible assets that are necessary to realize the potential cash flows.
F-23
Supplemental Unaudited Pro Forma Information for the twelve months ended December 31, 2022 and 2021
The following pro forma information for the twelve months ended December 31, 20172022 and 20162021 presents our results of operations as if the 2017 acquisitionsacquisition of FGC and Coastal and the 2016 acquisitions of Mueller and NorthernPLH had occurred at the beginning of 2016.2021 and FIH had occurred at the beginning of 2020. 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 |
● |
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● | the pro forma tax effect of both |
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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 variousPLH and FIH acquisitions been completed on January 1, 2016.2021 and 2020, respectively. For example, the pro forma results do not reflect any operating efficiencies and associated cost savings that we might have achieved with respect to the acquisitionsacquisition (in thousands)thousands, except per share amounts):
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| Year Ended December 31, |
| ||||
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| 2017 |
| 2016 |
| ||
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| (unaudited) |
| (unaudited) |
| ||
Revenues |
| $ | 2,406,062 |
| $ | 2,092,872 |
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Income before provision for income taxes |
| $ | 107,055 |
| $ | 57,280 |
|
Net income attributable to Primoris |
| $ | 73,626 |
| $ | 31,415 |
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Weighted average common shares outstanding: |
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Basic |
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| 51,481 |
|
| 51,762 |
|
Diluted |
|
| 51,741 |
|
| 51,989 |
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
Basic |
| $ | 1.43 |
| $ | 0.61 |
|
Diluted |
| $ | 1.42 |
| $ | 0.60 |
|
| | | | | | |
| | Year Ended December 31, | ||||
|
| 2022 |
| 2021 | ||
| | (unaudited) | | (unaudited) | ||
Revenue | | $ | 4,814,237 | | $ | 4,138,778 |
Income before provision for income taxes | | | 149,125 | | | 79,421 |
Net income | | | 124,537 | | | 60,543 |
| | | | | | |
Weighted average common shares outstanding: | | | | | | |
Basic | |
| 53,200 | |
| 52,674 |
Diluted | |
| 53,759 | |
| 53,161 |
| | | | | | |
Earnings per share: | | | | | | |
Basic | | $ | 2.34 | | $ | 1.15 |
Diluted | | | 2.32 | | | 1.14 |
Note 5—Accounts ReceivableRevenue
We generate revenue under a range of contracting types, including fixed-price, unit-price, time and material, and cost reimbursable plus fee contracts, each of which has a different risk profile. For the years ended December 31, 2023, 2022, and 2021, $3.9 billion, $2.7 billion, and $2.1 billion, respectively of our revenue is derived from contracts where scope is adequately defined, and therefore we can reasonably estimate total contract value. For these contracts, revenue is recognized over time as work is completed because of the continuous transfer of control to the customer (typically using an input measure such as costs incurred to date relative to total estimated costs at completion to measure progress). For certain contracts, where scope is not adequately defined and we can’t reasonably estimate total contract value, revenue is recognized either on an input basis, based on contract costs incurred as defined within the respective contracts, or an output basis, based on units completed. Costs to obtain contracts are generally not significant and are expensed in the period incurred.
We evaluate whether two or more contracts should be combined and accounted for as one single performance obligation and whether a single contract should be accounted for as more than one performance obligation. ASC 606 defines a performance obligation as a contractual promise to transfer a distinct good or service to a customer. A contract’s transaction price is allocated to each distinct performance obligation and recognized as revenue when, or as, the performance obligation is satisfied. Our evaluation requires significant judgment and the decision to combine a group of contracts or separate a contract into multiple performance obligations could change the amount of revenue and profit recorded in a given period. The majority of our contracts have a single performance obligation, as the promise to transfer the individual goods or services is not separately identifiable from other promises in the contract and, therefore, is not distinct. However, occasionally we have contracts with multiple performance obligations. For contracts with multiple performance obligations, we allocate the contract’s transaction price to each performance obligation using the observable standalone selling price, if available, or alternatively our best estimate of the standalone selling price of each distinct performance obligation in the contract. The primary method used to estimate standalone selling price is the expected cost plus a margin approach for each performance obligation.
As of December 31, 2023, we had $5.4 billion of remaining performance obligations. We expect to recognize approximately 53.9% of our remaining performance obligations as revenue during the next 12 months and substantially all of the remaining balance in the 12 to 18 months thereafter.
Accounting for long-term contracts involves the use of various techniques to estimate total transaction price and costs. For long-term contracts, transaction price, estimated cost at completion and total costs incurred to date are used to calculate revenue earned. 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 revenue and income, can be impacted by
F-22
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, politics and pandemics 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.
The followingnature of our contracts gives rise to several types of variable consideration, including contract modifications (change orders and claims), liquidated damages, volume discounts, performance bonuses, incentive fees, and other terms that can either increase or decrease the transaction price. We estimate variable consideration as the most likely amount to which we expect to be entitled. We include estimated amounts in the transaction price to the extent we believe we have an enforceable right, and it is probable that a significant reversal of cumulative revenue recognized will not occur. Our estimates of variable consideration and the determination of whether to include estimated amounts in the transaction price are based largely on an assessment of our anticipated performance and all information (historical, current and forecasted) that is reasonably available to us at this time.
Contract modifications result from changes in contract specifications or requirements. We consider unapproved change orders to be contract modifications for which customers have not agreed to both scope and price. We consider claims to be contract modifications for which we seek, 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. Claims can also be caused by non-customer-caused changes, such as rain or other weather delays. Costs associated with contract modifications are included in the estimated costs to complete the contracts and are treated as project costs when incurred. In most instances, contract modifications are for goods or services that are not distinct, and, therefore, are accounted for as part of the existing contract. The effect of a contract modification on the transaction price, and our measure of progress for the performance obligation to which it relates, is recognized as an adjustment to revenue on a cumulative catch-up basis. In some cases, settlement of contract modifications may not occur until after completion of work under the contract.
As a significant change in one or more of these estimates could affect the profitability of our contracts, we review and update our contract-related estimates regularly. We recognize adjustments in estimated profit on contracts under the cumulative catch-up method. Under this method, the cumulative impact of the profit adjustment is recognized in the period the adjustment is identified. Revenue and profit in future periods of contract performance are recognized using the adjusted estimate. In the years ended December 31, 2023 and 2022, revenue recognized from performance obligations satisfied in previous periods was $1.2 million and $3.3 million, respectively. If at any time the estimate of contract profitability indicates an anticipated loss on a contract, the projected loss is recognized in full, including the reversal of any previously recognized profit, in the period it is identified and recognized as an “accrued loss provision” which is included in “Contract liabilities” on the Consolidated Balance Sheets. For contract revenue recognized over time, the accrued loss provision is adjusted so that the gross profit for the contract remains zero in future periods.
At December 31, 2023, we had approximately $203.5 million of unapproved contract modifications included in the aggregate transaction prices. These contract modifications were in the process of being negotiated in the normal course of business. Approximately $175.7 million of the unapproved contract modifications had been recognized as revenue on a cumulative catch-up basis through December 31, 2023.
In all forms of contracts, we estimate the collectability of contract amounts at the same time that we estimate project costs. If we anticipate that there may be issues associated with the collectability of the full amount calculated as the transaction price, we may reduce the amount recognized as revenue to reflect the uncertainty associated with realization of the eventual cash collection. For example, when a cost reimbursable project exceeds the client’s expected budget amount, the client frequently requests an adjustment to the final amount. Similarly, some utility clients reserve the right to audit costs for significant periods after performance of the work.
The timing of when we bill our customers is generally dependent upon agreed-upon contractual terms, milestone billings based on the completion of certain phases of the work, or when services are provided. Sometimes, billing occurs subsequent to revenue recognition, resulting in unbilled revenue, which is a summarycontract asset. Also, we sometimes receive advances or deposits from our customers before revenue is recognized, resulting in deferred revenue, which is a contract liability.
F-23
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Contracts receivable, net of allowance for doubtful accounts of $480 at December 31, 2017 and $1,030 at December 31, 2016, respectively |
| $ | 286,113 |
| $ | 340,871 |
|
Retention receivable |
|
| 66,586 |
|
| 46,394 |
|
|
|
| 352,699 |
|
| 387,265 |
|
Other accounts receivable |
|
| 5,476 |
|
| 735 |
|
|
| $ | 358,175 |
| $ | 388,000 |
|
The caption “Contract assets” in the Consolidated Balance Sheets represents the following:
● | unbilled revenue, which arises when revenue has been recorded but the amount will not be billed until a later date; |
● | retainage amounts for 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; and |
● | contract materials for certain job specific materials not yet installed, which are valued using the specific identification method relating the cost incurred to a specific project. |
Note 6—Costs and Estimated Earnings on Uncompleted Contracts
Costs and estimated earnings on uncompleted contractsContract assets consist of the following at(in thousands):
| | | | | | | | | |
| | December 31, | | December 31, | | December 31, | |||
|
| 2023 |
| 2022 |
| 2021 | |||
Unbilled revenue | | $ | 604,166 | | $ | 420,511 | | $ | 283,767 |
Retention receivable | | | 202,358 | | | 174,149 | | | 124,990 |
Contract materials (not yet installed) | |
| 39,652 | |
| 21,564 | |
| 14,902 |
| | $ | 846,176 | | $ | 616,224 | | $ | 423,659 |
Contract assets increased by $230.0 million compared to December 31, 2022 primarily due to higher unbilled revenue.
The caption “Contract liabilities” in the Consolidated Balance Sheets represents the following:
● | deferred revenue on billings in excess of contract revenue recognized to date, and |
● | the accrued loss provision. |
Contract liabilities consist of the following (in thousands):
| | | | | | | | | |
| | December 31, | | December 31, | | December 31, | |||
|
| 2023 |
| 2022 |
| 2021 | |||
Deferred revenue | | $ | 363,159 | | $ | 269,853 | | $ | 234,352 |
Accrued loss provision | |
| 3,317 | |
| 6,094 | |
| 6,060 |
| | $ | 366,476 | | $ | 275,947 | | $ | 240,412 |
Contract liabilities increased by $90.5 million compared to December 31, 2022 due to increased deferred revenue.
Revenue recognized for the years ended December 31, 2023 and 2022, that was included in the contract liability balance at the beginning of each year was approximately $232.9 million and $220.9 million, respectively.
The following tables present our revenue disaggregated into various categories.
MSA and Non-MSA revenue was as follows (in thousands):
|
|
|
|
|
|
|
|
| 2017 |
| 2016 | ||
Costs incurred on uncompleted contracts |
| $ | 6,040,678 |
| $ | 5,391,124 |
Gross profit recognized |
|
| 519,173 |
|
| 456,871 |
|
|
| 6,559,851 |
|
| 5,847,995 |
Less: billings to date |
|
| (6,558,793) |
|
| (5,821,983) |
|
| $ | 1,058 |
| $ | 26,012 |
| | | | | | | | | |
| | For the year ended December 31, 2023 | |||||||
Segment |
| MSA |
| Non-MSA |
| Total | |||
Utilities | | $ | 1,809,349 | | $ | 570,881 | | $ | 2,380,230 |
Energy | | | 289,948 | | | 3,045,131 | | | 3,335,079 |
Total | | $ | 2,099,297 |
| $ | 3,616,012 |
| $ | 5,715,309 |
| | | | | | | | | |
| | For the year ended December 31, 2022 | |||||||
Segment | | MSA | | Non-MSA | | Total | |||
Utilities | | $ | 1,691,571 | | $ | 332,736 | | $ | 2,024,307 |
Energy | | | 331,416 | | | 2,064,876 | | | 2,396,292 |
Total | | $ | 2,022,987 |
| $ | 2,397,612 |
| $ | 4,420,599 |
F-24
| | | | | | | | | |
| | For the year ended December 31, 2021 | |||||||
Segment | | MSA |
| Non-MSA |
| Total | |||
Utilities | | $ | 1,364,995 |
| $ | 292,962 |
| $ | 1,657,957 |
Energy | | | 238,854 | | | 1,600,821 | | | 1,839,675 |
Total | | $ | 1,603,849 |
| $ | 1,893,783 |
| $ | 3,497,632 |
Revenue by contract type was as follows (in thousands):
| | | | | | | | | | | | |
| | For the year ended December 31, 2023 | ||||||||||
Segment |
| Fixed-price |
| Unit-price |
| Cost reimbursable (1) |
| Total | ||||
Utilities | | $ | 391,882 | | $ | 1,472,815 | | $ | 515,533 | | $ | 2,380,230 |
Energy | | | 2,230,905 | | | 583,876 | | | 520,298 | | | 3,335,079 |
Total | | $ | 2,622,787 |
| $ | 2,056,691 |
| $ | 1,035,831 |
| $ | 5,715,309 |
(1) | Includes time and material and cost reimbursable plus fee contracts. |
| | | | | | | | | | | | |
| | For the year ended December 31, 2022 | ||||||||||
Segment | | Fixed-price | | Unit-price | | Cost reimbursable (1) | | Total | ||||
Utilities | | $ | 192,991 | | | 1,327,379 | | $ | 503,937 | | $ | 2,024,307 |
Energy | | | 1,695,802 | | | 407,067 | | | 293,423 | | | 2,396,292 |
Total | | $ | 1,888,793 |
| $ | 1,734,446 |
| $ | 797,360 |
| $ | 4,420,599 |
(1) | Includes time and material and cost reimbursable plus fee contracts. |
| | | | | | | | | | | | |
| | For the year ended December 31, 2021 | ||||||||||
Segment | | Fixed-price |
| Unit-price |
| Cost reimbursable (1) |
| Total | ||||
Utilities | | $ | 125,640 |
| $ | 1,146,316 |
| $ | 386,001 |
| $ | 1,657,957 |
Energy | | | 1,127,988 | | | 310,974 | | | 400,713 | | | 1,839,675 |
Total | | $ | 1,253,628 |
| $ | 1,457,290 |
| $ | 786,714 |
| $ | 3,497,632 |
(1) | Includes time and material and cost reimbursable plus fee contracts. |
Each of these contract types has a different risk profile. Typically, we assume more risk with fixed-price contracts. Unforeseen events and circumstances can alter the estimate of the costs and potential profit associated with a particular fixed-price contract. However, these types of contracts offer additional profits when we complete the work for less cost than originally estimated. Unit-price and cost reimbursable contracts generally subject us to lower risk. Accordingly, the associated fees are usually lower than fees earned on fixed-price contracts. Under these contracts, our profit may vary if actual costs vary significantly from the negotiated rates.
F-25
This amount is included under the following captions in the accompanying Consolidated Balance Sheets at December 31 (in thousands):
|
|
|
|
|
|
|
|
| 2017 |
| 2016 | ||
Costs and estimated earnings in excess of billings |
| $ | 160,092 |
| $ | 138,618 |
Billings in excess of cost and estimated earnings |
|
| (159,034) |
|
| (112,606) |
|
| $ | 1,058 |
| $ | 26,012 |
Note 7—6—Property and Equipment
The following is a summary of property and equipment at December 31 (in thousands):
|
|
|
|
|
|
|
|
|
| ||||||||
|
| 2017 |
| 2016 |
| Useful Life |
| ||||||||||
| | | | | | | | | |||||||||
|
| December 31, |
| | |||||||||||||
| | 2023 |
| 2022 | | Useful Life | |||||||||||
Land and buildings |
| $ | 82,755 |
| $ | 56,878 |
| Buildings 30 Years |
| | $ | 168,788 | | $ | 154,596 |
| Buildings 30 Years |
Leasehold improvements |
|
| 12,601 |
|
| 12,147 |
| Lease Life |
| |
| 22,864 | |
| 21,349 |
| Various* |
Office equipment |
|
| 8,888 |
|
| 8,083 |
| 3 - 5 Years |
| |
| 26,470 | |
| 23,659 |
| 3 - 5 Years |
Construction equipment |
|
| 392,454 |
|
| 368,241 |
| 3 - 7 Years |
| |
| 664,838 | |
| 717,419 |
| 3 - 10 Years |
Transportation equipment |
|
| 101,855 |
|
| 98,113 |
| 3 - 18 Years |
| ||||||||
Solar equipment | | | 23,552 | | | 23,552 | | 25 years | |||||||||
Construction in progress |
|
| 16,336 |
|
| 2,321 |
|
|
| | | 38,669 | | | 26,145 | | |
|
|
| 614,889 |
|
| 545,783 |
|
|
| ||||||||
| |
| 945,181 | |
| 966,720 | | | |||||||||
Less: accumulated depreciation and amortization |
|
| (303,112) |
|
| (268,437) |
|
|
| |
| (469,252) | |
| (472,861) | | |
Property and equipment, net |
| $ | 311,777 |
| $ | 277,346 |
|
|
| | $ | 475,929 | | $ | 493,859 | | |
* Leasehold improvements are depreciated over the shorter of the life of the leasehold improvement or the lease term.
Depreciation expense was $85.2 million, $78.2 million and $87.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Note 8—7—Goodwill and Intangible Assets
The change in goodwill by segment for 20172023 and 20162022 was as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Power |
| Pipeline |
| Utilities |
| Civil |
| Total |
| |||||
Balance at January 1, 2016 |
| $ | 20,731 |
| $ | 42,252 |
| $ | 18,312 |
| $ | 42,866 |
| $ | 124,161 |
|
Goodwill acquired during the year |
|
| 3,781 |
|
| — |
|
| 2,000 |
|
| — |
|
| 5,781 |
|
Goodwill impairment |
|
| — |
|
| — |
|
| — |
|
| (2,716) |
|
| (2,716) |
|
Balance at December 31, 2016 |
| $ | 24,512 |
| $ | 42,252 |
| $ | 20,312 |
| $ | 40,150 |
| $ | 127,226 |
|
Goodwill acquired during the year |
|
| — |
|
| 9,269 |
|
| 17,000 |
|
| — |
|
| 26,269 |
|
Purchase price allocation adjustments |
|
| (121) |
|
| — |
|
| — |
|
| — |
|
| (121) |
|
Balance at December 31, 2017 |
| $ | 24,391 |
| $ | 51,521 |
| $ | 37,312 |
| $ | 40,150 |
| $ | 153,374 |
|
| | | | | | | | | |
| | Utilities | | Energy | | Total | |||
Balance at December 31, 2021 | | | 462,905 | | | 118,759 | | | 581,664 |
Goodwill acquired during the period | | | 253,379 | | | 36,765 | | | 290,144 |
Balance at December 31, 2022 | | | 716,284 | | | 155,524 | | | 871,808 |
Goodwill adjustments during the period | |
| (12,822) | | | (1,336) | | | (14,158) |
Balance at December 31, 2023 | | $ | 703,462 | | $ | 154,188 | | $ | 857,650 |
During the third quarter of 2016, we made a decision to divest our Texas heavy civil business unit, a division of Primoris Heavy Civil within the Civil segment. We engaged a financial advisor to assist in the marketing and sale of the business unit, and planned to continue operating the business unit until completion of a sale. In April 2017, the Board of Directors determined that based on the information available, we would attain the best long-term value by withdrawing from the sales process and continuing to operate the business unit. We will aggressively pursue claims for five Texas Department of Transportation projects that resulted in significant losses recorded in 2016. However, there can be no assurance as to the final amounts collected. In accordance with ASC 350, the planned divestiture triggered an analysis of the goodwill at Primoris Heavy Civil, resulting in a pretax, non-cash goodwill impairment charge of approximately $2.7 million in the third quarter of 2016.
In the fourth quarter of 2015, an impairment expense of $0.4 million was recorded relating to the goodwill attributed to Cardinal Contractors, Inc., which is part of the Power Segment.
There waswere no impairmentimpairments of goodwill for the yearyears ended December 31, 2017.2023, 2022 and 2021.
F-25
The table below summarizes the intangible asset categories, amounts and the average amortization periods, which are generally amortized on a straight-line basis at December 31 (in thousands):
| | | | | | | | | | | | | | | | | |
| December 31, 2023 | | December 31, 2022 | ||||||||||||||
| Gross Carrying |
| Accumulated |
| Intangible assets, net |
| Gross Carrying |
| Accumulated |
| Intangible assets, net | ||||||
Tradenames | $ | 32,820 | | | (29,399) | | | 3,421 | | $ | 32,820 | | $ | (25,611) | | $ | 7,209 |
Customer relationships |
| 301,927 | | | (77,787) | | | 224,140 | |
| 301,927 | |
| (59,755) | |
| 242,172 |
Total | $ | 334,747 | | $ | (107,186) | | $ | 227,561 | | $ | 334,747 | | $ | (85,366) | | $ | 249,381 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| December 31, 2017 |
| December 31, 2016 |
| ||||||||
|
| Weighted Average Life |
| Gross Carrying Amount |
| Accumulated Amortization |
| Gross Carrying Amount |
| Accumulated Amortization |
| ||||
Tradename |
| 9 years |
| $ | 32,175 |
| $ | (22,238) |
| $ | 30,485 |
| $ | (18,733) |
|
Customer relationships |
| 10 years |
|
| 49,900 |
|
| (16,338) |
|
| 33,579 |
|
| (13,439) |
|
Non-compete agreements |
| 5 years |
|
| 1,900 |
|
| (820) |
|
| 2,250 |
|
| (1,301) |
|
Other |
| 3 years |
|
| 275 |
|
| (54) |
|
| — |
|
| — |
|
|
|
|
| $ | 84,250 |
| $ | (39,450) |
| $ | 66,314 |
| $ | (33,473) |
|
Amortization expense of intangible assets was $8.7$21.8 million, $6.6$20.9 million and $6.8$18.3 million for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. In the second quarter
F-26
Estimated future amortization expense for intangible assets as of December 31, 20172023 is as follows (in thousands):
| | | |
| | Estimated | |
| | Intangible | |
| | Amortization | |
For the Years Ending December 31, |
| Expense | |
2024 | | $ | 19,701 |
2025 | | | 17,661 |
2026 | |
| 16,141 |
2027 | |
| 15,604 |
2028 | |
| 14,381 |
Thereafter | |
| 144,073 |
| | $ | 227,561 |
|
|
|
|
|
|
| Estimated |
| |
|
| Intangible |
| |
For the Years Ending |
| Amortization |
| |
December 31, |
| Expense |
| |
2018 |
| $ | 9,541 |
|
2019 |
|
| 9,193 |
|
2020 |
|
| 6,442 |
|
2021 |
|
| 5,203 |
|
2022 |
|
| 4,048 |
|
Thereafter |
|
| 10,373 |
|
|
| $ | 44,800 |
|
Note 9—8—Accounts Payable and Accrued Liabilities
At December 31, 20172023 and 2016,2022, accounts payable included retention amounts of approximately $13.5$24.7 million and $10.6$21.5 million, respectively. These amounts dueowed 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 December 31 (in thousands):
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2023 |
| 2022 | ||
Payroll and related employee benefits | | $ | 108,618 | | $ | 114,053 |
Current operating lease liability | | | 96,411 | | | 72,565 |
Casualty insurance reserves | |
| 18,015 | |
| 19,935 |
Corporate income taxes and other taxes | |
| 14,203 | |
| 16,213 |
Other | |
| 26,245 | |
| 23,071 |
| | $ | 263,492 | | $ | 245,837 |
|
|
|
|
|
|
|
|
| 2017 |
| 2016 | ||
Payroll and related employee benefits |
| $ | 45,708 |
| $ | 43,768 |
Insurance, including self-insurance reserves |
|
| 47,256 |
|
| 42,546 |
Reserve for estimated losses on uncompleted contracts |
|
| 10,067 |
|
| 12,801 |
Corporate income taxes and other taxes |
|
| 2,843 |
|
| 3,368 |
Other |
|
| 5,513 |
|
| 5,523 |
|
| $ | 111,387 |
| $ | 108,006 |
Note 10—Capital Leases
We lease vehicles and certain equipment under capital leases. The economic substance of the leases is as a financing transaction for acquisition of the vehicles and equipment, and accordingly, the leases are recorded as assets and liabilities. Included in depreciation expense is depreciation of vehicles and equipment held under capital leases, amortized over their useful lives on a straight-line basis.
F-26
At December 31, 2017, total assets under capital leases were $3.1 million, accumulated depreciation was $1.9 million, and the net book value was $1.2 million. For 2016, total assets under capital leases were $2.5 million, accumulated depreciation was $2.3 million, and the net book value of assets was $0.2 million.
The following is a schedule by year of the future minimum lease payments required under capital leases together with their present value as of December 31 (in thousands):
|
|
|
|
2018 |
| $ | 134 |
2019 |
|
| 98 |
2020 |
|
| 90 |
2021 |
|
| 11 |
2022 |
|
| — |
Total minimum lease payments |
| $ | 333 |
Amounts representing interest |
|
| (5) |
Net present value of minimum lease payments |
|
| 328 |
Less: current portion of capital lease obligations |
|
| (132) |
Long-term capital lease obligations |
| $ | 196 |
Note 11—9—Credit Arrangements
Long-term debt and credit facilities consist of the following at December 31, 2023 (in thousands):
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2023 |
| 2022 | ||
Term loan | | $ | 874,128 | | $ | 933,188 |
Revolving credit facility | | | — | | | 100,000 |
Commercial equipment notes | | | 71,004 | | | 98,064 |
Mortgage notes | |
| 19,615 | |
| 20,483 |
Total debt | | | 964,747 | | | 1,151,735 |
Unamortized debt issuance costs | | | (6,475) | | | (8,283) |
Total debt, net | | $ | 958,272 | | $ | 1,143,452 |
Less: current portion | |
| (72,903) | |
| (78,137) |
Long-term debt, net of current portion | | $ | 885,369 | | $ | 1,065,315 |
Commercial Notes PayableThe weighted average interest rate on total debt outstanding at December 31, 2023 and Mortgage Notes Payable2022 was 6.8% and 6.2%, respectively.
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Commercial equipment notes |
| $ | 165,532 |
| $ | 161,148 |
|
Mortgage notes |
|
| 11,242 |
|
| 7,564 |
|
Revolving credit facility |
|
| — |
|
| — |
|
Senior secured notes |
|
| 82,143 |
|
| 92,858 |
|
Total debt |
|
| 258,917 |
|
| 261,570 |
|
Unamortized debt issuance costs |
|
| (102) |
|
| (231) |
|
Total debt, net |
| $ | 258,815 |
| $ | 261,339 |
|
Less: current portion |
|
| (65,464) |
|
| (58,189) |
|
Long-term debt, net of current portion |
| $ | 193,351 |
| $ | 203,150 |
|
|
|
|
|
|
|
|
|
F-27
Scheduled maturities of long-term debt are as follows (in thousands):
|
|
|
|
|
|
| Year Ending |
| |
|
| December 31, |
| |
2018 |
| $ | 65,464 |
|
2019 |
|
| 62,014 |
|
2020 |
|
| 50,755 |
|
2021 |
|
| 33,939 |
|
2022 |
|
| 24,144 |
|
Thereafter |
|
| 22,601 |
|
|
| $ | 258,917 |
|
| | | |
|
| Year Ending | |
| | December 31, | |
2024 | | $ | 72,903 |
2025 | |
| 75,545 |
2026 | |
| 65,847 |
2027 | |
| 734,485 |
2028 | |
| 8,847 |
Thereafter | |
| 7,120 |
| | $ | 964,747 |
Commercial Notes Payable and Mortgage Notes Payable
From time to time, we enter into commercial equipment notes payable with various equipment finance companies and banks. At December 31, 2017,2023, interest rates ranged from 1.78%1.60% to 3.51%6.28% per annum and maturity dates range from June 15, 2018 to December 15, 2022.April 2024 through February 2027. The notes are secured by certain construction equipment.
F-27
We also enteredFrom time to time, we enter into two secured mortgage notes payable to a bank inwith various banks. At December 2015 totaling $8.0 million, with31, 2023, interest rates of 4.3%ranged from 4.21% to 4.50% per annum and maturity dates ofrange from January 1, 2031. The mortgage2025 through October 2030. These notes are secured by two buildings.certain real estate.
During 2017, we acquired three properties from a related party and assumed mortgage notes secured by the properties totaling $4.2 million, with interest rates of 5.0% per annum and maturity dates of October 1, 2038.Credit Agreement
Revolving Credit Facility
On September 29, 2017, we entered into an amended and restated credit agreement, as amended July 9, 2018 and August 3, 2018 (the “Credit Agreement”) with CIBC Bank USA, as administrative agent (the “Administrative Agent”) and co-lead arranger, The Bank ofand the West, as co-lead arranger, and Branch Banking and Trust Company, IBERIABANK, Bank of America, and Simmons Bank (thefinancial parties thereto (collectively, the “Lenders”), which increased our borrowing capacity from $125.0 million to $200.0 million.. The Credit Agreement consistsconsisted of a $220.0 million term loan (the “Term Loan”) and a $200.0 million revolving credit facility (“Revolving Credit Facility”), whereby the Lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit for up to the $200.0 million committed amount. The terminationCredit Agreement contained an accordion feature that would allow us to increase the Term Loan or the borrowing capacity under the Revolving Credit Facility by up to $75.0 million.
On January 15, 2021, we entered into the Second Amended and Restated Credit Agreement with the Administrative Agent and the Lenders, amending and restating our Credit Agreement to increase the Term Loan by $400.0 million to an aggregate principal amount of $592.5 million and to extend the maturity date of the Credit Agreement from July 9, 2023 to January 15, 2026. The proceeds from the additional borrowings under the Second Amended and Restated Credit Agreement were used to finance the acquisition of FIH.
On August 1, 2022, we entered into the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Administrative Agent and the Lenders that increased the Term Loan by $439.5 million to an aggregate principal amount of $945.0 million (as amended, the “New Term Loan”). The Amended Credit Agreement is September 29, 2022. scheduled to mature on August 1, 2027.
In addition to the New Term Loan, the Amended Credit Agreement increased the existing $200.0 million Revolving Credit Facility, whereby the Lenders agreed to make loans on a revolving basis from time to time and to issue letters of credit, to $325.0 million. At December 31, 2023, commercial letters of credit outstanding were $51.6 million. There were no outstanding borrowings under the Revolving Credit Facility, and available borrowing capacity was $273.4 million at December 31, 2023.
Under the Amended Credit Agreement, we must make quarterly principal payments on the New Term Loan in an amount equal to approximately $11.8 million, with the balance due on August 1, 2027. The proceeds from the New Term Loan and additional borrowings under the Revolving Credit Facility were used to finance the acquisition of PLH.
F-28
We capitalized $0.6$6.5 million of debt issuance costs during 2022 associated with the third quarter of 2017Amended Credit Agreement that is being amortized as interest expense over the life of the Amended Credit Agreement. In addition, we recorded a loss on extinguishment of debt during 2022 of $0.8 million related to the Amended Credit Agreement.
The principal amount of anyall loans under the Amended Credit Agreement will bear interest at either: (i) LIBORthe Secured Overnight Financing Rate (“SOFR”) plus an applicable margin as specified in the Amended Credit Agreement (based on our net senior debt to EBITDAearnings before interest, taxes, depreciation and amortization (“EBITDA”) ratio as defined in the Amended Credit Agreement), or (ii) the Base Rate (which is the greater of (a) the Federal Funds Rate plus 0.50% or (b) the prime rate as announced by the Administrative Agent). Non-use plus an applicable margin as specified in the Amended Credit Agreement. Quarterly non-use fees, letter of credit fees and administrative agent fees are payable at rates specified in the Amended Credit Agreement.
The principal amount of any loan drawn under the Amended Credit Agreement may be prepaid in whole or in part at any time, with a minimum prepayment of $5.0 million.
The Credit Agreement includes customary restrictive covenants for facilities of this type, as discussed below.
Commercial letters of credit outstanding were $19.5 million at December 31, 2017. Other than commercial letters of credit, there were no borrowings under the Credit Agreement or the previous credit agreement during the twelve months ended December 31, 2017, and available borrowing capacity at December 31, 2017 was $180.5 million.
Senior Secured Notes and Shelf Agreement
On December 28, 2012, we entered into a $50.0 million Senior Secured Notes purchase (“Senior Notes”) and a $25.0 million private shelf agreement (the “Notes Agreement”) by and among us, The Prudential Investment Management, Inc. and certain Prudential affiliates (the “Noteholders”). On June 3, 2015, the Notes Agreement was amended to provide for the issuance of additional notes of up to $75.0 million over the next three year period ending June 3, 2018 (“Additional Senior Notes”).
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 $5.0 million, at any time, subject to make-whole provisions.
On July 25, 2013, we drew $25.0 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.
On November 9, 2015, we drew $25.0 million available under the Additional Senior Notes Agreement. The notes are due November 9, 2025 and bear interest at an annual rate of 4.6% paid quarterly in arrears. Seven annual principal payments of $3.6 million are required from November 9, 2019 with a final payment due on November 9, 2025.
F-28
Loans made under both the Amended Credit Agreement and the Notes Agreement are secured by our assets, including, among others, our cash, inventory, equipment (excluding equipment subject to permitted liens), and accounts receivable. All of our domesticCertain subsidiaries have issued joint and several guaranties in favor of the Lenders and Noteholders for all amounts under the Amended Credit Agreement.
The Amended Credit Agreement and Notes Agreement.
Both the Credit Agreement and the Notes Agreement containcontains various restrictive and financial covenants including, among others, a net senior debt/EBITDA ratio and debt service coverage requirements.minimum EBITDA to cash interest ratio. In addition, the agreements includeAmended Credit Agreement includes restrictions on investments, change of control provisions and provisions in the event we dispose of more than 20% of our total assets.
We were in compliance with the covenants for the Amended Credit Agreement and Notes Agreement at December 31, 2017.2023.
On September 13, 2018, we entered into an interest rate swap agreement to manage our exposure to the fluctuations in variable interest rates. The swap effectively exchanged the interest rate on 75% of the debt outstanding under our Term Loan from variable LIBOR to a fixed rate of 2.89% per annum, in each case plus an applicable margin. The interest rate swap matured on July 10, 2023. See Note 10 – “Derivative Instruments”.
On January 31, 2023, we entered into a second interest rate swap agreement to manage our exposure to the fluctuations in variable interest rates. The swap effectively exchanged the interest rate on $300.0 million of the debt outstanding under our New Term Loan from variable to a fixed rate of 4.095% per annum, plus an applicable margin which was 2.25% at December 31, 2023. The interest rate swap matures on January 31, 2025. See Note 10 – “Derivative Instruments”.
Canadian Credit FacilityFacilities
We have a demand credit facility for $8.0facilities totaling $14.0 million in Canadian dollars with a Canadian bank for the purposes of issuing commercial letters of credit in Canada. The credit facility has an annual renewal and providesproviding funding for the issuance ofworking capital. At December 31, 2023, commercial letters of credit for a term of up to five years. The facility provides for an annual fee of 1.0% for any issued and outstanding commercial letters of credit. Letters of credit can be denominated in either Canadian or U.S. dollars. At December 31, 2017, letters of credit outstanding totaled $0.5were $0.9 million in Canadian dollars. Atdollars and there were no outstanding borrowings. Available capacity at December 31, 2017, the available borrowing capacity2023, was $7.5$13.1 million in Canadian dollars. The credit facility contains a working capital restrictive covenant for our Canadian subsidiary, OnQuest Canada, ULC. At December 31, 2017, OnQuest Canada, ULC was in compliance with the covenant.
Note 1210 — Noncontrolling InterestsDerivative Instruments
We are currently participatingexposed to certain market risks related to changes in two joint ventures, eachinterest rates. To monitor and manage these market risks, we have established risk management policies and procedures. We do not enter into derivative instruments for any purpose other than hedging interest rate risk. None of which operates in the Power segment. Both joint ventures have been determinedour derivative instruments are used for trading purposes.
F-29
Interest Rate Risk. We are exposed to be a VIE and we were determined to be the primary beneficiaryvariable interest rate risk as a result of variable-rate borrowings under our significant influence over the joint venture operations.
Each joint venture isAmended Credit Agreement. To manage fluctuations in cash flows resulting from changes in interest rates on a partnership, and consequently, no tax effect was recognized for the income.portion of our variable-rate debt, we entered into an interest rate swap agreement on September 13, 2018, with an initial notional amount of $165.0 million. The net assetsnotional amount of the joint ventures are restrictedswap was adjusted down each quarter by a portion of the required principal payments made on the Term Loan. On January 31, 2023, we entered into a second interest rate swap agreement with a notional amount of $300.0 million. Neither swap was designated as a hedge for useaccounting purposes. The swaps effectively change the variable-rate cash flow exposure on the debt obligations to fixed rates. The fair value of outstanding interest rate swap derivatives can vary significantly from period to period depending on the total notional amount of swap derivatives outstanding and fluctuations in market interest rates compared to the interest rates fixed by the specific project and are not available for our general operations.
The Carlsbad joint venture operating activities began in 2015 and are included in our Consolidated Statementsswap. As of Income as follows for the years ended December 31, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 | |||
Revenues |
| $ | 110,669 |
| $ | 7,254 |
| $ | 2,887 |
Net income attributable to noncontrolling interests |
|
| 1,780 |
|
| 325 |
|
| 172 |
The Carlsbad joint venture made no distributions to the partners2023, and we made no capital contributions to the Carlsbad joint venture during the years ending December 31, 20172022, our outstanding interest rate swap agreements contained a notional amount of $300.0 million and 2016. The project$121.7 million, respectively, with $115.5 million that matured on July 10, 2023, and $300.0 million maturing on January 31, 2025.
Credit Risk. By using derivative instruments to economically hedge exposures to changes in interest rates, we are exposed to counterparty credit risk. Credit risk is expectedthe failure of a counterparty to be completed in 2018.
F-29
The carryinga derivative contract. When the fair value of a derivative contract is positive, the assets and liabilities associated withcounterparty owes us, which creates credit risk for us. When the operations of the Carlsbad joint venture are included in our Consolidated Balance Sheets at December 31 as follows (in thousands):
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Cash |
| $ | 44,308 |
| $ | 4,630 |
|
Accounts receivable |
| $ | 15,343 |
| $ | — |
|
Costs and estimated earnings in excess of billings |
| $ | — |
| $ | 124 |
|
Billings in excess of costs and estimated earnings |
| $ | 42,743 |
| $ | 3,426 |
|
Accounts payable |
| $ | 12,352 |
| $ | 286 |
|
Due to Primoris |
| $ | — |
| $ | 46 |
|
The Wilmington joint venture operating activities began in 2015 and are included in our Consolidated Statements of Income as follows for the years ended December 31 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| |||
Revenues |
| $ | 31,638 |
| $ | 19,781 |
| $ | 1,364 |
|
Net income attributable to noncontrolling interests |
|
| 2,716 |
|
| 677 |
|
| 48 |
|
The Wilmington joint venture made no distributions to the partners and we made no capital contributions to the Wilmington joint venture during the years ending December 31, 2017 and 2016. The project is expected to be completed in 2018.
The carryingfair value of a derivative contract is negative, we owe the assetscounterparty and, liabilities associatedtherefore, we do not possess credit risk. We minimize the credit risk in derivative instruments by entering into transactions with the operationshigh quality counterparties. We have entered into netting agreements, including International Swap Dealers Association (“ISDA”) Agreements, which allow for netting of the Wilmington joint venture are included in our Consolidated Balance Sheets at December 31 as follows (in thousands):
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| ||
Cash |
| $ | 15,948 |
| $ | 2,415 |
|
Accounts receivable |
| $ | 598 |
| $ | 4,242 |
|
Billings in excess of costs and estimated earnings |
| $ | 1,480 |
| $ | 2,572 |
|
Accounts payable |
| $ | 759 |
| $ | 602 |
|
Due to Primoris |
| $ | 7,428 |
| $ | 2,035 |
|
We participatedcontract receivables and payables in the Blythe joint venture created for the installationevent of a parabolic trough solar field and steam generation system in California, which was also determined to be a VIE and we were determined to be the primary beneficiary as a result of our significant influence over the joint venture operations. The Blythe joint venture project was completed; the project warranty expired in May 2015 and dissolution of the joint venture was completed in the third quarter 2015. Revenues and net income attributable to the joint venture were immaterial in 2015.default by either party.
The following table summarizes the total balance sheetfair value of our derivative contracts included in the Consolidated Balance Sheets (in thousands):
| | | | | | | | |
|
|
|
| December 31, |
| December 31, | ||
| | Balance Sheet Location | | 2023 | | 2022 | ||
Interest rate swap |
| Other current assets | | $ | — | | $ | 1,235 |
Interest rate swap | | Other long-term assets | | | 1,633 | | | — |
The following table summarizes the amounts forrecognized with respect to our derivative instruments within the two joint ventures,Consolidated Statements of Income (in thousands):
| | | | | | | | | | | |
| | | | | | | | | | | |
| | Location of Gain | | Year Ended December 31, | |||||||
|
| Recognized on Derivatives | | 2023 |
| 2022 |
| 2021 | |||
Interest rate swap |
| Interest expense, net | | $ | 5,335 | | $ | 4,078 | | $ | 838 |
Note 11—Leases
We lease administrative and operational facilities, which are included in our Consolidated Balance Sheets( in thousands):
|
|
|
|
|
|
|
|
|
| Joint Venture |
| Consolidated |
| ||
At December 31, 2017 |
| Amounts |
| Amounts |
| ||
Cash |
| $ | 60,256 |
| $ | 170,385 |
|
Accounts receivable |
| $ | 15,941 |
| $ | 358,175 |
|
Accounts payable |
| $ | 13,111 |
| $ | 140,943 |
|
Billings in excess of costs and estimated earnings |
| $ | 44,223 |
| $ | 159,034 |
|
|
|
|
|
|
|
|
|
At December 31, 2016 |
|
|
|
|
|
|
|
Cash |
| $ | 7,045 |
| $ | 135,823 |
|
Accounts receivable |
| $ | 4,242 |
| $ | 388,000 |
|
Costs and estimated earnings in excess of billings |
| $ | 124 |
| $ | 138,618 |
|
Accounts payable |
| $ | 888 |
| $ | 168,110 |
|
Billings in excess of costs and estimated earnings |
| $ | 5,998 |
| $ | 112,606 |
|
F-30
Note 13—Commitmentsgenerally longer-term, project specific facilities or yards, and Contingencies
Leases—We lease certain property andconstruction equipment under non-cancelable operating leases. We determine if an arrangement is a lease at inception. We have lease agreements with lease and non-lease components, which are generally accounted for separately. Operating leases are included in “Operating lease assets”, “Accrued liabilities”, and “Noncurrent operating lease liabilities, net of current portion” on our Consolidated Balance Sheets. We also made an accounting policy election in which leases with an initial term of 12 months or less are not recorded on the balance sheet and lease payments are recognized in the Consolidated Statements of Income on a straight-line basis over the lease term.
Operating lease assets and operating lease liabilities are recognized at commencement date based on the present value of the future minimum lease payments over the lease term. In determining our lease term, we include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. For our leases that do not provide an implicit rate, we use our incremental borrowing rate based on the information available at commencement date to determine the present value of future payments. Lease expense from minimum lease payments is recognized on a straight-line basis over the lease term.
Our leases have remaining lease terms that expire at various dates through 2024.2034, some of which may include options to extend the leases for up to 5 years. The leases require us to pay all taxes, insurance, maintenance, and utilities andexercise of lease extensions is at our sole discretion. Periodically, we
F-30
sublease excess facility space, but any sublease income is generally not significant. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The components of operating lease expense are classified as follows (in thousands):
| | | | | | | | | |
| | Year Ended December 31, | |||||||
| | 2023 |
| 2022 |
| 2021 | |||
Operating lease expense (1) | | $ | 112,170 | | $ | 76,761 | | $ | 80,974 |
(1) | Includes short-term leases, which are immaterial. |
Our operating leases in accordance with ASC 840 “Leases”.lease liabilities are reported on the Consolidated Balance Sheet as follows (in thousands):
| | | | | | |
| | December 31, | | December 31, | ||
|
| 2023 | | | 2022 | |
Accrued liabilities | | $ | 96,411 | | $ | 72,565 |
Noncurrent operating lease liabilities, net of current portion | |
| 263,454 | |
| 130,787 |
| | $ | 359,865 | | $ | 203,352 |
The future minimum lease payments required under non-cancelable operating leases are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ending |
| Real |
|
|
|
| Total |
| ||
December 31, |
| Property |
| Equipment |
| Commitments |
| |||
2018 |
| $ | 5,027 |
| $ | 13,581 |
| $ | 18,608 |
|
2019 |
|
| 3,900 |
|
| 9,314 |
|
| 13,214 |
|
2020 |
|
| 2,464 |
|
| 5,563 |
|
| 8,027 |
|
2021 |
|
| 1,428 |
|
| 2,667 |
|
| 4,095 |
|
2022 |
|
| 331 |
|
| 11 |
|
| 342 |
|
Thereafter |
|
| — |
|
| — |
|
| — |
|
|
| $ | 13,150 |
| $ | 31,136 |
| $ | 44,286 |
|
.
Total
| | | |
| | Future Minimum | |
For the Years Ending December 31, | | Lease Payments | |
2024 |
| $ | 112,768 |
2025 | | | 91,001 |
2026 | | | 80,453 |
2027 | | | 60,703 |
2028 | | | 37,136 |
Thereafter | | | 24,501 |
Total lease payments | | $ | 406,562 |
Less imputed interest | |
| (46,697) |
Total | | $ | 359,865 |
Other information related to operating leases is as follows (in thousands, except lease expense duringterm and discount rate):
| | | | | | |
| | Year ended December 31, | ||||
|
| 2023 |
| 2022 | ||
Cash paid for amounts included in the measurement of lease liabilities | | | | | | |
Operating cash flows from operating leases | | $ | 109,430 | | $ | 76,313 |
Weighted-average remaining lease term on operating leases (years) | | | 4.44 | | | 4.07 |
Weighted-average discount rate on operating leases | | | 5.64% | | | 3.71% |
.
Sale and Leaseback Transaction
On June 22, 2022, we completed a sale and leaseback transaction of land and buildings located in Carson, California for an aggregate sales price, net of closing costs, of $49.9 million. Under the transaction, the land, buildings and improvements were sold and leased back for an initial term of three years. The aggregate initial annual rent payment for the property is approximately $1.2 million and includes annual rent increases of 3.0% over the initial lease term. The property qualified for sale and leaseback treatment and is classified as an operating lease. Therefore, we recorded a gain on the transaction of $40.1 million. The gain is included in Gain on sale and leaseback transaction on our Consolidated Statements of Income for the year ended December 31, 2017, 2016 and 2015 was $25.5 million, $22.5 and $21.8 million, respectively.2022.
Withdrawal liability for multiemployer pension plan— In November 2011, members of the Pipe Line Contractors Association “PLCA” including ARB, Rockford and Q3C (prior to our acquisition in 2012), withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan (“Plan”). These withdrawals were made in order to mitigate additional liability in connection with the significantly underfunded Plan. We recorded a withdrawal liability of $7.5 million, which was increased to $7.6 million after the acquisition of Q3C. During the first quarter of 2016, we received a final payment schedule. As a result of payments made and based on this schedule, the liability recorded at December 31, 2017 and 2016 was $4.7 million and $5.7 million, respectively. We expect to pay the remaining liability balance during 2018, and have no plans to withdraw from any other labor agreements.
NTTA settlement—On February 7, 2012, we were sued in an action entitled North Texas Tollway Authority (“NTTA”), Plaintiff v. James Construction Group, LLC, and KBR, Inc., Defendants, v. Reinforced Earth Company, Third-Party Defendant (the “Lawsuit”). On February 25, 2015 the Lawsuit was settled, and we recorded a liability for $17.0 million. A second defendant agreed to provide up to $5.4 million to pay for the total expected remediation cost of approximately $22.4 million. We will use our settlement obligation to pay for a third-party contractor approved by the NTTA. In the event that the total remediation costs exceed the $22.4 million, the second defendant would pay 20% of the excess amount and we would pay for 80% of the excess amount. During 2017, we increased our liability by $1.9 million. As of December 31, 2017, we have spent $3.7 million for remediation. At December 31, 2017, our remaining accrual balance was $15.2 million.
Litigation—We have been engaged in dispute resolution to collect money we believe we are owed for one construction project completed in 2014. Because of uncertainties associated with the project, including uncertainty of the amounts that would be collected, we used a zero profit margin approach to recording revenues during the construction period for the project.
For the project, a cost reimbursable contract, we have recorded a receivable of $32.9 million with a reserve of approximately $17.9 million included in “Billings in excess of costs and estimated earnings.” At this time, we cannot predict the amount that we will collect nor the timing of any collection. The dispute resolution for the receivable initially required international arbitration; however, in the first half of 2016, the owner sought bankruptcy protection in U.S. bankruptcy court. We have initiated litigation against the sureties who have provided lien and stop payment release bonds for the total amount owed. A trial date has been tentatively set for the second quarter of 2018.
F-31
Note 12—Commitments and Contingencies
We had been engaged in dispute resolution to collect money we believed was owed to us for another construction project completed in 2014. During the third quarter 2016, we settled the dispute with an exchange of general releases and receipt of $38.0 million in cash. We changed our zero estimate of profit and accounted for the settlement as a change in accounting estimate which resulted in recognizing revenues of approximately $27.5 million and gross profit of approximately $26.7 million in the third quarter of 2016.
Legal proceedings—We are subject to other claims and legal proceedings arising out of our business. We provide forrecord costs related to contingencies when a loss from such claims is probable and the amount is reasonably estimable. In determining whether it is possible to provide an estimate of loss, or range of possible loss, we review and evaluate our 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 defensedefenses 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 our consolidated results of operations, financial condition or cash flow.
SEC InquiryBonding—We have been cooperating with an inquiry by the staff of the Securities and Exchange Commission which appears to be focused on certain percentage-of-completion contract revenue recognition practices of the Company during the time period 2013 and 2014. We are continuing to respond to the staff’s inquiries in connection with this matter. At this stage, we are unable to predict when the staff’s inquiry will conclude or the outcome.
Bonding—As of December 31, 20172023 and 2016,2022, we had bid and completion bonds issued and outstanding totaling approximately $705.7 million$5.9 billion and $680.0 million,$4.3 billion, respectively. The remaining performance obligation on those bonded projects totaled approximately $2.7 billion and $1.7 billion, respectively.
Note 14—13—Reportable Segments
Through the end of the year 2016,2022, we segregated our business into three reportable segments: the EnergyUtilities segment, the East Construction ServicesEnergy/Renewables segment, and the West Construction ServicesPipeline segment. In the first quarter 2017,of 2023, we changed our reportable segments in connection with athe realignment of our internal organization and management structure. The segment changes reflect the focus of our CODM on the range of services we provide to our end user markets. Our CODM regularly reviews our operating and financial performance based on these new segments.
The current reportable segments include the Power segment, the Pipeline segment, the Utilities segment and the Civil segment. Segment information for prior periods has been restated to conform to the newEnergy segment, presentation.which is made up of our former Energy/Renewables and Pipeline segments.
Each of our reportable segments is comprisedcomposed of similar business units that specialize in services unique to the segment. Driving the new end-user focused segments are differences in the economic characteristics of each segment, the nature of the services provided by each segment; the production processes of each segment;segment, the type or class of customer using the segment’s services;services, the methods used by the segment to provide the services;services, and the regulatory environment of each segment’s customers.
The classification of revenuesrevenue and gross profit for segment reporting purposes can at times require judgment on the part of management. Our segments may perform services across industries or perform joint services for customers in multiple industries. To determine reportable segment gross profit, certain allocations, including allocations of shared and indirect costs, such as facility costs, equipment costs and indirect operating expenses, were made.
The following is a brief description of the reportable segments:
The Power segment operates throughout the United States and specializes in a range of services that include full EPC project delivery, turnkey construction, retrofits, upgrades, repairs, outages, and maintenance for entities in the petroleum, petrochemical, water, and other industries.
F-32
The PipelineUtilities segment operates throughout the United States and specializes in a range of services, including pipeline construction, pipelinethe installation and maintenance pipeline facility work, compressor stations, pump stations, metering facilities,of new and other pipeline related services for entities in the petroleumexisting natural gas and petrochemical industries.electric utility distribution and transmission systems, and communications systems.
The UtilitiesEnergy segment operates primarily in California, the Midwest, and the Southeast regions ofthroughout the United States and in Canada and specializes in a range of services including utility line installationthat include engineering, procurement, and maintenance, gas and electric distribution, streetlight construction, substation work, and fiber optic cable installation.
The Civil segment operates primarily in the Southeastern and Gulf Coast regions of the United States and specializes inretrofits, highway and bridge construction, airport runway and taxiway construction, demolition, heavy earthwork,site work, soil stabilization, mass excavation, flood control, upgrades, repairs, outages, pipeline construction and drainage projects.maintenance, pipeline integrity services, and maintenance services for entities in the renewable energy and energy storage, renewable fuels, and petroleum and petrochemical industries, as well as state departments of transportation.
All intersegment revenuesrevenue and gross profit, which werewas immaterial, havehas been eliminated in the following tables. Total assets by segment is not presented as our CODM as defined by ASC 280 does not review or allocate resources based on segment assets.
F-32
Segment Revenue
Segment Revenues
Revenue by segment for the years ended December 31, 2017, 20162023, 2022 and 20152021 was as follows (in thousands):
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| 2015 |
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| | | | | | | | | | | | | | | | ||||||||||||||||
| | For the year ended December 31, | |||||||||||||||||||||||||||||
| | 2023 | | 2022 | | 2021 | |||||||||||||||||||||||||
| | | | | % of | | | | | % of | | | | | % of | ||||||||||||||||
| | | | | Total | | | | | Total | | | | | Total | ||||||||||||||||
Segment |
| Revenue |
| Revenue |
| Revenue |
| Revenue |
| Revenue |
| Revenue |
|
| Revenue |
| Revenue |
| Revenue |
| Revenue |
| Revenue | | Revenue | ||||||
Power |
| $ | 606,125 |
| 25.5% |
| $ | 478,653 |
| 24.0% |
| $ | 466,292 |
| 24.2% |
| |||||||||||||||
Pipeline |
|
| 465,570 |
| 19.5% |
|
| 401,931 |
| 20.1% |
|
| 299,365 |
| 15.5% |
| |||||||||||||||
Utilities |
|
| 806,523 |
| 33.9% |
|
| 637,212 |
| 31.9% |
|
| 587,047 |
| 30.4% |
| | $ | 2,380,230 |
| 41.6% | | $ | 2,024,307 |
| 45.8% | | $ | 1,657,957 |
| 47.4% |
Civil |
|
| 501,777 |
| 21.1% |
|
| 479,152 |
| 24.0% |
|
| 576,711 |
| 29.9% |
| |||||||||||||||
Energy | | | 3,335,079 | | 58.4% | | | 2,396,292 | | 54.2% | | | 1,839,675 | | 52.6% | ||||||||||||||||
Total |
| $ | 2,379,995 |
| 100.0% |
| $ | 1,996,948 |
| 100.0% |
| $ | 1,929,415 |
| 100.0% |
| | $ | 5,715,309 |
| 100.0% | | $ | 4,420,599 |
| 100.0% | | $ | 3,497,632 |
| 100.0% |
Segment Gross Profit
Gross profit by segment for the years ended December 31, 2017, 20162023, 2022 and 20152021 was as follows (in thousands):
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| | For the year ended December 31, | |||||||||||||||||||||||||||||
| | 2023 | | 2022 | | 2021 | |||||||||||||||||||||||||
| | | | | % of | | | | | % of |
| | |
| % of | ||||||||||||||||
| | | | | Segment | | | | | Segment | | | | | Segment | ||||||||||||||||
Segment |
| Gross Profit |
| Revenue |
| Gross Profit |
| Revenue |
| Gross Profit |
| Revenue |
|
| Gross Profit |
| Revenue |
| Gross Profit |
| Revenue | | Gross Profit | | Revenue | ||||||
Power |
| $ | 65,675 |
| 10.8% |
| $ | 49,807 |
| 10.4% |
| $ | 53,620 |
| 11.5% |
| |||||||||||||||
Pipeline |
|
| 92,087 |
| 19.8% |
|
| 68,100 |
| 16.9% |
|
| 24,685 |
| 8.2% |
| |||||||||||||||
Utilities |
|
| 113,037 |
| 14.0% |
|
| 100,071 |
| 15.7% |
|
| 96,450 |
| 16.4% |
| | $ | 206,992 |
| 8.7% | | $ | 210,672 |
| 10.4% | | $ | 186,287 |
| 11.2% |
Civil |
|
| 7,635 |
| 1.5% |
|
| (16,671) |
| (3.5%) |
|
| 45,118 |
| 7.8% |
| |||||||||||||||
Energy | | | 380,499 | | 11.4% | | | 246,213 | | 10.3% | | | 230,373 | | 12.5% | ||||||||||||||||
Total |
| $ | 278,434 |
| 11.7% |
| $ | 201,307 |
| 10.1% |
| $ | 219,873 |
| 11.4% |
| | $ | 587,491 |
| 10.3% | | $ | 456,885 |
| 10.3% | | $ | 416,660 |
| 11.9% |
Geographic Region — RevenuesRevenue and Total Assets
The majority of our revenues arerevenue is derived from customers in the United States with approximately 1%5.8%, 6.7% and 4.5% generated from sources outside of the United States.States, principally Canada, for the years ended December 31, 2023, 2022 and 2021, respectively. At December 31, 20172023 and 2016,2022, approximately 1%3.9% and 4.2%, respectively of total assets were located outside of the United States.
Note 15—Customer Concentrations
We operate in multiple industry segments encompassing the construction of commercial, industrial, and public works infrastructure assets primarily throughout the United States. Typically, the top ten customers in any one calendar year generate revenues in excess of 50% of total revenues and consist of a different group of customers in each year.
F-33
During the years ended December 31, 2017, 2016 and 2015, we generated 38.4%, 45.6% and 48.9%, of our revenues, respectively, from the following customers (in thousands):
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| 2016 |
| 2015 |
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Description of Customer's Business |
| Segment |
| Amount |
| Percentage |
| Amount |
| Percentage |
| Amount |
| Percentage |
| |||
State DOT |
| Civil |
| $ | 222,142 |
| 9.3% |
| $ | 193,049 |
| 9.7% |
| $ | 183,847 |
| 9.5% |
|
Public gas and electric utility |
| Utilities |
|
| 210,747 |
| 8.9% |
|
| 184,002 |
| 9.2% |
|
| 120,507 |
| 6.2% |
|
Private gas and electric utility |
| Utilities |
|
| 190,659 |
| 8.0% |
|
| 201,443 |
| 10.1% |
|
| 173,232 |
| 9.0% |
|
Chemical/Energy producer |
| Power/Civil |
|
| 160,995 |
| 6.8% |
|
| 208,458 |
| 10.4% |
|
| 173,931 |
| 9.0% |
|
Pipeline operator |
| Pipeline |
|
| 128,182 |
| 5.4% |
|
| * |
| * |
|
| * |
| * |
|
Pipeline operator |
| Pipeline |
|
| * |
| * |
|
| 123,055 |
| 6.2% |
|
| * |
| * |
|
Pipeline operator |
| Pipeline |
|
| * |
| * |
|
| * |
| * |
|
| 165,578 |
| 8.6% |
|
Gas utility |
| Utilities |
|
| * |
| * |
|
| * |
| * |
|
| 127,128 |
| 6.6% |
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|
|
| $ | 912,725 |
| 38.4% |
| $ | 910,007 |
| 45.6% |
| $ | 944,223 |
| 48.9% |
|
(*)Indicates a customer with less than 5% of revenues during such period.
For the years ended December 31, 2017, 2016 and 2015, approximately 56.4%, 60.4% and 59.4%, respectively, of total revenues were generated from our top ten customers in that year. In each of the years, a different group of customers comprised the top ten customers by revenue.
At December 31, 2017, approximately 4.3% of our accounts receivable were due from one customer, and that customer provided 8.9% of our revenues for the year ended December 31, 2017. At December 31, 2016, approximately 20.8% of our accounts receivable were due from one customer, and that customer provided 6.2% of our revenues for the year ended December 31, 2016.
Note 1614 — Multiemployer Plans
Union Plans—Various subsidiaries are signatories to collective bargaining agreements. These agreements require that we participate in and contribute to a number of multiemployer benefit plans for our 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.
We contributed $46.9$62.2 million, $34.2$46.2 million, and $34.3$39.7 million, to multiemployer pension plans for the years ended December 31, 2017, 20162023, 2022 and 2015,2021, respectively. These costs were charged to the related construction contracts in process. Contributions during 2017 increased from the prior years2023 were higher than 2022 as a result of an increase in thea greater number of man-hours worked by our union labor.labor and the acquisition of PLH.
The financial risks of participating in multiemployer plans are different from single-employer plans in the following respects:
● |
| Assets contributed to the multiemployer plan by one employer may be used to provide benefits to employees of other participating employers. |
● |
| If a participating employer stops contributing to the plan, the unfunded obligations of the plan may be borne by the remaining participating employers. |
● |
| If a participating employer chooses to stop participating in the plan, a withdrawal liability may be created based on the unfunded vested benefits for all employees in the plan. |
F-33
Under U.S. legislation regarding multiemployer pension plans, an employer is required to pay an amount that represents its proportionate share of a plan’s unfunded vested benefits in the event of withdrawal from a plan or upon plan termination.
F-34
We participate in a number of multiemployer pension plans, and our 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 GAAP. As discussed in Note 13—“Commitments and Contingencies,” in 2011 we withdrew from the Central States Southeast and Southwest Areas Pension Fund multiemployer pension plan. We have no plans to withdraw from any other labor agreements.
During the last three years, we made annual contributions to 7850 pension plans. Based upon the most recent and available plan financial information, we made contributions to the Construction Laborers Pension Trust for Southern California, the Pipeline Industry Benefit Fund, the Southern California Pipe Trades Trust Funds and the Minnesota Laborers Pension Fund that represented more than 5% of the plan’s total contributions for the 2023 plan year. None of the other significant pension plans that we contributed to in 2017 and 2016below listed us in the plan’s Form 5500 as providing more than 5% of the plan’s total contributions. Two ofcontributions during the pension plans that we contributed to in 2015 listed us in the plan’s Form 5500 as providing more than 5% of the plan’s total contributions. The contribution to one plan was $2.2 millionyears ended December 31, 2023, 2022 and $0.5 million for the second plan.2021.
Our participation in significant plans for the years ended December 31, 2017, 20162023, 2022 and 20152021 is outlined in the table below. The “EIN/Pension Plan Number” column provides the Employer Identification Number (“EIN”) and the three digit plan number. The “Zone Status” is based on the latest information that we received from the plan and is certified by the plan’s actuary. Among other factors, plans in the red zone are generally less than 65 percent funded, plans in the yellow zone are less than 80 percent funded, and plans in the green zone are at least 80 percent funded. The “FIP/RP Status Pending/Implemented” column indicates plans for which a financial improvement plan (“FIP”) or a rehabilitation plan (“RP”) is either pending or has been implemented. The “Surcharge Imposed” column includes plans in a red zone status that require a payment of a surcharge in excess of regular contributions. The next column lists the expiration date of our collective bargaining agreement related to the plan. The table follows:
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| Pending / |
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| Expiration |
| Contributions of the Company |
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| | | | | | | | | | | | Collective | | | | | | | | | |
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| | | | | | | | FIP/RP | | | | Bargaining | | | | | | | | | |
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| | EIN / | | Pension Protection Act | | Status | | | | Agreement | | Contributions of the Company |
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| | Pension Plan | | Zone Status | | Pending / | | Surcharge | | Expiration | | (In Thousands) |
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Pension Fund Name |
| Number |
| 2017 |
| 2016 |
| Implemented |
| Imposed |
| Date |
| 2017 |
| 2016 |
| 2015 |
|
| Number |
| 2023 |
| 2022 |
| Implemented |
| Imposed |
| Date |
| 2023 |
| 2022 |
| 2021 |
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Central Pension Fund of the International Union of Operating Engineers and Participating Employers |
| 36-6052390/001 |
| Green as of February 1, 2016 |
| Green as of February 1, 2015 |
| No |
| No |
| 5/31/2020 |
| $ | 7,562 |
| $ | 5,373 |
| $ | 5,659 |
|
| 36-6052390/001 |
| Green as of |
| Green as of |
| No |
| No |
| 6/4/2026 | | $ | 6,150 | | $ | 5,592 | | $ | 4,985 | |
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| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Laborers Pension Trust Fund for Northern California |
| 94-6277608/001 |
| Green as of May 31, 2023 |
| Green as of May 31, 2022 |
| No |
| No |
| 6/30/2027 | |
| 5,198 | |
| 3,699 | |
| 3,943 | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Construction Laborers Pension Trust for Southern California |
| 43-6159056/001 |
| Green as of December 31, 2022 |
| Green as of December 31, 2021 |
| No |
| No |
| 6/30/2026 | |
| 5,162 | |
| 3,595 | |
| 3,254 | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Operating Engineer Trust Funds | | 95-6032478/001 | | Yellow as of June 30, 2023 | | Yellow as of June 30, 2022 | | No | | No | | 6/30/2025 | | | 4,856 | | | 1,973 | | | 1,794 | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Pipeline Industry Benefit Fund |
| 73-6146433/001 |
| Green as of January 1, 2016 |
| Green as of January 1, 2015 |
| No |
| No |
| 5/31/2020 |
|
| 6,050 |
|
| 2,740 |
|
| 3,783 |
| | 73-6146433/001 | | Green as of December 31, 2022 | | Green as of December 31, 2021 | | No |
| No | | 6/1/2023 | | | 4,363 | | | 495 | | | 496 | |
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Laborers International Union of North America National (Industrial) Pension Fund |
| 52-6074345/001 |
| Red as of January 1, 2016 |
| Red as of January 1, 2015 |
| No |
| No |
| 5/31/2020 |
|
| 4,658 |
|
| 2,415 |
|
| 3,287 |
| ||||||||||||||||||||||
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Southern California Pipetrades Trust Funds |
| 51-6108443/001 |
| Green as of January 1, 2016 |
| Green as of January 1, 2015 |
| No |
| No |
| 9/30/2022 |
|
| 3,219 |
|
| 2,614 |
|
| 2,180 |
| ||||||||||||||||||||||
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Laborers Pension Trust Fund for Northern California |
| 94-6277608/001 |
| Yellow as of June 1, 2016 |
| Yellow as of June 1, 2015 |
| No |
| No |
| 6/30/2019 |
|
| 2,945 |
|
| 3,598 |
|
| 3,150 |
| ||||||||||||||||||||||
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National Pension Fund |
| 52-6152779 |
| Yellow as of July 1 2017 |
| Yellow as of July 1 2016 |
| No |
| No |
| 9/30/2022 |
|
| 2,548 |
|
| 2,161 |
|
| 2,106 |
| ||||||||||||||||||||||
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Operating Engineer Trust Funds |
| 95-6032478/001 |
| Yellow as of July 1, 2016 |
| Yellow as of July 1, 2016 |
| No |
| No |
| 6/30/2019 |
|
| 2,448 |
|
| 1,643 |
|
| 1,401 |
| ||||||||||||||||||||||
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| Contributions to significant plans |
|
| 29,430 |
|
| 20,544 |
|
| 21,566 |
| ||||||||||||||||||||||||||
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|
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| Contributions to other multiemployer plans |
|
| 17,505 |
|
| 13,639 |
|
| 12,730 |
| ||||||||||||||||||||||||||
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| Total contributions made |
| $ | 46,935 |
| $ | 34,183 |
| $ | 34,296 |
| ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Southern California Pipe Trades Trust Funds |
| 51-6108443/001 |
| Green as of December 31, 2022 |
| Green as of December 31, 2021 |
| No |
| No |
| 8/31/2026 | |
| 4,290 | |
| 3,268 | |
| 3,456 | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
Minnesota Laborers Pension Fund |
| 41-6159599/001 |
| Green as of December 31, 2022 |
| Green as of December 31, 2021 |
| No |
| No |
| 6/1/2025 | |
| 3,579 | | | 3,749 | | | 3,299 | | ||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | |
| Contributions to significant plans | | | 33,598 | | | 22,371 | | | 21,227 | | ||||||||||||||||||||||||||
| | | | | | |
| Contributions to other multiemployer plans | |
| 28,637 | |
| 23,792 | |
| 18,443 | | ||||||||||||||||||||||||||
| | | | | | | | | | | | | | | | | | | | | | | ||||||||||||||||||||||
| | | | | | |
| Total contributions made | | $ | 62,235 | | $ | 46,163 | | $ | 39,670 | |
Note 17—Company Retirement15—Employee Benefit Plans
401(k) PlanDefined Contribution Plans—We provide a 401(k) plansponsor multiple defined contribution plans for oureligible employees not covered by collective bargaining agreements. Under the plan, employees are allowed to contribute up to 100% of their compensation, within the Internal Revenue Service (“IRS”) prescribed annual limit. We make employer matchOur plans include various features such as voluntary employee pre-tax and Roth-based contributions of 100% of the first 3% and 50% of the next 2% of employeematching contributions which vest immediately. We may,made by us. In addition, at the discretion of our Board of Directors, we may make an additional profit share contributioncontributions to the 401(k) plan.plans. No such additional contributions were made during 20152021 through 2017. Our2023. Matching contributions to the planall defined contribution plans for the years ended December 31, 2017, 20162023, 2022 and 20152021 were $4.1$16.4 million, $3.9$16.6 million, and $3.7$11.6 million, respectively.
F-35
OnQuest Canada, ULC RRSP-DPSP Plan—We provide a RRSP-DPSP plan (Registered Retirement Saving Plan—Deferred Profit Sharing Plan) for our employees of OnQuest Canada, ULC. There are two componentsThe increase in matching contributions in 2023 and 2022 is primarily due to an increase in headcount from the plan. The RRSP portion is contributed by the employee, while our portion is paid to the DPSP. Under this plan, we make employer match contributions of 100% of the first 3% and 50% of the next 2% of employee contributions. Employees vest in the DPSP portion after one year of employment. Our contribution to the DPSP during each of the years ended December 31, 2017, 2016 and 2015 was $0.1 million.
PLH acquisition. We have no other post-retirement benefits.
F-34
Note 18—Deferred Compensation Agreements and Stock-Based Compensation
Primoris Long-Term Retention Plan (“LTR Plan”) —WeIn 2023, we adopted a long-term retentionnon-qualified deferred compensation plan under which eligible directors and key employees may defer their receipt of certain cash compensation. This plan is an unfunded and unsecured compensation arrangement. Individuals participating in the plan may allocate deferred cash amounts among a group of notional accounts that mirror the gains and losses of various investment alternatives. Generally, participants receive distributions of deferred balances based on predetermined payout schedules or other events.
The plan covering key employees provides for employer matching contributions for certain senior managersofficers and executives. The voluntaryemployees whose benefits under the 401(k) plan provides for the deferral of one half ofare limited by federal tax law. Contributions vest immediately provided that vesting accelerates upon a change in control or the participant’s annual earned bonusdeath or retirement. Any matching and discretionary employer contributions, whether vested or not, are forfeited upon a participant’s termination of employment for one year. Generally, except in the case of death, disabilitycause or involuntary separation from service, the deferred compensation is vested toupon the participant only if actively employed by us onengaging in competition with Primoris or any of its affiliates.
As of December 31, 2023, the payment date of bonus amounts the following year. The amount of compensation deferred under this plan is calculated each year. Total deferred compensation liability under thisour deferred compensation plan was $0.3 million, which was included in “Other Long-term Liabilities” in the accompanying Consolidated Balance Sheet. To provide for future obligations related to these deferred compensation plans, we have invested in corporate-owned life insurance (“COLI”) policies covering certain participants in the deferred compensation plans, the underlying investments of which are intended to be aligned with the investment alternatives elected by plan participants. The COLI assets are recorded at their cash surrender value, which is considered their fair market value, and as of December 31, 2017 and 20162023, the fair market was $5.7$0.3 million, and $4.5 million, respectively.
Participantswhich was included in “Other Long-term Assets” in the long term retention plan may elect to purchase our common stock at a discounted price. For bonuses earned in 2017accompanying Consolidated Balance Sheet.
Note 16—Stock-Based Compensation
We maintain two equity compensation plans under which stock-based compensation has been granted, the 2013 Equity Plan and 2016, the participants could use2023 Equity Plan. Upon the adoption of the 2023 Equity Plan, awards were no longer granted under the 2013 Equity Plan. The 2023 Equity Plan permits the granting of up to one sixth6.5 million shares to executives, directors and certain senior managers. Grants of their bonus amountawards to purchase sharesemployees are approved by the Compensation Committee of stock. The purchase price was calculated as 75% of the average market closing price for the month of December 2017 and January 2017, respectively. The discount is treated as compensation to the participant.
Stock-based compensation — In May 2013, the shareholders approved and we adopted the Primoris Services Corporation 2013 Long-term Incentive Equity Plan (“Equity Plan”). Our Board of Directors has granted 259,065 Restricted Stock Units (“Units”)and grants to executivesindependent members of the Board of Directors are approved by the Board of Directors. As of December 31, 2023, there were 6.2 million shares of common stock remaining available for grant under the 2023 Equity Plan. The grants were documented in RSU Award Agreements which provide for a vesting schedule and require continuing employment of the executive. The Units are subject to earlier acceleration, termination, cancellation or forfeiture as provided in the underlying RSU Award Agreement. The table below presents the Units activity for 2017:
|
|
|
|
|
|
|
Nonvested RSUs |
| Units |
| Weighted Average Grant Date Fair Value per Unit |
| |
Balance at December 31, 2016 |
| 149,809 |
| $ | 24.70 |
|
Granted |
| 10,000 |
|
| 22.90 |
|
Vested |
| (74,394) |
|
| 25.53 |
|
Balance at December 31, 2017 |
| 85,415 |
|
| 23.76 |
|
During 2016, 100,553 Units were granted with a weighted-average grant-date fair value per unit of $23.87. There were no Units granted during 2015. The total fair value of Units that vested during 2017, 2016 and 2015 was $1.7 million, $0.6 million and $0.9 million, respectively
At December 31, 2017, a total of 173,650 Units were vested. The vesting schedule for the remaining Units follows:
|
|
|
|
| Number of Units |
For the Years Ending December 31, |
| to Vest |
2018 |
| 28,471 |
2019 |
| 51,552 |
2020 |
| 5,392 |
|
| 85,415 |
F-36
Under guidance of ASC 718, “Compensation — Stock Compensation”, stock-based compensation cost is measured at the date of grant, 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). We settle the vesting of RSUs and PSUs through the issuance of new shares of common stock. Forfeitures of stock-based awards are recognized as they occur.
Restricted Stock Units
We grant time-vested stock awards in the form of restricted stock units. The fair value of the Units wasRSUs is 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 UnitsRSUs is being amortized using the straight-line method over the service period. For the twelve months ended December 31, 2017, 2016,Time-vested stock awards granted to eligible employees in 2023 vest 25% in year one, 25% in year two, and 2015, we recognized $1.150% in year three.
F-35
The table below presents RSU activity for 2023:
| | | | | | |
Nonvested RSUs |
| Units | | Weighted Average Grant Date Fair Value per Unit | | |
Balance at December 31, 2022 | | 604,787 | | $ | 27.88 | |
Granted | | 355,644 | | | 27.83 | |
Vested | | (232,319) | | | 26.91 | |
Forfeited | | (35,397) | | | 28.61 | |
Balance at December 31, 2023 | | 692,715 | | | 28.14 | |
During 2022, 269,324 RSUs were granted with a weighted-average grant date fair value per unit of $25.22. The total fair value of RSUs that vested during 2023, 2022 and 2021 was $6.5 million, $1.6$4.5 million and $1.1$4.6 million, respectively, in compensation expense.respectively. At December 31, 2017,2023, approximately $1.2$10.1 million of unrecognized compensation expense remains for the Units,RSUs, which will be recognized over a weighted average period of 1.61.92 years.
VestedPerformance Stock Units accrue “Dividend Equivalents” (as
Shares of our common stock may be earned based on our performance compared to defined inmetrics. The number of shares earned under a performance award can vary from zero to 200% of the Equity Plan) which will be accrued as additional Units. At December 31, 2017, a total of 3,097 Dividend Equivalent Units were accrued.
Note 19—Related Party Transactions
Priortarget shares awarded, based upon our performance compared to March 2017, we leased three properties in California from Stockdale Investment Group, Inc. (“SIGI”). Our Chairmanthe metrics. The metrics used for the grant are determined by the Compensation Committee of the Board of Directors whoand may be either based on internal measures such as our financial performance compared to target or on a market-based metric such as our stock performance compared to a peer group. Performance awards vest over three years based upon attainment of at least the minimum stated performance targets and minimum service requirements. For performance awards, we recognize stock-based compensation expense based on the grant date fair value of the award. The fair value of internal metric-based performance awards is determined by the market price of our largest stockholder, and his family holdcommon stock on the day prior to the date of the grant. Stock compensation expense for the PSUs is amortized using the straight-line method over the service period. We adjust the stock-based compensation expense related to internal metric-based performance awards according to our determination of the shares expected to vest at each reporting date. Stock-based compensation expense related to market metric-based performance awards is expensed at their grant date fair value regardless of performance.
The table below presents PSU activity for 2023:
| | | | | |
Nonvested PSUs |
| Units | | Weighted Average Grant Date Fair Value per Unit | |
Balance at December 31, 2022 | | — | | $ | — |
Granted | | 394,393 | | | 27.50 |
Vested | | — | | | — |
Forfeited | | (59,455) | | | 27.50 |
Balance at December 31, 2023 | | 334,938 | | | 27.50 |
At December 31, 2023, approximately $6.6 million of unrecognized compensation expense remains for the PSUs, which will be recognized over a majority interestweighted average period of SIGI. In March 2017, we exercised a right of first refusal and purchased the SIGI properties. The purchase was approved by our Board of Directors for $12.8 million. We assumed three mortgage notes totaling $4.2 million with the remainder paid in cash. During2.17 years.
Stock-based Compensation Expense
For the years ended December 31, 2017, 20162023, 2022 and 2015,2021, we paid $0.2recognized $11.8 million, $0.8$7.4 million, and $0.8$10.5 million, respectively, in lease payments to SIGIcompensation expense for the useboth RSUs and PSUs.
F-36
We lease properties from other individuals that are current employees. The amounts leased are not material and each arrangement was approved by the Board of Directors.
Note 20—17—Income Taxes
Income before provision for income taxes consists of the following (in thousands):
| | | | | | | | | |
|
| Year Ended December 31, | |||||||
| | 2023 |
| 2022 |
| 2021 | |||
United States | | $ | 158,137 | | $ | 133,564 | | $ | 140,307 |
Foreign | |
| 19,532 | |
| 25,722 | |
| 11,550 |
Total | | $ | 177,669 | | $ | 159,286 | | $ | 151,857 |
The components of the provision for income taxes are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
Current provision (benefit) |
|
|
|
|
|
|
|
|
|
| |||||||||
| | | | | | | | | | ||||||||||
|
| Year Ended December 31, | |||||||||||||||||
| | 2023 |
| 2022 |
| 2021 | |||||||||||||
Current provision | | | | | | | | | | ||||||||||
Federal |
| $ | 21,509 |
| $ | 4,726 |
| $ | 26,948 |
| | $ | 11,337 | | $ | 5,412 | | $ | 3,678 |
State |
|
| 3,371 |
|
| 5,423 |
|
| 3,640 |
| |
| 7,124 | |
| 2,117 | |
| 4,471 |
Foreign |
|
| (188) |
|
| 92 |
|
| 362 |
| |
| 3,705 | |
| 4,041 | |
| 2,405 |
|
|
| 24,692 |
|
| 10,241 |
|
| 30,950 |
| |||||||||
| | | 22,166 | | | 11,570 | | | 10,554 | ||||||||||
Deferred provision (benefit) |
|
|
|
|
|
|
|
|
|
| | | | | | | | | |
Federal |
|
| 1,958 |
|
| 11,560 |
|
| (7,099) |
| |
| 28,634 | |
| 12,645 | |
| 22,607 |
State |
|
| 1,219 |
|
| (727) |
|
| 155 |
| |
| 1,412 | |
| (428) | |
| 2,372 |
Foreign |
|
| (36) |
|
| 72 |
|
| (60) |
| |
| (688) | |
| 2,478 | |
| 585 |
|
|
| 3,141 |
|
| 10,905 |
|
| (7,004) |
| |||||||||
Change in valuation allowance |
|
| 600 |
|
| — |
|
| — |
| |||||||||
| |
| 29,358 | |
| 14,695 | |
| 25,564 | ||||||||||
| | | | | | | | | | ||||||||||
Total |
| $ | 28,433 |
| $ | 21,146 |
| $ | 23,946 |
| | $ | 51,524 | | $ | 26,265 | | $ | 36,118 |
F-37
A reconciliation of income tax expense compared to the amount of income tax expense that would result by applying the U.S. federal statutory income tax rate to pre-tax income is as follows:
| | | | | | | | | |
|
| Year Ended December 31, | | ||||||
| | 2023 | |
| 2022 | |
| 2021 | |
U.S. federal statutory income tax rate |
| 21.0 | % | | 21.0 | % | | 21.0 | % |
State taxes, net of federal income tax impact |
| 3.8 | | | 0.8 | | | 3.9 | |
Tax credits |
| (0.7) | | | (1.9) | | | (1.1) | |
Income taxed at rates greater than U.S. |
| 0.2 | | | 0.6 | | | 0.2 | |
Nondeductible meals & entertainment |
| 3.6 | | | 0.5 | | | 0.2 | |
Nondeductible compensation | | 0.7 | | | 0.4 | | | 0.3 | |
Capital loss utilization - release of valuation allowance | | 0.0 | | | (5.8) | | | 0.0 | |
Other items |
| 0.4 | | | 0.9 | | | (0.7) | |
Effective tax rate |
| 29.0 | % | | 16.5 | % | | 23.8 | % |
The provision for income taxes has been determined based upon the tax laws and rates in the countries in which we operate. Our operations in the United States are subject to federal income tax rate relatedrates of 21% and varying state income tax rates. Our principal international operations are in Canada. Our subsidiaries in Canada are subject to pretaxa corporate income to the effective tax rate of 23%. We did not have any non-taxable foreign earnings from tax holidays for the periods indicated is as follows:taxable years 2020 through 2023.
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
|
U.S. federal statutory income tax rate |
| 35.0 % |
| 35.0 % |
| 35.0 % |
|
State taxes, net of federal income tax impact |
| 2.9 % |
| 6.4 % |
| 4.2 % |
|
Foreign tax credit |
| 0.0 % |
| (0.4)% |
| (0.5)% |
|
Canadian income tax (benefit) provision |
| (0.2)% |
| 0.4 % |
| 0.5 % |
|
Domestic production activities deduction |
| (2.3)% |
| (1.1)% |
| (3.9)% |
|
Nondeductible meals & entertainment |
| 2.8 % |
| 5.4 % |
| 5.1 % |
|
Other items |
| (0.7)% |
| (1.5)% |
| (1.0)% |
|
Effective tax rate excluding the impact of the Tax Act and income attributable to noncontrolling interests |
| 37.5 % |
| 44.2 % |
| 39.4 % |
|
Deferred tax liability remeasurement benefit from the Tax Act |
| (9.3)% |
| 0.0 % |
| 0.0 % |
|
Effective tax rate excluding income attributable to noncontrolling interests |
| 28.2 % |
| 44.2 % |
| 39.4 % |
|
Impact of income from noncontrolling interests on effective tax rate |
| (1.2)% |
| (0.9)% |
| (0.2)% |
|
Effective tax rate |
| 27.0 % |
| 43.3 % |
| 39.2 % |
|
Deferred taxes are recognized for temporary differences between the financial reporting bases and tax bases of assets and liabilities based onand are measured using enacted tax rates expected to be in effect when such amounts are realized or settled. However, deferred tax assets are recognized only to the extent that it is more likely than not that they will be realized based upon consideration of available evidence, including future reversals of existing taxable temporary differences, future projected taxable income, the length of the tax asset carryforward periods, and tax planning strategies.
SAB 118 provides guidance on accounting for uncertainties of the effects of the Tax Act. Specifically, SAB 118 allows companies to record provisional estimates of the impact of the Tax Act during a one year “measurement period” similar to that used when accounting for business combinations.
As a result of the Tax Act, we remeasured deferred tax assets and liabilities using the newly enacted tax rates and recorded a one-time net tax benefit of $9.4 million in the period ended December 31, 2017. This tax benefit is a provisional estimate that could be revised once we finalize our deductions for tax depreciation and executive compensation accruals. We may also revise our estimate based on any additional guidance issued by the U.S. Treasury Department, the U.S. Internal Revenue Service, and other standard-setting bodies.
F-38
F-37
The tax effect of temporary differences that give rise to deferred income taxes for the years ended December 31, 2017 and 2016 are as follows (in thousands):
|
|
|
|
|
|
|
| ||||||
|
| 2017 |
| 2016 |
| ||||||||
| | | | | | | |||||||
|
| December 31, | |||||||||||
| | 2023 |
| 2022 | |||||||||
Deferred tax assets: |
|
|
|
|
|
|
| | | | | | |
Accrued compensation |
| $ | 3,323 |
| $ | 5,804 |
| | $ | 12,044 | | $ | 9,685 |
Accrued workers compensation |
|
| 6,197 |
|
| 9,855 |
| | | 3,103 | | | 2,949 |
Capital loss carryforward |
|
| — |
|
| 1,077 |
| ||||||
Foreign tax credit |
|
| 1,456 |
|
| 1,349 |
| ||||||
Net operating losses | | | 41,819 | | | 46,843 | |||||||
Disallowed interest | | | 8,227 | | | 4,439 | |||||||
Lease liabilities | | | 72,363 | | | 36,372 | |||||||
Insurance reserves |
|
| 2,544 |
|
| 3,248 |
| |
| 6,430 | |
| 5,200 |
Loss reserves |
|
| 2,215 |
|
| 4,841 |
| |
| 1,309 | |
| 1,555 |
Pension liability |
|
| — |
|
| 1,979 |
| ||||||
State income taxes |
|
| 2,233 |
|
| 2,011 |
| ||||||
Tax credits | |
| 748 | |
| 1,069 | |||||||
Capitalized research | | | 11,522 | | | 5,127 | |||||||
Other |
|
| 202 |
|
| 288 |
| |
| 315 | |
| 1,446 |
Total deferred tax assets |
|
| 18,170 |
|
| 30,452 |
| |
| 157,880 | |
| 114,685 |
Deferred tax liabilities |
|
|
|
|
|
|
| | | | | | |
Depreciation and amortization |
|
| (30,555) |
|
| (38,327) |
| |
| (130,051) | |
| (119,081) |
Prepaid expenses and other |
|
| (586) |
|
| (1,955) |
| |
| (3,672) | |
| (2,760) |
Lease assets | | | (73,516) | | | (36,865) | |||||||
Total deferred tax liabilities |
|
| (31,141) |
|
| (40,282) |
| |
| (207,239) | |
| (158,706) |
|
|
|
|
|
|
|
| ||||||
| | | | | | | |||||||
Valuation allowance |
|
| (600) |
|
| — |
| | | (10,206) | | | (13,080) |
|
|
|
|
|
|
|
| ||||||
| | | | | | | |||||||
Net deferred tax liabilities |
| $ | (13,571) |
| $ | (9,830) |
| | $ | (59,565) | | $ | (57,101) |
As of December 31, 2017,2023, we have recorded a deferred tax asset of $41.8 million reflecting the tax effectsbenefit of approximately $531.7 million of federal and state income tax net operating loss carryforwards, some of which were acquired in the acquisitions of PLH and other companies. Our tax credits of $0.7 million generally expire between 10 and 20 years after they are generated. Our U.S. federal net operating losses expire beginning in 2031, and our state net operating losses generally expire 20 years after the period in which the losses were incurred.
The valuation allowances for deferred income tax assets at December 31, 2023 and 2022 were $10.2 million and $13.1 million, respectively. The $2.9 million decrease in valuation allowances during 2023 was primarily due to finalizing the fair value of acquired PLH state net operating losses in the second quarter of 2023. These remaining valuation allowances primarily relate to state net operating loss carryforwards were $0.8 million, stateestablished due to uncertainty in Primoris’ outlook as to the amount of future taxable income required in particular tax credit carryforwards were $1.1 million, and foreignjurisdictions in order to utilize certain tax credit carryforwards were $1.5 million. These carryforwards will begin to expire in 2021, 2025, and 2019, respectively. We determinedlosses, considering also the tax regulations which limit the annual utilization of acquired losses. Primoris believes it is more likely than not that a portionit will realize the benefit of ourits deferred tax asset related to foreign tax credits will be not be realized; aassets net of existing valuation allowance of $0.6 million was recorded.allowances.
A reconciliation of the beginning, and ending and aggregate changes in the gross balances of unrecognized tax benefits for each period is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
| |||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||||||||||
| | | | | | | | | | ||||||||||
|
| December 31, | |||||||||||||||||
| | 2023 |
| 2022 |
| 2021 | |||||||||||||
Beginning balance |
| $ | — |
| $ | — |
| $ | 456 |
| | $ | 10,196 | | $ | 1,337 | | $ | 1,553 |
Increases in balances for tax positions taken during the current year |
|
| 592 |
|
| — |
|
| — |
| |
| 120 | |
| 120 | |
| 288 |
Increases in balances for tax positions taken during prior years |
|
| — |
|
| — |
|
| — |
| |||||||||
(Decreases) increases in balances for tax positions taken during prior years | |
| (687) | |
| 9,204 | |
| 83 | ||||||||||
Settlements and effective settlements with tax authorities |
|
| — |
|
| — |
|
| (456) |
| | | — | | | — | | | (416) |
Lapse of statute of limitations |
|
| — |
|
| — |
|
| — |
| |
| (412) | |
| (465) | |
| (171) |
Total |
| $ | 592 |
| $ | — |
| $ | — |
| | $ | 9,217 | | $ | 10,196 | | $ | 1,337 |
We recognize accrued interest and penalties related to uncertain tax positions in income tax expense, which were not material for the three years presented.
F-38
We believe it is reasonably possible that decreases between $0 and $0.1of up to $0.3 million of unrecognized tax benefits could occur in the next twelve months due to the expiration of statutes of limitation.limitation and settlements with tax authorities.
Our federal income tax returns are generally no longer subject to examination for tax years before 2014.2020. The statutes of limitation of state and foreign jurisdictions generally vary between 3 to 5 years. Accordingly, theour state and foreign income tax returns are generally no longer subject to examination for tax years 2012 through 2016 remain open to examinationbefore 2018.
On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted by the other taxing jurisdictionsUS Government in which we operate.response to the COVID-19 pandemic. We deferred approximately $42.0 million of FICA tax payments during part of 2020 as allowed under the CARES Act. The unpaid deferral was $21.7 million at December 31, 2022, and was included in Accrued liabilities on our Consolidated Balance Sheet. We paid all remaining payments to the U.S. Treasury on January 3, 2023.
ASU No. 2013-11, "Income Taxes (Topic 740) Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists”, requires certain unrecognized tax benefits to be shown as a reduction to another asset or liability. Accordingly, this resulted in a decrease to the December 31, 2022, income tax receivable of $6.3 million.
Note 21—18—Dividends and Earnings Per Share
We have paid or declared cash dividends during 20162021, 2022 and 20172023 as follows:
| | | | | | | | |
Declaration Date | Record Date | Date Paid | Amount Per Share | |||||
| |
| |
| |
| 0.06 | |
May 4, 2021 | | June 30, 2021 | | July 15, 2021 | | | 0.06 | |
August 3, 2021 | | September 30, 2021 | | October 15, 2021 | | | 0.06 | |
November 3, 2021 | | December 31, 2021 | | January 14, 2022 | | | 0.06 | |
February 24, 2022 | | March 31, 2022 | | April 15, 2022 | | | 0.06 | |
May 4, 2022 | | June 30, 2022 | | July 15, 2022 | | | 0.06 | |
August 3, 2022 | | September 30, 2022 | | October 15, 2022 | | | 0.06 | |
November 3, 2022 | | December 31, 2022 | | January 13, 2023 | | | 0.06 | |
February 22, | | March 31, | | April | |
| 0.06 | |
May | | June 30, | | July | |
| 0.06 | |
August | | September | | October | |
| 0.06 | |
November 2, |
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
|
|
|
| |||||
| | December 29, | | January | |
| 0.06 |
The payment of future dividends is contingent upon our revenuesrevenue and earnings, capital requirements and our general financial condition, as well as contractual restrictions and other considerations deemed relevant by theour Board of Directors.
F-39
The table below presents the computation of basic and diluted earnings per share for the years ended December 31, 2017, 20162023, 2022 and 2015 follows2021 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 | |||
Numerator: |
|
|
|
|
|
|
|
|
|
Net income attributable to Primoris |
| $ | 72,354 |
| $ | 26,723 |
| $ | 36,872 |
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Denominator: |
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Weighted average shares for computation of basic earnings per share |
|
| 51,481 |
|
| 51,762 |
|
| 51,647 |
Dilutive effect of shares issued to independent directors |
|
| 3 |
|
| 3 |
|
| 2 |
Dilutive effect of restricted stock units (1) |
|
| 257 |
|
| 224 |
|
| 149 |
Weighted average shares for computation of diluted earnings per share |
|
| 51,741 |
|
| 51,989 |
|
| 51,798 |
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Earnings per share attributable to Primoris: |
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Basic |
| $ | 1.41 |
| $ | 0.52 |
| $ | 0.71 |
Diluted |
| $ | 1.40 |
| $ | 0.51 |
| $ | 0.71 |
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| | | | | | | | | |
| | Year Ended December 31, | |||||||
|
| 2023 |
| 2022 |
| 2021 | |||
Numerator: | | | | | | | | | |
Net income | | $ | 126,145 | | $ | 133,021 | | $ | 115,739 |
| | | | | | | | | |
Denominator: | | | | | | | | | |
Weighted average shares for computation of basic earnings per share: | |
| 53,297 | |
| 53,200 | |
| 52,674 |
Dilutive effect of stock-based awards | |
| 926 | |
| 559 | |
| 487 |
Weighted average shares for computation of diluted earnings per share | |
| 54,223 | |
| 53,759 | |
| 53,161 |
| | | | | | | | | |
Earnings per share: | | | | | | | | | |
Basic | | $ | 2.37 | | $ | 2.50 | | $ | 2.19 |
Diluted | | $ | 2.33 | | $ | 2.47 | | $ | 2.17 |
Note 22—19—Stockholders’ Equity
Preferred Stock
We are authorized to issue 1,000,000 shares of $0.0001 par value preferred stock. No shares of Preferred Stock were outstanding at December 31, 2023 and 2022.
Common Stock
We are authorized to issue 90,000,000 shares of $0.0001 par value common stock, of which 51,448,75353,366,327 and 51,576,44253,124,899 shares were issued and outstanding as of December 31, 20172023 and 2016,2022, respectively. As of December 31, 2017, there were 365 holders of record of our common stock.
We issued 65,42921,245 shares of common stock in 2017, 85,9072023, 23,782 shares of common stock in 2016,2022, and 96,82825,987 shares of common stock in 20152021 under our LTR Plan. The shares were purchased by the participants in the LTR Plan with payments made to us of $1.1$0.3 million in 2017, $1.42023, $0.6 million in 2016,2022, and $1.6$0.5 million in 2015.2021. Our LTR Plan for managers and executives allows participants to use a portion of their annual bonus amount to purchase our common stock at a discount from the market price. The shares purchased in February 20172023, 2022 and 2021 were for bonus amounts earned in 2016,2022, 2021 and 2020 and the number of shares was calculated at 75% of the average closing price of January 2017. The shares purchased in March 2016 were for bonus amounts earned in 2015, and the number of shares was calculated at 75%December of the previous year.
F-40
average closing price ofDuring the years ended December 2015. The shares purchased in March 2015 were for bonus amounts earned in 2014,31, 2023, 2022, and the number of shares was calculated at 75% of the average market price of December 2014. The shares purchased have a six month trading restriction.
We2021, we issued 39,040, 42,080, and 32,920 shares of common stock, underrespectively, as part of the Equity Plan toquarterly compensation of the non-employee members of the Board of Directors as part of our quarterly compensation provided to the Directors. Shares issued were as follows:
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The shares were fully vested upon issuance and have a one-year trading restriction.
As discussed in Note 18—“Deferred Compensation AgreementsDuring the years ended December 31, 2023, 2022, and Stock-Based Compensation”,2021 168,605, 131,709, and 122,690 RSUs, net of forfeitures for tax withholdings, respectively, were converted to common stock.
In connection with the Boardacquisition of Directors has granted a total of 259,065FIH, we offered certain FIH employees the option to purchase shares of Units underour common stock at a 15 percent discount of the Equity Plan.
Atclosing market price of our common stock on the date of the acquisition. During the year ended December 31, 2017, there were 1,853,4942021, such employees purchased 1,038,309 shares of common stock, reservednet of forfeitures for tax withholdings, with payment made to provideus of $28.9 million, resulting in the recognition of $5.1
F-40
million in stock compensation expense included in Transaction and related costs in the Consolidated Statement of Income.
Employee Stock Purchase Plan
In May 2022, our shareholders approved the 2022 Primoris Services Corporation Employee Stock Purchase Plan (the “ESPP”) for which, eligible full-time employees can purchase shares of our common stock at a discount. The purchase price of the stock is 90% of the lower of the market price at the beginning of the offering period or the end of the offering period. Purchases occur semi-annually, approximately 30 days following the filing of our Annual Report on Form 10-K for the grantfiscal year ended December 31 of each year, but in no cases can extend beyond March 31 of the period or year, and exerciseapproximately 30 days following the filing of all future stock option grants, SARS, Unitsour Quarterly Report on Form 10-Q for the fiscal quarter ended June 30 of each year. In 2023, 12,538 shares were purchased at an average price of $25.85 per share. In 2022, 9,943 shares were purchased at an average purchase price of $17.44 per share.
Secondary Offering
In March 2021, we entered into an underwriting agreement with Goldman Sachs & Co. LLC, Morgan Stanley & Co. LLC and grantsUBS Securities LLC, as representatives of restricted shares under the Equity Plan. Other than the Units discussed above, there were no stock options, SARS or restrictedunderwriters, in connection with a public offering, pursuant to which we agreed to issue and sell 4,500,000 shares of common stock, issued or outstandingpar value $.0001 per share. The shares were offered and sold at December 31, 2017.a public offering price of $35.00 per share. Our gross proceeds of the offering, before deducting underwriting discounts, commissions and offering expenses, were approximately $157.5 million. Our net proceeds were approximately $149.3 million and were used to repay a portion of the borrowings incurred in connection with the acquisition of FIH.
Share RepurchasePurchase Plan
In February 2017,November 2021, our Board of Directors authorized a $5.0$25.0 million share repurchasepurchase program. Under the share purchase program, under which we could,can, depending on market conditions, share price and other factors, acquire shares of our common stock on the open market or in privately negotiated transactions. In February 2022, our Board of Directors replenished the limit to $25.0 million. During the monthyear ended December 31, 2023 we did not purchase any shares of March 2017,common stock. During the year ended December 31, 2022, we purchased and cancelled 216,350277,200 shares of common stock, for $5.0which in the aggregate equaled $6.0 million at an average cost of $23.10 per share.
In August 2016, our Board of Directors authorized a share repurchase program under which we, from time to time and depending on market conditions, share price and other factors, could acquire shares of our common stock on the open market or in privately negotiated transactions up to an aggregate purchase price of $5.0 million.$21.61. During the month ofyear ended December 2016,31, 2021, we purchased and cancelled 207,800635,763 shares of common stock, for $5.0which in the aggregate equaled $14.7 million at an average costshare price of $24.02 per share.
There were no share repurchases authorized in 2015.
Preferred Stock
We are authorized$23.15. In November 2023, the Board of Directors replenished the limit to issue 1,000,000 shares of $0.0001 par value preferred stock. No shares of Preferred Stock were outstanding at$25.0 million and extended the program to December 31, 2017, 2016, and 2015.2024.
Warrants
At December 31, 2017, 2016, and 2015 there were no warrants outstanding.
F-41
Note 23—20—Selected Quarterly Financial Information (Unaudited)
Selected unaudited quarterly consolidated financial information is presented in the following tables (in thousands, except per share amounts):
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| Year Ended December 31, 2017 |
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| 1st |
| 2nd |
| 3rd |
| 4th |
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|
| Quarter |
| Quarter |
| Quarter |
| Quarter |
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Revenues |
| $ | 561,502 |
| $ | 631,165 |
| $ | 608,311 |
| $ | 579,017 |
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| | | | | | | | | | | | | |||||||||||||
| | Year Ended December 31, 2023 | |||||||||||||||||||||||
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| 1st |
| 2nd |
| 3rd |
| 4th | |||||||||||||||||
| | Quarter | | Quarter | | Quarter | | Quarter | |||||||||||||||||
Revenue | | $ | 1,256,896 | | $ | 1,413,377 | | $ | 1,529,486 | | $ | 1,515,550 | |||||||||||||
Gross profit |
|
| 55,053 |
|
| 84,483 |
|
| 70,421 |
|
| 68,477 |
| | | 99,732 | | | 157,264 | | | 173,895 | | | 156,600 |
Net income |
|
| 8,512 |
|
| 22,396 |
|
| 22,134 |
|
| 23,808 |
| | | 1,310 | | | 39,032 | | | 48,144 | | | 37,659 |
Net income attributable to Primoris |
|
| 7,691 |
|
| 21,545 |
|
| 20,597 |
|
| 22,521 |
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Earnings per share: |
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| | | | | | | | | | | | |
Basic earnings per share |
| $ | 0.15 |
| $ | 0.42 |
| $ | 0.40 |
| $ | 0.44 |
| | $ | 0.02 | | $ | 0.73 | | $ | 0.90 | | $ | 0.71 |
Diluted earnings per share |
| $ | 0.15 |
| $ | 0.42 | �� | $ | 0.40 |
| $ | 0.44 |
| | | 0.02 | | | 0.72 | | | 0.89 | | | 0.69 |
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Weighted average shares outstanding |
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| | | | | | | | | | | | |
Basic |
|
| 51,594 |
|
| 51,437 |
|
| 51,441 |
|
| 51,449 |
| |
| 53,184 | |
| 53,301 | |
| 53,339 | | | 53,360 |
Diluted |
|
| 51,851 |
|
| 51,688 |
|
| 51,707 |
|
| 51,711 |
| |
| 53,944 | |
| 54,324 | |
| 54,351 | | | 54,385 |
| | | | | | | | | | | | |
| | Year Ended December 31, 2022 | ||||||||||
|
| 1st |
| 2nd |
| 3rd |
| 4th | ||||
| | Quarter | | Quarter | | Quarter | | Quarter | ||||
Revenue | | $ | 784,384 | | $ | 1,022,948 | | $ | 1,284,128 | | $ | 1,329,139 |
Gross profit | | | 56,486 | | | 92,109 | | | 154,907 | | | 153,383 |
Net (loss) income | | | (1,674) | | | 50,154 | | | 43,040 | | | 41,501 |
| | | | | | | | | | | | |
Earnings per share: | | | | | | | | | | | | |
Basic (loss) earnings per share | | $ | (0.03) | | $ | 0.94 | | $ | 0.81 | | $ | 0.78 |
Diluted (loss) earnings per share | | | (0.03) | | | 0.93 | | | 0.80 | | | 0.77 |
| | | | | | | | | | | | |
Weighted average shares outstanding | | | | | | | | | | | | |
Basic | |
| 53,240 | |
| 53,263 | |
| 53,181 | | | 53,120 |
Diluted | |
| 53,240 | |
| 53,852 | |
| 53,748 | | | 53,711 |
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| Year Ended December 31, 2016 |
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| 1st |
| 2nd |
| 3rd |
| 4th |
| ||||
|
| Quarter |
| Quarter |
| Quarter |
| Quarter |
| ||||
Revenues |
| $ | 430,446 |
| $ | 456,811 |
| $ | 507,828 |
| $ | 601,863 |
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Gross profit |
|
| 39,277 |
|
| 43,285 |
|
| 50,129 |
|
| 68,616 |
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Impairment of goodwill |
|
| — |
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| — |
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| 2,716 |
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| — |
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Net income |
|
| 2,916 |
|
| 5,287 |
|
| 4,756 |
|
| 14,766 |
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Net income attributable to Primoris |
|
| 2,693 |
|
| 5,056 |
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| 4,504 |
|
| 14,470 |
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Earnings per share: |
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Basic earnings per share |
| $ | 0.05 |
| $ | 0.10 |
| $ | 0.09 |
| $ | 0.28 |
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Diluted earnings per share |
| $ | 0.05 |
| $ | 0.10 |
| $ | 0.09 |
| $ | 0.28 |
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Weighted average shares outstanding |
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Basic |
|
| 51,725 |
|
| 51,772 |
|
| 51,780 |
|
| 51,771 |
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Diluted |
|
| 51,881 |
|
| 52,022 |
|
| 52,034 |
|
| 52,021 |
|
Note 24—Subsequent Event
On February 21, 2018, the Board of Directors declared a cash dividend of $0.06 per common share for stockholders of record as of March 30, 2018, payable on or about April 13, 2018.
F-42