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Table of Contents 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2019

OR

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

For the transition period from                    to                      .

Commission file number 001-34145

Primoris Services Corporation

(Exact name of registrant as specified in its charter)

Delaware

    

20-4743916

(State or Other Jurisdiction of

(I.R.S. Employer

Incorporation or Organization)

Identification No.)

2300 N. Field Street, Suite 1900

Dallas, Texas

75201

(Address of Principal Executive Offices)

(Zip Code)

Registrant’s telephone number, including area code: (214740-5600

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading symbol(s)

Name of each exchange on which registered

Common Stock, $0.0001 par value

PRIM

The Nasdaq Stock Market LLC

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes   No 

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 is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes    No 

At August 5, 2019, 50,982,098 shares of the registrant’s common stock, par value $0.0001 per share, were outstanding.

Table of Contents 

PRIMORIS SERVICES CORPORATION

INDEX

    

Page No.

Part I. Financial Information

Item 1. Financial Statements:

—Condensed Consolidated Balance Sheets at June 30, 2019 and December 31, 2018 (Unaudited)

3

—Condensed Consolidated Statements of Income for the three and six months ended June 30, 2019 and 2018 (Unaudited)

4

—Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2019 and 2018 (Unaudited)

5

—Condensed Consolidated Statements of Stockholders’ Equity for the three and six months ended June 30, 2019 and 2018 (Unaudited)

6

—Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2019 and 2018 (Unaudited)

8

—Notes to Condensed Consolidated Financial Statements (Unaudited)

10

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

31

Item 3. Quantitative and Qualitative Disclosures About Market Risk

45

Item 4. Controls and Procedures

46

Part II. Other Information

Item 1. Legal Proceedings

46

Item 1A. Risk Factors

46

Item 6. Exhibits

47

Signatures

48

2

Table of Contents 

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

(Unaudited)

June 30, 

December 31, 

    

2019

    

2018

 

ASSETS

Current assets:

Cash and cash equivalents

$

54,114

$

151,063

Accounts receivable, net

 

472,946

 

372,695

Contract assets

 

415,142

 

364,245

Prepaid expenses and other current assets

 

30,142

 

36,444

Total current assets

 

972,344

 

924,447

Property and equipment, net

 

377,147

 

375,884

Operating lease assets

179,000

Deferred tax assets

903

1,457

Intangible assets, net

 

75,516

 

81,198

Goodwill

 

215,103

 

206,159

Other long-term assets

 

5,198

 

5,002

Total assets

$

1,825,211

$

1,594,147

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:

Accounts payable

$

218,263

$

249,217

Contract liabilities

 

197,785

 

189,539

Accrued liabilities

 

203,235

 

117,527

Dividends payable

 

3,058

 

3,043

Current portion of long-term debt

 

64,651

 

62,488

Total current liabilities

 

686,992

 

621,814

Long-term debt, net of current portion

 

347,397

 

305,669

Noncurrent operating lease liabilities, net of current portion

124,894

Deferred tax liabilities

 

3,610

 

8,166

Other long-term liabilities

 

41,453

 

51,515

Total liabilities

 

1,204,346

 

987,164

Commitments and contingencies (See Note 17)

Stockholders’ equity

Common stock—$.0001 par value; 90,000,000 shares authorized; 50,965,221 and 51,715,518 issued and outstanding at June 30, 2019 and December 31, 2018

 

5

 

5

Additional paid-in capital

 

146,064

 

144,048

Retained earnings

 

474,684

 

461,075

Accumulated other comprehensive loss

(172)

(908)

Noncontrolling interest

 

284

 

2,763

Total stockholders’ equity

 

620,865

 

606,983

Total liabilities and stockholders’ equity

$

1,825,211

$

1,594,147

See Accompanying Notes to Condensed Consolidated Financial Statements

3

Table of Contents 

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

 

Revenue

$

789,929

$

648,787

$

1,451,487

$

1,152,906

Cost of revenue

 

709,398

 

577,368

 

1,318,496

 

1,036,927

Gross profit

 

80,531

 

71,419

 

132,991

 

115,979

Selling, general and administrative expenses

 

48,719

 

43,489

 

91,650

 

80,445

Merger and related costs

7,668

9,363

Operating income

 

31,812

 

20,262

 

41,341

 

26,171

Other income (expense):

Foreign exchange (loss) gain

 

(403)

 

1,256

 

(588)

 

1,513

Other income (expense), net

 

177

 

(771)

 

(193)

 

(783)

Interest income

 

219

 

340

 

568

 

612

Interest expense

 

(6,716)

 

(3,191)

 

(12,308)

 

(5,189)

Income before provision for income taxes

 

25,089

 

17,896

 

28,820

 

22,324

Provision for income taxes

 

(7,265)

 

(3,705)

 

(8,060)

 

(3,917)

Net income

17,824

14,191

20,760

18,407

Less net income attributable to noncontrolling interests

(37)

 

(2,476)

(1,026)

(6,004)

Net income attributable to Primoris

$

17,787

$

11,715

$

19,734

$

12,403

Dividends per common share

$

0.060

$

0.060

$

0.120

$

0.120

Earnings per share:

Basic

$

0.35

$

0.23

$

0.39

$

0.24

Diluted

$

0.35

$

0.23

$

0.39

$

0.24

Weighted average common shares outstanding:

Basic

 

50,912

 

51,531

 

50,841

 

51,505

Diluted

 

51,228

 

51,793

 

51,208

 

51,770

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In Thousands, Except Per Share Amounts)

(Unaudited)

Three Months Ended

Six Months Ended

June 30, 

June 30, 

    

2019

    

2018

    

2019

    

2018

 

Net income

$

17,824

$

14,191

$

20,760

$

18,407

Other comprehensive income, net of tax:

Foreign currency translation adjustments

362

 

377

736

377

Comprehensive income

18,186

14,568

21,496

18,784

Less net income attributable to noncontrolling interests

(37)

(2,476)

(1,026)

(6,004)

Comprehensive income attributable to Primoris

$

18,149

$

12,092

$

20,470

$

12,780

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Amounts)

(Unaudited)

Accumulated

Additional

Other

Non

Total

 

Common Stock

Paid-in

Retained

Comprehensive

Controlling

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Earnings

0

Loss

    

Interest

    

Equity

 

Balance, December 31, 2018

 

50,715,518

$

5

$

144,048

$

461,075

$

(908)

$

2,763

$

606,983

Net income

 

 

 

 

1,947

 

989

 

2,936

Foreign currency translation adjustments, net of tax

374

374

Issuance of shares to employees and directors

 

127,384

 

 

2,661

 

 

 

2,661

Amortization of Restricted Stock Units

487

487

Dividend equivalent Units accrued - Restricted Stock Units

12

(12)

Distribution of noncontrolling entities

(5)

(5)

Dividends declared ($0.06 per share)

 

 

 

 

(3,051)

 

 

(3,051)

Balance, March 31, 2019

 

50,842,902

$

5

$

147,208

$

459,959

$

(534.0)

$

3,747

$

610,385

Net income

 

 

 

 

17,787

 

37

 

17,824

Foreign currency translation adjustments, net of tax

362

362

Conversion of Restricted Stock Units, net of shares withheld for taxes

 

122,319

 

 

(1,519)

 

 

 

(1,519)

Amortization of Restricted Stock Units

371

371

Dividend equivalent Units accrued - Restricted Stock Units

4

(4)

Distribution of noncontrolling entities

(3,500)

(3,500)

Dividends declared ($0.06 per share)

 

 

 

 

(3,058)

 

 

(3,058)

Balance, June 30, 2019

 

50,965,221

$

5

$

146,064

$

474,684

$

(172)

$

284

$

620,865

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (Continued)

(In Thousands, Except Share Amounts)

(Unaudited)

Accumulated

Additional

Other

Non

Total

 

Common Stock

Paid-in

Retained

Comprehensive

Controlling

Stockholders’

 

    

Shares

    

Amount

    

Capital

    

Earnings

Loss

    

Interest

0

Equity

 

Balance, December 31, 2017

 

51,448,753

$

5

$

160,502

$

395,961

$

$

5,715

$

562,183

Net income

 

 

 

 

688

 

 

3,528

 

4,216

Issuance of shares to employees and directors

 

81,819

 

 

1,974

 

 

 

 

1,974

Amortization of Restricted Stock Units

215

215

Dividend equivalent Units accrued - Restricted Stock Units

10

(10)

Dividends declared ($0.06 per share)

 

 

 

 

(3,092)

 

 

 

(3,092)

Balance, March 31, 2018

 

51,530,572

$

5

$

162,701

$

393,547

$

$

9,243

$

565,496

Net income

 

 

 

 

11,715

 

 

2,476

 

14,191

Foreign currency translation adjustments, net of tax

377

377

Amortization of Restricted Stock Units

215

215

Dividend equivalent Units accrued - Restricted Stock Units

12

(12)

Dividends declared ($0.06 per share)

 

 

 

 

(3,092)

 

 

 

(3,092)

Balance, June 30, 2018

 

51,530,572

$

5

$

162,928

$

402,158

$

377

$

11,719

$

577,187

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

(Unaudited)

Six Months Ended June 30, 

    

2019

    

2018

 

Cash flows from operating activities:

Net income

$

20,760

$

18,407

Adjustments to reconcile net income to net cash used in operating activities (net of effect of acquisitions):

Depreciation

 

37,710

 

30,014

Amortization of intangible assets

 

5,682

 

5,161

Stock-based compensation expense

 

858

 

430

Gain on sale of property and equipment

 

(4,713)

 

(1,580)

Other non-cash items

160

68

Changes in assets and liabilities:

Accounts receivable

 

(97,964)

 

18,331

Contract assets

 

(51,048)

 

(64,074)

Other current assets

 

5,309

 

(6,036)

Other long-term assets

(137)

(499)

Accounts payable

 

(31,405)

 

2,115

Contract liabilities

 

4,205

 

(18,220)

Operating lease assets and liabilities, net

 

(918)

 

Accrued liabilities

 

13,481

 

13,647

Other long-term liabilities

 

1,496

 

1,520

Net cash used in operating activities

 

(96,524)

 

(716)

Cash flows from investing activities:

Purchase of property and equipment

 

(56,907)

 

(46,107)

Issuance of a note receivable

 

 

(15,000)

Proceeds from a note receivable

15,000

Proceeds from sale of property and equipment

 

21,196

 

5,811

Cash paid for acquisitions, net of cash and restricted cash acquired

 

 

(111,030)

Net cash used in investing activities

 

(35,711)

 

(151,326)

Cash flows from financing activities:

Borrowings under revolving line of credit

140,000

170,000

Payments on revolving line of credit

 

(85,000)

 

Proceeds from issuance of long-term debt

 

23,105

 

19,467

Repayment of long-term debt

 

(34,320)

 

(28,001)

Proceeds from issuance of common stock purchased under a long-term incentive plan

 

1,804

 

1,498

Payment of taxes on conversion of Restricted Stock Units

 

(1,519)

 

Cash distribution to noncontrolling interest holders

 

(3,505)

 

Dividends paid

 

(6,094)

 

(6,179)

Other

(39)

 

(47)

Net cash provided by financing activities

 

34,432

 

156,738

Effect of exchange rate changes on cash and cash equivalents

854

(185)

Net change in cash and cash equivalents

 

(96,949)

 

4,511

Cash and cash equivalents at beginning of the period

 

151,063

 

170,385

Cash and cash equivalents at end of the period

$

54,114

$

174,896

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

(Unaudited)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

Six Months Ended June 30, 

 

    

2019

    

2018

 

(Unaudited)

Cash paid for interest

$

7,955

$

4,191

Cash (received) paid for income taxes, net

$

(9,599)

$

3,610

Leased assets obtained in exchange for new operating leases

$

51,060

$

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

Six Months Ended June 30, 

 

    

2019

    

2018

 

(Unaudited)

Dividends declared and not yet paid

$

3,058

$

3,092

See Accompanying Notes to Condensed Consolidated Financial Statements

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PRIMORIS SERVICES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Dollars In Thousands, Except Share and Per Share Amounts)

(Unaudited)

Note 1—Nature of Business

Organization and operations Primoris Services Corporation is a holding company of various construction and product engineering subsidiaries. We are incorporated in the State of Delaware, and our corporate headquarters are located at 2300 N. Field Street, Suite 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 — We segregate our business into five reportable segments: the Power, Industrial and Engineering (“Power”) segment, the Pipeline and Underground (“Pipeline”) segment, the Utilities and Distribution (“Utilities”) segment, the Transmission and Distribution (“Transmission”) segment, and the Civil segment. See Note 18 – “Reportable Segments” for a brief description of the reportable segments and their operations.

The classification of revenue 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.

Acquisition of Willbros Group, Inc. — On June 1, 2018, we completed our acquisition of Willbros Group, Inc. (“Willbros”) for approximately $110.6 million, net of cash and restricted cash acquired. Willbros is a specialty energy infrastructure contractor serving the oil and gas and power industries through its utility transmission and distribution, oil and gas, and Canadian operations, which principally provides unit-price maintenance services in existing operating facilities and executes industrial and power projects. The utility transmission and distribution operations formed the Transmission segment, the oil and gas operations are included in the Pipeline segment, and the Canadian operations are included in the Power segment. See Note 5— “Business Combinations”.

Joint Ventures — We own a 50% interest in the Carlsbad Power Constructors joint venture (“Carlsbad”), which engineered and constructed a gas-fired power generation facility located in Southern California, and its operations are included as part of the Power segment. As a result of determining that we are the primary beneficiary of the variable interest entity (“VIE”), the results of the Carlsbad joint venture are consolidated in our financial statements. The project was substantially complete as of December 31, 2018 and the warranty period expires in December 2020.

We owned a 50% interest in the “ARB Inc. & B&M Engineering Co.” joint venture (“Wilmington”), which engineered and constructed a gas-fired power generation facility in Southern California, and its operations were included as part of the Power segment. As a result of determining that we were the primary beneficiary of the VIE, the results of the Wilmington joint venture were consolidated in our financial statements. The project has been completed, the project warranty period expired, and dissolution of the joint venture was completed in the first quarter of 2019.

Financial information for the joint ventures is presented in Note 11 – “Noncontrolling Interests”.

Note 2—Basis of Presentation

Interim condensed consolidated financial statements The interim condensed consolidated financial statements for the three and six month periods ended June 30, 2019 and 2018 have been prepared in accordance with Rule 10-01 of Regulation S-X of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). As such, certain disclosures, which would substantially duplicate the disclosures contained in our Annual Report on Form 10-K, filed on February 28, 2019, which contains our audited consolidated financial statements for the year ended December 31, 2018, have been omitted.

This Second Quarter 2019 Report on Form 10-Q should be read in conjunction with our most recent Annual Report on Form 10-K. The interim financial information is unaudited.  In the opinion of management, the interim information includes all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim financial information. 

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Customer concentration — 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 revenue that is approximately 50% of total revenue; however, the group that comprises the top ten customers varies from year to year.

During the three and six months ended June 30, 2019, revenue generated by the top ten customers was approximately $372.4 million and $696.5 million, respectively, which represented 47.1% and 48.0%, respectively of total revenue during the period. During the three and six months ended June 30, 2019, a Midwest utility customer represented 8.0% and 6.7% of total revenue, respectively, and an electric utility customer represented 7.6% and 8.3% of total revenue, respectively.

During the three and six months ended June 30, 2018, revenue generated by the top ten customers was approximately $322.6 million and $581.6 million, respectively, which represented 50.4% and 49.7%, respectively, of total revenue during the period. During the three and six months ended June 30, 2018, a state department of transportation customer represented 9.4% and 9.3% of total revenue, respectively, and a California utility customer represented 8.7% and 9.0% of total revenue, respectively.

At June 30, 2019, approximately 8.7% of our accounts receivable was due from one customer, and that customer provided 8.3% of our revenue for the six months ended June 30, 2019.

On January 29, 2019, one of our utility customers filed for reorganization under Chapter 11 of the U.S. Bankruptcy Code. As of June 30, 2019, the utility customer comprised approximately 14.0% of our total accounts receivable. In addition to accounts receivable, there is approximately $15.8 million in unbilled revenue, net as of June 30, 2019. For the three and six months ended June 30, 2019, the customer accounted for approximately 5.9% and 5.7%, respectively, of our total revenue. A portion of the accounts receivable balance is past due, but we do not believe a reserve for the accounts receivable and unbilled revenue is appropriate at this time. However, we will closely monitor our current and future potential exposure.

Note 3—Recent Accounting Pronouncements

Recently adopted accounting pronouncements

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842)”, with several clarifying updates. ASU 2016-02 requires 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 also requires disclosures that provide qualitative and quantitative information for the lease assets and liabilities recorded in the financial statements. The standard is effective for fiscal years beginning after December 15, 2018, and requires a modified retrospective transition method where a company applies the new lease standard at (i) the beginning of the earliest period presented in the financial statements, or (ii) the adoption date and recognizes a cumulative effect adjustment to the opening balance of retained earnings. We adopted the new standard as of January 1, 2019 using the modified retrospective transition method and elected to apply the new lease standard at the adoption date. See Note 16 — “Leases” for further details.

In January 2017, the 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, with early adoption permitted. We adopted the standard on January 1, 2019, and it did not have an impact on our financial position, results of operations, or cash flows.

Recently issued accounting pronouncements not yet adopted

In June 2016, the FASB issued ASU 2016-13, “Financial Instruments - Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments”, which introduced an expected credit loss methodology for the measurement and recognition of credit losses on most financial assets, including trade accounts receivables. The expected credit loss methodology under ASU 2016-13 is based on historical experience, current conditions and reasonable and supportable forecasts, and replaces the probable/incurred loss model for measuring and recognizing expected losses under current GAAP. The ASU also requires disclosure of information regarding how a company

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developed its allowance, including changes in the factors that influenced management’s estimate of expected credit losses and the reasons for those changes. The ASU and its related clarifying updates are effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted. Based on our historical experience, we do not currently expect this ASU to have a material impact on our estimate of the allowance for uncollectable accounts.

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement”, which eliminates certain disclosure requirements for recurring and nonrecurring fair value measurements. The ASU eliminates such disclosures as the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, and adds new disclosure requirements for Level 3 measurements. This ASU is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years, with early adoption permitted for any eliminated or modified disclosures. We do not expect the adoption of this ASU to have a material impact on our disclosures.

Note 4—Fair Value Measurements

ASC Topic 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 Topic 820 addresses fair value GAAP for financial assets and financial liabilities that are re-measured and reported at fair value at each reporting period and for non-financial assets and liabilities that are re-measured and reported at fair value on a non-recurring basis.

In general, fair values determined by Level 1 inputs use quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs use data points that are observable such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are “unobservable data points” for the asset or liability and include situations where there is little, if any, market activity for the asset or liability.

The following table presents, for each of the fair value hierarchy levels identified under ASC Topic 820, our financial assets and liabilities that are required to be measured at fair value at June 30, 2019 and December 31, 2018 (in thousands):

Fair Value Measurements at Reporting Date

 

    

    

Significant

    

 

Quoted Prices

Other

Significant

 

in Active Markets

Observable

Unobservable

 

for Identical Assets

Inputs

Inputs

 

    

(Level 1)

    

(Level 2)

    

(Level 3)

 

Assets as of June 30, 2019:

Cash and cash equivalents

$

54,114

 

$

 

$

Contingent consideration

$

$

$

938

Liabilities as of June 30, 2019:

Interest rate swap

$

$

7,023

$

Assets as of December 31, 2018:

Cash and cash equivalents

$

151,063

 

$

 

$

Liabilities as of December 31, 2018:

Interest rate swap

$

$

2,829

$

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 comparison with current prevailing market rates for loans of similar risks and maturities.

In the second quarter of 2019, we sold certain assets that included an earnout of $2.0 million, contingent upon the buyer meeting certain performance targets. The estimated fair value of the contingent consideration on the sale date was approximately $0.9 million. We measured the fair value of the contingent consideration using the income approach, which discounts the future cash payments expected upon meeting the performance targets to present value. The fair

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value of the contingent consideration was impacted by two unobservable inputs, management’s estimate of the probability of meeting the performance target and the estimated discount rate (a rate that approximates our cost of capital). Significant changes in either of those inputs in isolation would result in a different fair value measurement.

The interest rate swap is measured at fair value using the income 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 yield curves observable at commonly quoted intervals. See Note 10 – “Derivative Instruments” for additional information.

Note 5 — Business Combinations

2018 Acquisition

Acquisition of Willbros Group, Inc.

On June 1, 2018, we acquired all of the outstanding common stock of Willbros, a specialty energy infrastructure contractor serving the oil and gas and power industries for approximately $110.6 million, net of cash and restricted cash acquired. The total purchase price was funded through a combination of existing cash balances and borrowings under our revolving credit facility.

During the second quarter of 2019, we finalized the estimate of fair values of the assets acquired and liabilities assumed of Willbros. 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 second quarter of 2018 primarily relate to fair value adjustments to our acquired contracts, which resulted in an increase to contract liabilities of $23.7 million. In addition, fair value adjustments to our acquired lease obligations and insurance liabilities reduced our liabilities assumed by approximately $11.9 million and $6.0 million, respectively, and fair value adjustments to our acquired intangible assets decreased our assets acquired by $6.8 million. As a result of these and other adjustments to the initial estimated fair values of the assets acquired and liabilities assumed, goodwill increased by approximately $18.0 million since the second quarter of 2018. Adjustments recorded to the estimated fair values of the assets acquired and liabilities assumed are recognized in the period in which the adjustments are determined and calculated as if the accounting had been completed as of the acquisition date.

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Purchase consideration (in thousands)

Total purchase consideration

$

164,758

Less cash and restricted cash acquired

(54,138)

Net cash paid

110,620

Identifiable assets acquired and liabilities assumed (in thousands)

Cash and restricted cash

$

54,138

Accounts receivable

103,186

Contract assets

30,762

Other current assets

18,255

Property, plant and equipment

30,522

Intangible assets:

 

Customer relationships

47,500

Tradename

200

Deferred income taxes

27,954

Other non-current assets

 

2,261

Accounts payable and accrued liabilities

(122,692)

Contract liabilities

(68,104)

Other non-current liabilities

(20,953)

Total identifiable net assets

103,029

Goodwill

61,729

Total purchase consideration

$

164,758

We separated the operations of Willbros among two of our existing segments, and created a new segment for the utility transmission and distribution operations called the Transmission segment. The oil and gas operations are included in the Pipeline segment, and the Canadian operations are included in the Power segment. Goodwill associated with the Willbros acquisition principally consists of expected benefits from the expansion of our services into electric utility-focused offerings and the expansion of our geographic presence. Goodwill also