Attached files
file | filename |
---|---|
8-K/A - AMENDMENT TO FORM 8-K - QUANTA SERVICES, INC. | h68964e8vkza.htm |
EX-99.4 - EX-99.4 - QUANTA SERVICES, INC. | h68964exv99w4.htm |
EX-99.3 - EX-99.3 - QUANTA SERVICES, INC. | h68964exv99w3.htm |
EX-23.2 - EX-23.2 - QUANTA SERVICES, INC. | h68964exv23w2.htm |
EX-23.1 - EX-23.1 - QUANTA SERVICES, INC. | h68964exv23w1.htm |
EX-99.1 - EX-99.1 - QUANTA SERVICES, INC. | h68964exv99w1.htm |
EX-99.2 - EX-99.2 - QUANTA SERVICES, INC. | h68964exv99w2.htm |
Exhibit 99.5
INDEX TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
Unaudited Pro Forma Combined Condensed Balance Sheet |
3 | |||
Unaudited Pro Forma Combined Condensed Statements of Operations |
4 | |||
Notes to Unaudited Pro Forma Combined Condensed Financial Statements |
6 |
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION
FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial information, which is referred
to as the pro forma financial information, has been prepared to give effect to the acquisition of
Price Gregory Services, Incorporated (Price Gregory) by Quanta Services, Inc. (Quanta) on October
1, 2009, with Quanta being considered the acquiring corporation. In connection with the
acquisition, Quanta issued 10,939,933 shares of Quanta common stock
valued at $231.8 million on the date of closing and
paid approximately $95.8 million in cash as consideration for all of the outstanding shares of
stock of Price Gregory, with $0.5 million in cash and 1,531,640 shares of the Quanta common
stock
being placed into an escrow account. The escrow account will be maintained for a period
of up to eighteen months and will be used for the settlement of any claims asserted by Quanta
against the former shareholders of Price Gregory. The pro forma financial information was prepared
using the historical consolidated financial statements of Quanta and Price Gregory. Price Gregory
was formed in conjunction with the combination of H.C. Price Company (H.C. Price) and Gregory &
Cook Construction, Inc., on January 31, 2008 with H.C. Price considered the predecessor company and
therefore, the pro forma financial information for the year ended December 31, 2008 includes
financial information for H.C. Price for the one month ended January 31, 2008 combined with the
financial information of Price Gregory for eleven months ended December 31, 2008.
The unaudited pro forma combined condensed balance sheet as of June 30, 2009 combines the
historical consolidated balance sheets of Quanta and Price Gregory as of June 30, 2009 and gives
effect to the acquisition as if it occurred on June 30, 2009. The unaudited pro forma combined
condensed statements of operations for the fiscal year ended December 31, 2008, including one month
of operations from H.C. Price, and for the six months ended June 30, 2009 combine the historical
condensed consolidated statements of operations of Quanta and Price Gregory, and give effect to the
acquisition as if it occurred on January 1, 2008. The unaudited pro forma combined condensed
financial information includes adjustments to give effect to pro forma events that are directly
attributable to the acquisition and factually supportable.
The pro forma adjustments are preliminary due to the recent closing of the merger and have
been made solely for purposes of developing the pro forma financial information necessary to comply
with the requirements of the SEC. The acquisitions impact on the actual results reported by the
combined company in periods following the acquisition may differ significantly from that reflected
in these pro forma financial statements for a number of reasons. As a result, the pro forma
information is not necessarily indicative of what the combined companys financial condition or
results of operations would have been had the acquisition been completed on the applicable dates of
this pro forma financial information. In addition, the pro forma financial information does not
purport to project the future financial condition and results of operations of the combined
company.
The pro forma financial information is based on assumptions and adjustments, including
assumptions related to the allocation of the purchase price to the underlying tangible and
intangible assets and liabilities acquired from Price Gregory based on their respective fair market
values. The final purchase price allocation will differ from that reflected in the pro forma
financial statements after valuation procedures and amounts recorded in connection with
the purchase price allocation are finalized. The purchase price allocation included in the pro forma
financial information is based on information that was available to the management of Quanta and Price
Gregory at the time this pro forma financial information was prepared. Accordingly, the purchase
price allocation will change and the impact of such changes could be material. Certain adjustments
have been made to the historical Price Gregory balance sheet and statements of operations to
conform to Quantas accounting policies, and certain historical Price Gregory account balances have
been reclassified to conform to Quantas presentation. You should read this information in
conjunction with the:
| Accompanying notes to these unaudited pro forma combined condensed financial statements; | ||
| Separate audited historical consolidated financial statements and notes thereto of Quanta and its subsidiaries included in Quantas Annual Report on Form 10-K for the year ended December 31, 2008, which was filed with the SEC on March 2, 2009; |
1
| Separate unaudited historical consolidated financial statements and notes thereto of Quanta and its subsidiaries included in Quantas Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2009, which was filed with the SEC on August 10, 2009; | ||
| Separate audited historical consolidated financial statements and notes thereto of Price Gregory and its subsidiaries included in Price Gregorys Consolidated Financial Statements as of and for the eleven months ended December 31, 2008, which are included in this Current Report on Form 8-K/A; | ||
| Separate unaudited historical consolidated financial statements and notes thereto of Price Gregory and its subsidiaries included in Price Gregorys Condensed Consolidated Financial Statements as of and for the six months ended June 30, 2009 and five months ended June 30, 2008, which are included in this Current Report on Form 8-K/A; | ||
| Separate audited historical consolidated financial statements and notes thereto of H.C. Price Company and its subsidiaries included in H.C. Price Companys Combined Consolidated Financial Statements as of and for the one month ended January 31, 2008, which are included in this Current Report on Form 8-K/A; and | ||
| Separate audited historical consolidated financial statements and notes thereto of H.C. Price Company and its subsidiaries included in H.C. Price companys Combined Consolidated Financial Statements as of and for the years ended December 31, 2007 and 2006, which are included in this Current Report on Form 8-K/A. |
2
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
(In thousands)
(In thousands)
June 30, 2009 | ||||||||||||||||||||
Price Gregory | ||||||||||||||||||||
Quanta | Services, | Pro Forma | Pro Forma | |||||||||||||||||
Services, Inc. | Incorporated | Adjustments | See Note 3 | Combined | ||||||||||||||||
ASSETS |
||||||||||||||||||||
Current Assets: |
||||||||||||||||||||
Cash and cash equivalents |
$ | 524,356 | $ | 83,691 | $ | (95,792 | ) | (a | ) | $ | 335,546 | |||||||||
(128,041 | ) | (b | ) | |||||||||||||||||
(6,335 | ) | (c | ) | |||||||||||||||||
(2,333 | ) | (d | ) | |||||||||||||||||
(40,000 | ) | (e | ) | |||||||||||||||||
Accounts receivable, net |
723,711 | 151,922 | | 875,633 | ||||||||||||||||
Costs and estimated earnings in excess of
billings on uncompleted contracts |
49,007 | 104,615 | | 153,622 | ||||||||||||||||
Deferred construction costs |
| 17,626 | (17,626 | ) | (f | ) | | |||||||||||||
Inventories |
27,967 | 1,427 | 17,626 | (f | ) | 47,020 | ||||||||||||||
Prepaid expenses and other current assets |
64,767 | 23,692 | | 88,459 | ||||||||||||||||
Total current assets |
1,389,808 | 382,973 | (272,501 | ) | 1,500,280 | |||||||||||||||
Property and equipment, net |
677,346 | 161,628 | (7,439 | ) | (g | ) | 831,535 | |||||||||||||
Other assets, net |
42,159 | 1,339 | | 43,498 | ||||||||||||||||
Other intangible assets, net |
130,905 | 37,363 | 39,176 | (h | ) | 207,444 | ||||||||||||||
Goodwill |
1,363,200 | 144,745 | 14,075 | (i | ) | 1,522,020 | ||||||||||||||
Total assets |
$ | 3,603,418 | $ | 728,048 | $ | (226,689 | ) | $ | 4,104,777 | |||||||||||
LIABILITIES AND EQUITY |
||||||||||||||||||||
Current Liabilities: |
||||||||||||||||||||
Notes payable and current maturities of
long-term debt |
$ | 2 | $ | 23,872 | $ | (23,872 | ) | (b | ) | $ | 2 | |||||||||
Accounts payable and accrued expenses |
364,514 | 145,750 | 2,973 | (c | ) | 513,237 | ||||||||||||||
Billings in excess of costs and estimated
earnings on uncompleted contracts |
66,206 | 50,043 | | 116,249 | ||||||||||||||||
Total current liabilities |
430,722 | 219,665 | (20,899 | ) | 629,488 | |||||||||||||||
Long-term debt, net of current maturities |
| 104,169 | (104,169 | ) | (b | ) | | |||||||||||||
Convertible subordinated notes, net |
124,400 | | | 124,400 | ||||||||||||||||
Deferred income taxes |
84,758 | 60,687 | 12,377 | (j | ) | 157,822 | ||||||||||||||
Insurance and other non-current liabilities |
218,901 | 4,907 | 2,000 | (k | ) | 225,808 | ||||||||||||||
Total liabilities |
858,781 | 389,428 | (110,691 | ) | 1,137,518 | |||||||||||||||
Commitments and Contingencies
|
||||||||||||||||||||
Mandatorily redeemable preferred stock |
| 82,332 | (82,332 | ) | (a | ) (d) | | |||||||||||||
Equity: |
||||||||||||||||||||
Common stock |
2 | 1 | | 3 | ||||||||||||||||
Limited vote common stock |
| | | | ||||||||||||||||
Additional paid-in capital |
2,811,846 | 73,221 | 158,595 | (a | ) | 3,043,662 | ||||||||||||||
Accumulated (deficit) earnings |
(31,545 | ) | 192,187 | (192,187 | ) | (a | ) | (40,853 | ) | |||||||||||
(9,308 | ) | (c | ) | |||||||||||||||||
Accumulated other comprehensive income
(loss) |
(450 | ) | (9,234 | ) | 9,234 | (a | ) | (450 | ) | |||||||||||
Treasury stock |
(35,569 | ) | | | (35,569 | ) | ||||||||||||||
Total stockholders equity |
2,744,284 | 256,175 | (33,666 | ) | 2,966,793 | |||||||||||||||
Noncontrolling interest |
353 | 113 | | 466 | ||||||||||||||||
Total equity |
2,744,637 | 256,288 | (33,666 | ) | 2,967,259 | |||||||||||||||
Total liabilities and equity |
$ | 3,603,418 | $ | 728,048 | $ | (226,689 | ) | $ | 4,104,777 | |||||||||||
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
3
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except for per share information)
(In thousands, except for per share information)
One | Eleven | |||||||||||||||||||||||||||
Year Ended | Month Ended | Months Ended | ||||||||||||||||||||||||||
December 31, | January 31, | December 31, | ||||||||||||||||||||||||||
2008 | 2008 | 2008 | Year Ended December 31, 2008 | |||||||||||||||||||||||||
Total | ||||||||||||||||||||||||||||
Price Gregory | Price Gregory | |||||||||||||||||||||||||||
Quanta | H.C. Price | Services, | Services, | Pro Forma | See | Pro Forma | ||||||||||||||||||||||
Services, Inc. | Company | Incorporated | Incorporated | Adjustments | Note 4 | Combined | ||||||||||||||||||||||
Revenues |
$ | 3,780,213 | $ | 48,155 | $ | 1,336,532 | $ | 1,384,687 | $ | | $ | 5,164,900 | ||||||||||||||||
Cost of services (including depreciation) |
3,145,347 | 41,065 | 1,061,325 | 1,102,390 | 11,943 | (l | ) | 4,265,346 | ||||||||||||||||||||
5,666 | (m | ) | ||||||||||||||||||||||||||
Gross profit |
634,866 | 7,090 | 275,207 | 282,297 | (17,609 | ) | 899,554 | |||||||||||||||||||||
Selling, general and administrative
expenses |
309,399 | 4,248 | 41,834 | 46,082 | (11,943 | ) | (l | ) | 343,538 | |||||||||||||||||||
Amortization of intangible assets |
36,300 | | 11,464 | 11,464 | 23,556 | (n | ) | 71,320 | ||||||||||||||||||||
Operating income |
289,167 | 2,842 | 221,909 | 224,751 | (29,222 | ) | 484,696 | |||||||||||||||||||||
Interest expense |
(32,002 | ) | (260 | ) | (8,026 | ) | (8,286 | ) | 8,286 | (o | ) | (32,002 | ) | |||||||||||||||
Interest income |
9,765 | 373 | 2,048 | 2,421 | (6,885 | ) | (p | ) | 5,301 | |||||||||||||||||||
Loss on early extinguishment of debt |
(2 | ) | | | | | (2 | ) | ||||||||||||||||||||
Other income (expense), net |
342 | | | | | 342 | ||||||||||||||||||||||
Income before income taxes |
267,270 | 2,955 | 215,931 | 218,886 | (27,821 | ) | 458,335 | |||||||||||||||||||||
Provision for income taxes |
109,705 | | 86,587 | 86,587 | (9,698 | ) | (q | ) | 186,594 | |||||||||||||||||||
Net income |
157,565 | 2,955 | 129,344 | 132,299 | (18,123 | ) | 271,741 | |||||||||||||||||||||
Less: Net income attributable to
noncontrolling interest |
| (15 | ) | 188 | 173 | | 173 | |||||||||||||||||||||
Net income attributable to controlling
interests |
157,565 | 2,970 | 129,156 | 132,126 | (18,123 | ) | 271,568 | |||||||||||||||||||||
Preferred stock dividends |
| | 3,666 | 3,666 | (3,666 | ) | (r | ) | | |||||||||||||||||||
Net income attributable to common stock |
$ | 157,565 | $ | 2,970 | $ | 125,490 | $ | 128,460 | $ | (14,457 | ) | $ | 271,568 | |||||||||||||||
Earnings per share attributable to
common stock: |
||||||||||||||||||||||||||||
Basic earnings per share |
$ | 0.89 | $ | 1.45 | ||||||||||||||||||||||||
Diluted earnings per share |
$ | 0.87 | $ | 1.36 | ||||||||||||||||||||||||
Shares used in computing earnings per
share: |
||||||||||||||||||||||||||||
Weighted average basic shares outstanding |
178,033 | 9,408 | (s | ) | 187,441 | |||||||||||||||||||||||
Weighted average diluted shares
outstanding |
196,975 | 10,940 | (t | ) | 214,330 | |||||||||||||||||||||||
6,415 | (u | ) | ||||||||||||||||||||||||||
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
4
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENT OF OPERATIONS
(In thousands, except for per share information)
(In thousands, except for per share information)
Six Months Ended June 30, 2009 | ||||||||||||||||||||
Price Gregory | ||||||||||||||||||||
Quanta | Services, | Pro Forma | Pro Forma | |||||||||||||||||
Services, Inc. | Incorporated | Adjustments | See Note 4 | Combined | ||||||||||||||||
Revenues |
$ | 1,551,909 | $ | 660,198 | $ | $ | 2,212,107 | |||||||||||||
Cost of services (including depreciation) |
1,296,996 | 517,973 | 5,256 | (l | ) | 1,819,753 | ||||||||||||||
(472 | ) | (m | ) | |||||||||||||||||
Gross profit |
254,913 | 142,225 | (4,784 | ) | 392,354 | |||||||||||||||
Selling, general and administrative expenses |
146,573 | 21,580 | (5,256 | ) | (l | ) | 162,897 | |||||||||||||
Amortization of intangible assets |
9,812 | 2,729 | 2,135 | (n | ) | 14,676 | ||||||||||||||
Operating income |
98,528 | 117,916 | (1,663 | ) | 214,781 | |||||||||||||||
Interest expense |
(5,621 | ) | (2,104 | ) | 2,104 | (o | ) | (5,621 | ) | |||||||||||
Interest income |
1,709 | (401 | ) | (938 | ) | (p | ) | 370 | ||||||||||||
Other income (expense), net |
234 | (161 | ) | | 73 | |||||||||||||||
Income before income taxes |
94,850 | 115,250 | (497 | ) | 209,603 | |||||||||||||||
Provision for income taxes |
39,716 | 45,674 | (194 | ) | (q | ) | 85,196 | |||||||||||||
Net income |
55,134 | 69,576 | (303 | ) | 124,407 | |||||||||||||||
Less: Net income attributable to noncontrolling interest |
353 | 212 | | 565 | ||||||||||||||||
Net income attributable to controlling interests |
54,781 | 69,364 | (303 | ) | 123,842 | |||||||||||||||
Preferred stock dividends |
| 2,667 | (2,667 | ) | (r | ) | | |||||||||||||
Net income attributable to common stock |
$ | 54,781 | $ | 66,697 | $ | 2,364 | $ | 123,842 | ||||||||||||
Earnings per share attributable to common stock: |
||||||||||||||||||||
Basic earnings per share |
$ | 0.28 | $ | 0.60 | ||||||||||||||||
Diluted earnings per share |
$ | 0.28 | $ | 0.59 | ||||||||||||||||
Shares used in computing earnings per share: |
||||||||||||||||||||
Weighted average basic shares outstanding |
198,365 | 9,408 | (s | ) | 207,773 | |||||||||||||||
Weighted average diluted shares outstanding |
198,431 | 10,940 | (t | ) | 215,786 | |||||||||||||||
6,415 | (u | ) | ||||||||||||||||||
See accompanying Notes to Unaudited Pro Forma Combined Condensed Financial Statements.
5
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL STATEMENTS
FINANCIAL STATEMENTS
Note 1Basis of Presentation
The unaudited pro forma combined condensed balance sheet as of June 30, 2009 combines the
unaudited consolidated balance sheets of Quanta and Price Gregory as of June 30, 2009 and gives
effect to the merger as if it occurred on June 30, 2009. The
unaudited pro forma combined condensed statements of operations for the fiscal year ended December 31, 2008 and for the six months ended
June 30, 2009 give effect to the merger as if it occurred on January 1, 2008.
The
unaudited pro forma combined condensed financial statements, which
are referred to as the pro
forma financial statements, are based on the historical financial statements of Quanta and Price
Gregory and give effect to the
acquisition of Price Gregory by Quanta under the acquisition method
of accounting. As a result, the pro forma financial statements are based on assumptions and
adjustments, including assumptions relating to the allocation of the consideration paid for the
assets acquired and liabilities assumed from Price Gregory based on preliminary estimates of fair
value. The final purchase price allocation will differ from the
amounts reflected in the pro forma
financial statements when remaining valuation procedures and fair
value amounts are finalized.
The pro forma adjustments are preliminary due to the recent closing of the merger and have
been made solely for purposes of developing the pro forma financial statements for illustrative
purposes. The mergers impact on the actual results reported by the combined company in periods
following the merger may differ significantly from that reflected in these pro forma financial
statements, as fair value analyses of intangible assets, property, plant and equipment and other
balance sheet line items have not been finalized. The pro forma financial statements do not give
effect to any potential cost savings or operating synergies that Quanta and Price Gregory expect to
result from the merger, nor do they give effect to any costs to be incurred in integrating the two
companies.
Impact of Retrospectively Applying Certain New Accounting Pronouncements
Effective
January 1, 2009, Quanta adopted two new accounting pronouncements: Financial
Accounting Standards Board (FASB) Staff Position (FSP) APB 14-1, Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement) (FASB
Accounting Standards Codification (ASC) 470-20, Debt with Conversion and Other Options) and FSP
Emerging Issues Task Force (EITF) 03-6-1, Determining Whether Instruments Granted in Share-Based
Payment Transactions are Participating Securities (ASC 260, Earnings Per Share). ASC 470-20
required Quanta to bifurcate and separately value the debt and equity components of its convertible
subordinated notes on its balance sheet. The recorded value of the equity component of the
convertible notes is offset by the recognition of an adjustment to the carrying value of the
convertible subordinated notes in the form of an original issuance discount which is amortized over
the expected life of the convertible subordinated notes as a non-cash interest charge. As a result
of the adoption of ASC 470-20, Quanta recorded a non-cash interest expense of $14.9 million ($9.6
million after-tax) for the year ended December 31, 2008. The additional non-cash interest expense
in 2008 reduced its previously reported diluted earnings per share for the year ended December 31,
2008 from $0.88 to $0.87. Under ASC 260, Quanta is required to treat unvested share-based payment
awards that contain non-forfeitable rights to dividends or dividend equivalents (whether paid or
unpaid) as participating securities and for such awards to be included in the computation of both
basic and diluted earnings per share. The adoption of ASC 260 did not have a material impact on
basic and diluted earnings per share in 2008. As a result of retrospectively applying both of these
accounting pronouncements, Quantas consolidated statement of operations for the year ended
December 31, 2008 as presented herein has been retrospectively restated to reflect the impact of
the adoption of these standards.
6
Revision of Previously Issued Quanta Services, Inc. Financial Statements
During the third quarter of 2009, Quanta revised its historical financial statements for the
correction of certain errors identified in its deferred tax asset and liability accounts during the
years 2000 through 2004. These items were identified in connection with Quantas 2009 analysis of
its tax basis balance sheet, whereby Quanta determined that certain deferred tax asset and
liability accounts related primarily to goodwill impairments and certain bad debt expense
transactions were misstated. The cumulative impact of these items from the period January 1, 2005
through June 30, 2009 was an understatement of deferred tax assets, an overstatement of deferred
tax liabilities, an overstatement of accumulated deficit and an understatement of total
stockholders equity. Quanta evaluated the impact of these items under the guidance in ASC 250-10
(SEC Staff Accounting Bulletin No. 99, Materiality) on each of the years affected between 2000
and 2004 and on a cumulative basis for all prior periods subsequent to 2004 and through December
31, 2008 and concluded the items were not material to any such periods. Management also evaluated
the impact of correcting these items through a cumulative adjustment to Quantas 2009 financial
statements and concluded that the impact would have been material to its interim results for the
three and nine month periods ended September 30, 2009. As a result of these evaluations and based
on the guidance within ASC 250-10 (SEC Staff Accounting Bulletin No. 108, Considering the Effects
of Prior Year Misstatements when Quantifying Misstatements in Current
Year Financial Statements), Quanta revised its previously issued financial statements to reflect the cumulative impact
of this correction. The following table presents the impact of this revision on Quantas June 30,
2009 balance sheet (in thousands):
As Reported | Adjustment | As Revised | ||||||||||
Prepaid expenses and other current assets |
$ | 60,851 | $ | 3,916 | $ | 64,767 | ||||||
Total assets |
3,599,502 | 3,916 | 3,603,418 | |||||||||
Deferred tax liability |
92,001 | (7,243 | ) | 84,758 | ||||||||
Total liabilities |
866,024 | (7,243 | ) | 858,781 | ||||||||
Accumulated deficit |
(42,704 | ) | 11,159 | (31,545 | ) | |||||||
Total stockholders equity |
$ | 2,733,125 | $ | 11,159 | $ | 2,744,284 |
Note 2 Preliminary Purchase Price Allocation
The purchase price allocation included in the pro forma financial statements is preliminary
and is based on information that was available to management of Quanta and Price Gregory at the
time the pro forma financial statements were prepared. Accordingly, the purchase price allocation
will change and the impact of such changes could be material.
Under
ASC 805, Business Combinations, Quanta is treated as the acquirer of Price Gregory for
accounting purposes. Accordingly, Quanta will allocate the purchase price paid to the fair value of
the Price Gregory assets acquired and liabilities assumed. The allocation of purchase price is
preliminary and subject to the final outcome of fair value analyses to be conducted over the next
several months. In accordance with the acquisition method of accounting, the fair value of the
Quanta common stock issued as part of the consideration transferred has been measured using the
closing market price of Quanta common stock at the date control was obtained, which was October 1,
2009.
The residual amount of the purchase price has been allocated to goodwill. The pro forma
presentation presumes that the historical value of Price Gregorys tangible assets and liabilities
approximates fair value based upon Quantas initial evaluations,
other than property and equipment, which has been preliminarily evaluated by a third party valuation expert. Based upon the
preliminary reviews, the fair value of the Price Gregorys property and equipment is estimated to
be approximately $7.4 million lower than the historical book value. Actual amounts recorded when
the acquisition accounting is completed may differ materially from the pro forma amounts presented
herein. The following table presents Quantas preliminary allocation of purchase price to the fair
value of assets acquired and liabilities assumed in connection with the acquisition of Price
Gregory assuming the acquisition occurred on June 30, 2009 (in thousands):
7
Total Estimated Purchase Price: |
||||
Value of Quanta common shares issued to Price Gregory shareholders |
$ | 231,817 | ||
Cash payments to Price Gregory shareholders |
95,792 | |||
Total consideration |
$ | 327,609 | ||
Preliminary Allocation of Purchase Price: |
||||
Current assets |
$ | 212,599 | ||
Property, plant and equipment |
154,189 | |||
Other assets |
1,339 | |||
Identifiable intangible assets(1) |
76,539 | |||
Current liabilities |
(195,793 | ) | ||
Deferred tax liability, net(2) |
(73,064 | ) | ||
Other long-term liabilities |
(6,907 | ) | ||
Noncontrolling interest |
(113 | ) | ||
Goodwill(3) |
158,820 | |||
Total estimated purchase price |
$ | 327,609 | ||
Estimated goodwill per above |
$ | 158,820 | ||
Historical Price Gregory goodwill |
(144,745 | ) | ||
Pro forma goodwill adjustment |
$ | 14,075 | ||
(1) | Represents adjustments to record intangible assets at their estimated fair value including backlog ($36.7 million), trade names ($23.6 million), customer relationships ($12.7 million) and non-compete agreements ($3.5 million). Quanta estimated the fair value of these intangibles using the income approach, specifically the excess earnings method. Quantas excess earnings analysis consisted of discounting to present value the projected cash flows attributable to backlog, with assumptions for growth, customer contract renewals, rates of return and other assumptions. | |
(2) | Represents Price Gregorys historical deferred tax liability and adjustments to record net estimated deferred income tax liabilities associated with the increase in the value of intangible assets (acquired intangible assets other than goodwill less Price Gregorys historical intangible assets), and the decrease in carrying value of Price Gregorys property and equipment to its estimated fair value. | |
(3) | Goodwill represents the excess of the purchase price over the net amount of the values assigned to assets acquired and liabilities assumed. |
Note 3 Unaudited Pro Forma Combined Condensed Balance Sheet
(a) Represents adjustments to decrease cash and cash equivalents and increase equity as a
result of the cash paid of approximately $95.8 million together with the issuance of 10,939,933
shares of Quanta common stock, valued at approximately
$231.8 million, given as merger consideration in connection
with the acquisition of Price Gregory. Also included are adjustments to reflect the
elimination of Price Gregorys mandatorily redeemable preferred stock and historical equity.
(b) Represents the assumed repayment of Price Gregorys outstanding indebtedness under its
credit facility and notes payable as of June 30, 2009, which Price Gregory was required to repay prior to the acquisition
date pursuant to the terms of the acquisition
agreement.
(c) Represents the impact of professional fees, severance costs, bonus costs and other
non-recurring transaction charges associated with the acquisition. Transaction costs of $6.3
million have been reflected as a decrease to cash and cash equivalents as these amounts were paid
on the acquisition date. Additional estimated transaction costs of $5.0 million and the associated
payroll tax withholding costs of $0.5 million have been reflected as an increase to liabilities as
these amounts had not been paid on the acquisition date. Accordingly, the net amount of $11.8
million has been reflected as an increase to the accumulated deficit in the unaudited pro forma
combined condensed balance sheet. Due to the non-recurring nature of these items, they have been
excluded from the unaudited combined condensed statements of operations. In addition, the increase
to accounts payable and accrued expenses and decrease to accumulated deficit is
8
offset by the effect of recording a $2.6 million pro forma adjustment to reduce current
deferred tax liability as a result of recording a pro forma adjustment for Price Gregorys
severance and bonus expense. Accordingly, the $2.6 million has been reflected as an increase to
the accumulated deficit in the unaudited pro forma condensed balance sheet. Due to the
non-recurring nature of this item, it has been excluded from the unaudited combined condensed
statement of operations.
(d) Represents
an adjustment to reduce cash as a result of the assumed payment of
mandatorily redeemable preferred dividends accrued in the Price Gregory June 30, 2009 financial
statements with respect to its mandatorily redeemable preferred stock.
(e) Represents an adjustment to reduce cash and cash equivalents as a result of the payment of
a $40.0 million dividend by Price Gregory to its stockholders on October 1, 2009 prior to the closing of the
acquisition.
(f) Represents an adjustment to reclassify the recorded value of deferred construction costs,
which consists of consumable construction mats, to conform with Quantas presentation of current
period consumable assets, which are included in inventory.
(g) Represents an adjustment to decrease the recorded value of Price Gregorys property and
equipment to its estimated fair value.
(h) Represents
the net increase in the recorded value of Price Gregorys intangible assets
acquired to $76.5 million, from Price Gregorys historical intangible assets of $37.4 million.
(i) Represents
the net increase in the recorded value of Price Gregorys goodwill acquired to
$158.8 million, from Price Gregorys historical goodwill of $144.7 million
(j) Represent an adjustment to reflect a net increase to deferred tax liability of $12.4
million resulting from tax effects associated with the fair market value write down of property and
equipment, the elimination of Price Gregorys historical intangible assets and the recording of
intangible assets acquired by Quanta.
(k) Represents an adjustment to record a liability for Price Gregorys uncertain tax
positions because Price Gregory was not required to adopt FIN 48 until
December 31, 2009.
Note 4 Unaudited Pro Forma Combined Condensed Statements of Operations
(l) Represents adjustments to reclassify a portion of the historical Price Gregory bonus expense to cost of services from selling, general and administrative
expenses to conform to Quantas accounting policies.
(m) Represents adjustments to Price Gregorys historical depreciation expense
based on the assigned fair value of Price
Gregorys property and equipment at the acquisition date and revisions made to
the estimated useful lives of Price Gregorys
property and equipment to conform with Quantas fixed asset policies. Net changes
to depreciation expense for the pro forma period presented are the result of assuming a
full years depreciation on all assets as though they were acquired as of the beginning of
the pro forma period, as compared to historical depreciation expense which is directly impacted
by the timing of when additions occurred throughout the income statement period.
(n)
Represents adjustments to record the estimated incremental amortization expense on
identifiable intangible assets over their respective useful lives. The amortization of the
intangible assets is based upon the estimated consumption of the economic benefits of each
intangible asset or on a straight-line basis if the pattern of the consumption of economic benefits
cannot be reliably estimated. Backlog is amortized utilizing the estimated pattern of the
consumption of the economic benefit over the weighted average estimated life of 0.7 years. Trade
names are amortized on a straight-line basis over an estimated life of 30 years. Non-competition
agreements are amortized on a straight-line basis over the periods in
the underlying contracts, which
are either two or five years, for a weighted average estimated life of 4.8 years. Customer
relationships are amortized on a straight-line basis over an estimated life of 15 years. The pro
forma amortization expense associated with the intangible assets acquired by Quanta as a result of
the
9
acquisition of Price Gregory is approximately $35.0 million for the year ended December 31,
2008. Price Gregorys historical amortization expense of $11.5 million for the year ended December
31, 2008 associated with its intangible assets was eliminated as part of this pro forma
presentation. The pro forma amortization expense associated with the intangible assets acquired by
Quanta as a result of the acquisition of Price Gregory for the six months ended June 30, 2009 is
approximately $4.9 million. Price Gregorys historical amortization expense of $2.7 million for
the six months ended June 30, 2009 associated with its intangible assets was eliminated as part of
this pro forma presentation. Upon completion of the third party valuation of the intangible assets
as of the acquisition date, there exists a possibility that the final fair values of the intangible
assets and the methods of amortization may change from the preliminary estimates and methods used
in this pro forma presentation.
(o) Represents the elimination of Price Gregorys historical interest expense of $8.3 million
for the year ended December 31, 2008 and $2.1 million for the six months ended June 30, 2009 as a result of the assumed repayment of Price Gregorys outstanding indebtedness under its credit facility and notes
payable on January 1, 2008.
(p) Represents the reduction of historical interest income for the year ended
December 31, 2008 and for the six months ended June 30, 2009 as a result of the assumed repayment
of Price Gregorys outstanding indebtedness under its credit facility and notes payable on January
1, 2008, the $40.0 million cash dividend paid by Price Gregory
to its stockholders on October 1,
2009 prior to the closing of the acquisition and the $95.8 million cash paid to the Price Gregory
stockholders in conjunction with the closing of the acquisition. The interest income reduction was
calculated using the weighted average rate of return on Quantas taxable investments for the year
ended December 31, 2008 and for the six months ended June 30, 2009, multiplied by the average
amounts outstanding of Price Gregorys indebtedness under its credit facility and
notes payable of approximately $252.2 million for the year ended December 31, 2008 and
$269.2 million for the six months ended June 30, 2009.
(q) Represents adjustments to record a tax provision in the pro forma combined statements of
operations as a result of other adjustments impacting pro forma pre-tax income at the estimated
statutory income tax rate of 39% for the combined company, and for the 2008 period, to record a
tax provision for H.C. Price for the one month ended January 31, 2008 when it was an S corporation.
(r) Represents the elimination of dividends on Price Gregorys mandatorily redeemable
preferred stock as a result of the assumed cancellation and retirement of these shares
as
of January 1, 2008 in connection with the acquisition.
(s) Represents adjustments to increase weighted average basic shares
outstanding by approximately 9.4
million shares related to the issuance of approximately 10.9 million shares of Quanta common stock as part
of the merger consideration. Approximately 1.5 million shares of Quanta common stock issued
in connection with the merger have been placed into an 18-month escrow account and, as a result
of their restricted nature, have been excluded
from pro forma adjustments to weighted average basic shares outstanding.
(t) Represents adjustments to increase weighted
average diluted shares outstanding by approximately 10.9 million shares
related to the issuance of approximately 10.9 million shares of Quanta common
stock as part of the merger consideration. Included within this
adjustment are approximately 1.5 million shares of Quanta common
stock issued in connection with the merger that were placed into an
18 month escrow account.
(u) Reflects adjustments to Quantas historical diluted weighted average shares outstanding to
include convertible shares associated with
the assumed conversion of Quantas convertible subordinated notes based on
the result of
10
applying
the if-converted method to calculations of pro forma diluted earnings per share. Net income
used for computing diluted earnings per share has been adjusted for the addback of interest expense
related to the assumed conversion of Quantas convertible subordinated notes, net of tax, of approximately $20.0 million for
the year ended December 31, 2008 and $3.3 million for the six months ended June 30, 2009.
Note 5 Unaudited Pro Forma Combined Earnings Per Share
The following table provides the computational data used to determine the unaudited pro forma
combined basic and diluted earnings per share presented for each period:
Pro Forma Earnings | ||||||||
per Share | ||||||||
For the | For the Six | |||||||
Year Ended | Months Ended | |||||||
December 31, 2008 | June 30, 2009 | |||||||
Unaudited pro forma combined net income attributable to common
stock |
$ | 271,568 | $ | 123,842 | ||||
Effect of convertible subordinated notes under the if converted
method interest expense addback, net of taxes |
20,013 | 3,278 | ||||||
Net pro forma combined net income attributable to common stock
for diluted earnings per share |
$ | 291,581 | $ | 127,120 | ||||
Historical weighted average shares outstanding for basic earnings per share |
178,033 | 198,365 | ||||||
Effect of Quanta common shares issued as part of merger consideration |
9,408 | 9,408 | ||||||
Pro forma weighted average shares outstanding for basic earnings per share |
187,441 | 207,773 | ||||||
Effect of escrow shares |
1,532 | 1,532 | ||||||
Effect of dilutive stock options |
342 | 66 | ||||||
Effect of convertible subordinated notes under the if
converted method weighted convertible share issuable |
25,015 | 6,415 | ||||||
Pro forma weighted average shares outstanding for diluted earnings per share |
214,330 | 215,786 | ||||||
Pro forma combined basic earnings per share attributable to
common stock |
$ | 1.45 | $ | 0.60 | ||||
Pro forma combined diluted earnings per share attributable to
common stock |
$ | 1.36 | $ | 0.59 | ||||
The unaudited pro forma combined basic and diluted earnings per share do not purport to be
indicative of the actual results that would have been achieved by the combined company for the
periods presented or that will be achieved by the combined company in the future.
11