Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended March 31, 2010

OR

o         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 0001-34145

Primoris Services Corporation

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: (949) 598-9242

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 x No o

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 (Section 232.405 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 o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x

As of May 7, 2010, 44,227,691 shares of the registrant’s common stock were outstanding.

Table of Contents

PRIMORIS SERVICES CORPORATION

INDEX

2

Table of Contents

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS

(In Thousands, Except Share Amounts)

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)

See Accompanying Notes to Condensed Consolidated Financial Statements

4

Table of Contents

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In Thousands, Except Share Amounts)

See Accompanying Notes to Condensed Consolidated Financial Statements

5

Table of Contents

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In Thousands)

See Accompanying Notes to Condensed Consolidated Financial Statements

6

Table of Contents

PRIMORIS SERVICES CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)

(In Thousands)

SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION

SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES

See Accompanying Notes to Condensed Consolidated Financial Statements

7

Table of Contents

PRIMORIS SERVICES CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(In Thousands, Except Per Share Amounts)

(Unaudited)

Note 1—Business Activity

Organization and operations— Primoris Services Corporation, a Delaware corporation (“Primoris”, the “Company”, “we”, “us” or “our”), and its wholly-owned subsidiaries ARB, Inc. (“ARB”), ARB Structures, Inc., Onquest, Inc., James Construction Group, LLC (“JCG”), Cravens Services, Inc., Born Heaters Canada, ULC, Cardinal Contractors, Inc., GML Coatings, LLC, Cardinal Mechanical, L.P. and Stellaris, LLC, collectively, are engaged in various construction and engineering activities. The Company’s underground and directional drilling operations install, replace and repair natural gas, petroleum, telecommunications and water pipeline systems. The Company’s industrial, civil and engineering operations construct and provide maintenance services to industrial facilities including power plants, petrochemical facilities and other processing plants and construct multi-level parking structures. The Company has its corporate headquarters in Lake Forest, California.

On December 18, 2009, the Company acquired JCG.  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 and Florida.  JCG is the successor company to T. L. James and Company, Inc., a well-known Louisiana company that has been in business for over 80 years.  Headquartered in Baton Rouge, Louisiana, JCG serves both government and private clients.

In October 2009, the Company also acquired the assets of Cravens Partners, Ltd., a Texas-based provider of civil and utility infrastructure construction services.  Following the acquisition, the Company created a wholly-owned subsidiary named Cravens Services, Inc. (“Cravens”)

Note 2—Basis of Presentation

Interim Consolidated Financial Statements—The interim condensed consolidated financial statements for the three-month periods ended March 31, 2010 and 2009 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 the Company’s latest audited consolidated financial statements, have been omitted. This Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2010 (the “First Quarter 2010 Report”) should be read in concert with the Company’s Annual Report on Form 10-K, filed on March 11, 2010, which contains the Company’s audited consolidated financial statements for the year ended December 31, 2009.

The interim financial information for the three month-periods ended March 31, 2010 and 2009 is unaudited and has been prepared on the same basis as the audited financial statements. However, the financial statements contained in this First Quarter 2010 Report do not include all of the information and disclosures required by accounting principles generally accepted in the United States of America (“GAAP”) for audited financial statements. In the opinion of management, the unaudited information includes all adjustments (consisting of normal recurring adjustments) necessary for the fair presentation of the interim financial information.

Revenue recognition—A number of factors relating to the business of the Company affect the recognition of contract revenue. The Company typically structures contracts as unit-price, time and material, fixed-price or cost plus fixed fee. Revenue is recognized on the percentage-of-completion method for all fixed-price contracts. Under the percentage-of-completion method, estimated contract income and resulting revenue is generally accrued based on costs incurred to date as a percentage of total estimated costs. Total estimated costs, and thus contract revenue and income, are impacted by changes in productivity, scheduling, the unit cost of labor, subcontracts, materials and equipment and other unforeseen events. 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. If a current estimate of total contract cost indicates a loss on a contract, the projected loss is recognized in full when determined.

The caption “Costs and estimated earnings in excess of billings” represents the excess of contract revenues from fixed-priced contracts recognized under the percentage-of-completion method over billings to date. For those fixed-priced contracts in which billings exceed contract revenues recognized to date, such excesses are included in the caption “Billings in excess of costs and estimated earnings”.

8

Table of Contents

Revenues on cost-plus and time and materials contracts are recognized as the related work is completed.

In accordance with the terms of the contracts, certain retainage provisions are withheld by customers until completion and acceptance of the contracts. Final payments of the majority of such amounts are expected to be received in the following operating cycle, which is typically within a year.

Note 3—Recent Accounting Pronouncements

Fair Value Disclosures

In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements” (an update to ASC Topic 820 “Fair Value Measurements and Disclosures”).   ASU 2010-06 requires additional disclosures about fair value measurements including transfers in and out of Levels 1 and 2 and a higher level of disaggregation for the different types of financial instruments. For the reconciliation of Level 3 fair value measurements, information about purchases, sales, issuances and settlements should be presented separately. This ASU is effective for annual and interim reporting periods beginning after December 15, 2009 for most of the new disclosures and for periods beginning after December 15, 2010 for the new Level 3 disclosures. Comparative disclosures are not required in the first year the disclosures are required.  The Company adopted this accounting standard update as of January 1, 2010, which did not result in a material impact on our financial statements.

Consolidation of Variable Interest Entities

In June 2009, the FASB issued an amendment to an accounting standard for ASC Topic 810 “Consolidation”, (formerly referred to as “Statement of Financial Accounting Standards No. 167, “Amendments to FASB Interpretation No. 46R “ (“SFAS 167”)) which sets rules for determining whether to consolidate an entity that is insufficiently capitalized or is not controlled through voting (or similar rights). These rules are based on an entity’s purpose and design and the company’s ability to direct the activities that most significantly impact the entity’s economic performance.  SFAS 167 requires additional disclosures about the reporting company’s involvement with variable-interest entities and any significant changes in risk exposure due to that involvement as well as its affect on the company’s financial statements.  The accounting standard became effective January 1, 2010.  The Company adopted the amendment as of January 1, 2010, which did not result in a material impact on our financial statements.

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 recurring basis, which included goodwill and intangible assets for purposes of impairment assessments.

In general, fair values determined by Level 1 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, using the fair value hierarchy levels identified under ASC Topic 820, the Company’s financial assets that are required to be measured at fair value at March 31, 2010 and December 31, 2009:

9

Table of Contents

In addition to the assets listed in the table, other financial assets and liabilities of the Company consist of accounts receivable, accounts payable and certain accrued liabilities.  These financial assets and liabilities generally approximate fair market value based on their short-term nature.  The carrying value of the Company’s long-term debt approximates fair value based on comparison with current prevailing market rates for loans of similar risks and maturities.

Note 5—Accounts Receivable

The following is a summary of the Company’s accounts receivable as of the dates shown:

Amounts “due from affiliates” primarily relate to receivables from related parties (see Note 7, “Equity Method Investments” and Note 14, “Related Party Transactions”) for the performance of construction contracts. Contract revenues earned from related parties were approximately $927 and $5,708 for the three months ended March 31, 2010 and 2009, respectively.

Note 6—Costs and Estimated Earnings on Uncompleted Contracts

Costs and estimated earnings on uncompleted contracts consist of the following at:

This net amount is included in the accompanying condensed consolidated balance sheet under the following captions:

10

Table of Contents

Note 7—Equity Method Investments

OMPP

During 2007, the Company established a joint venture, OMPP, for the sole purpose of constructing a power plant near San Diego, California. The Company has a 40% interest in the venture and accounts for its investment in OMPP using the equity method. ARB acts as one of OMPP’s primary subcontractors. As of March 31, 2010, ARB has contracts with OMPP totaling $49,019, which are nearing completion.  ARB recognized $12 in revenues in the three months ended March 31, 2010 and $5,384 in the three months ended March 31, 2009. These revenues are included in the contract revenues earned from related parties as stated in Note 5, “Accounts Receivable”.

OMPP distributed $7,000 to its equity holders during the three months ended March 31, 2010, of which the Company’s share was $4,200.  For the three months ended March 31, 2009, OMPP distributed $8,500, of which, the Company’s shares was $3,400. The OMPP agreement states that distributions made prior to the completion of the contract are considered advances on account of each partner’s share as determined at the completion of the underlying contract.

All Day Electric

The Company purchased a 49% interest in All Day Electric (“All Day”) in December 2008 for $500 and accounts for this investment under the equity method. All Day engages in electrical construction activities mainly in Northern California.  ARB recognized $914 in revenues in the three months ended March 31, 2010; there were no revenues for the same period in the prior year.  The following is a summary of the financial position and results as of and for the periods ended:

11

Table of Contents

St.— Bernard Levee Partners

JCG owns a 30% interest in St.—Bernard Levee Partners (“Bernard”) for $300 and accounts for this investment under the equity method. Bernard engages in construction activities in Louisiana. Bernard distributed $964 to its equity holders during the three months ended March 31, 2010, of which the Company’s share was $194.  The following is a summary of the financial position and results as of and for the periods ended:

Note 8 — Business Combinations

The December 18, 2009 acquisition of JCG was accounted using the acquisition method of accounting. The preliminary allocation of the purchase price based on the fair value of the acquired assets, less liabilities assumed, as of December 18, 2009, amounted to $133.19 million.

As part of the acquisition, the Company will issue $10 million in common stock to the sellers, contingent upon JCG meeting a specific operating performance target for the year 2010.  As discussed in Note 13 — “Other Liabilities”, the estimated fair value of this contingency was $8.19 and $8.5 million as of December 31, 2009 and March 31, 2010, respectively.

Other than the adjustment in the fair value of the contingent consideration discussed above, there have been no changes in the preliminary estimates of the fair value of the acquired assets and liabilities that have been identified during the three months ended March 31, 2010.  The Company expects to complete the final determination of the fair value of the tangible and intangible assets acquired prior to the end of 2010.

Supplemental Unaudited Pro Forma Information for the three months ended March 31, 2009

The following pro forma information for the three months ended March 31, 2009 presents the results of operations as if the JCG acquisition had occurred at the beginning of 2009. 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 equipment, based on the purchase price allocation;

·      the pro forma impact of interest expense on the $53.5 million subordinated promissory note;

·      the pro forma tax effect of both the income before income taxes for JCG and the JCG pro forma adjustments, calculated using the statutory corporate tax rate of 39.8% for the three months ended March 31, 2009.

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 transaction been completed on January 1, 2009 or that may be achieved in the future.  The pro forma results do not reflect any operating efficiencies and associated cost savings that the Company may, or may not, achieve with respect to the combined companies.

12

Table of Contents

(1)          The adjustment to weighted average shares outstanding reflects the conversion of the Preferred Stock issued as part of the acquisition consideration (see Note 17 — “Stockholders’ Equity”), as if such shares were converted into common stock, at a conversion rate of 100 common shares per share.  On April 12, 2010, the Preferred Stock was converted into common stock.

The adjustment to weighted average shares outstanding excludes the potential impact of the Earnout Shares that may be issued contingent upon meeting a certain financial target at the end of 2010.  Pro forma basic shares outstanding included 81,852.78 shares of Preferred Stock less 11,897.18 Escrow Shares, totaling 69,955.60 shares of Preferred Stock.  Shares included in pro forma diluted shares outstanding represent the 81,852.78 shares of Preferred Stock.

Note 9—Intangible Assets

At March 31, 2010 and December 31, 2009, intangible assets totaled $31,314 and $32,695, respectively, net of amortization.  The following table summarizes the intangible asset categories, average amortization periods, which are generally on a straight-line basis and the fair value, as follows:

13

Table of Contents

Amortization expense on intangible assets was $1,381 and $9 for the three months ended March 31, 2010 and 2009, respectively.  Estimated amortization expense for intangible assets as of March 31, 2010 is as follows:

Note 10—Discontinued Operations

During December 2009, the Company discontinued all operations in Ecuador, and a plan was put in place to sell the stock ownership of the Ecuador company.  Consequently, the results of operations and cash flows for these operations are reflected as discontinued operations for all periods presented.  Previously, the Ecuador operations were included in the Company’s Construction Services segment.

A liability of $333 remains on the balance sheet as of March 31, 2010 for the discontinued Ecuador operations.

In February 2010, the Company entered into an agreement for the sale of the Ecuador business.  The Company agreed to pay $1.0 million of remaining liabilities of the business, and the buyer delivered to the Company a combination of $400 in Primoris stock owned by the buyer and a $300 note payable.  The buyer also agreed to provide an indemnification to the Company for any remaining liabilities. The sale was completed in March 2010 and had no material impact to the Company.

Note 11—Accounts Payable and Accrued Liabilities

At March 31, 2010 and December 31, 2009, accounts payable includes retentions of approximately $12,952 and $12,616, respectively, due to subcontractors, which have been retained pending contract completion and customer acceptance of jobs.

The following is a summary of accrued expenses and other current liabilities at:

Note 12—Credit Arrangements

Credit Agreements.  On October 28, 2009, we entered into a Loan and Security Agreement (the “Agreement”) with The PrivateBank and Trust Company (the “Lender”) for a revolving line of credit in the total aggregate amount of $35.0 million. Under the Agreement, the Lender provides two revolving loans to us:

·                  a revolving loan in the amount of $20.0 million (the “Revolving Loan A”), with a maturity date of October 28, 2012; and

·                  a revolving loan in the amount of $15.0 million (the “Revolving Loan B”), with a maturity date of October 27, 2010.

14

Table of Contents

The Lender agreed to issue for our account letters of credit up to $15.0 million, under Revolving Loan A.  As of March 31, 2010 and December 31, 2009, total commercial letters of credit outstanding under this credit facility totaled $3,634 and $849, respectively. The principal amount of each of Revolving Loan A and Revolving Loan B will bear interest at either: (i) LIBOR plus an applicable margin as specified in the Agreement, or (ii) the prime rate announced by the Lender plus an applicable margin as specified in the Agreement. The principal amount of any loan bearing interest at LIBOR plus an applicable margin may not be prepaid at any time without being subject to certain penalties. There is no prepayment penalty for any loan bearing interest at the prime rate announced by the Lender plus an applicable margin.

In January 2008, the Company entered into a credit facility (as amended) for purposes of issuing commercial letters of credit in Canada, for an amount up to 10 million in Canadian dollars. The credit facility with a Canadian bank is for a term of 5 years, and 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. As of March 31, 2010 and December 31, 2009, total commercial letters of credit outstanding under this credit facility totaled $4,631 and $5,284, respectively.

All loans made by the Lender under the Agreement are secured by our assets, including, among others, our cash, inventory, goods, equipment (excluding equipment subject to certain permitted liens) and accounts receivable. Certain of our subsidiaries have executed joint and several guaranties in favor of the Lender for all amounts under the Agreement. The Agreement and the line of credit facilities contain various restrictive covenants, including, among others, restrictions on investments, capital expenditures, minimum tangible net worth and debt service coverage requirements.  The Company was in compliance with its restrictive covenants as of March 31, 2010.

At the time of the JCG acquisition on December 18, 2009, the Company assumed outstanding letters of credit of $5,565 under an amended credit agreement that expired on February 28, 2010. Upon termination of the credit agreement, the Company made a cash deposit as replacement for the letters of credit.

Subordinated Promissory Note.  In connection with the acquisition of JCG, the Company executed an unsecured Promissory Note on December 18, 2009 in favor of the sellers of JCG with an initial principal amount of $53.5 million. The Promissory Note is due and payable on December 15, 2014 and bears interest at differing rates until maturity.  For the first 9 months of the term of the note, the Promissory Note bears interest at an annual rate equal to 5%.  For months 10 through 18, the note will bear interest at an annual rate of 7%.  For the months 19 until the maturity date, the Promissory Note will bear interest at an annual rate of 8%.  Payments of principal and interest will be payable in cash on an amortizing basis over 60 monthly payments.  The Promissory Note is subordinated to amounts owed to our commercial banks for lines of credit and to our bonding agencies.

The Promissory Note may be prepaid in whole or in part at any time, and partial prepayment is required in the event the Company completes certain equity financing, receives warrant exercise proceeds or obtains proceeds under certain new indebtedness. As long as more than $10 million is outstanding under the Promissory Note, we have agreed to not take certain actions without the prior written consent of the Promissory Note holders, including, among others, purchase, acquire, redeem or retire any shares of our common stock. As of March 31, 2010, a total of $51.0 million was outstanding on the Promissory Note.  In April 2010, the Company made a partial prepayment of the Promissory Note in the amount of $2.3 million after receiving warrant exercise proceeds for the issuance of common stock during the prior three months.

Note 13 — Other Liabilities

Included in other liabilities were the following amounts resulting from our acquisitions of JCG and Cravens in the fourth quarter of 2009.

As part of the December 2009 JCG acquisition agreement, the Company will issue $10 million in common stock to the sellers, contingent upon JCG meeting a specific operating performance target for the year 2010.  At December 31, 2009, the estimated fair value of the contingent consideration was established at $8.19 million.  The estimated fair value as of March 31, 2010 was valued at $8.5 million.  The $0.3 million change in the fair value was a non-cash charge to selling, general and administrative expenses.

The October 2009 Cravens acquisition also included potential consideration for an additional $2.0 million in common stock and $0.5 million in cash to the sellers, contingent upon meeting specific operating performance targets for the years 2009, 2010 and 2011.  At December 31, 2009, the estimated fair value of the contingent consideration was established at $1.8 million, of which, $750 was current as of December 31, 2009.  Upon meeting the 2009 performance target, the Company paid $150 and issued 74,906 shares of common stock in March 2010.  There was no change to the estimated fair value at March 31, 2010 for the remaining earnout consideration.

15

Table of Contents

Note 14—Related Party Transactions

Primoris has entered into various transactions with Stockdale Investment Group, Inc. (“SIGI”). The majority stockholder, Chief Executive Officer, President and Chairman of the Board of Directors of Primoris, Brian Pratt, also holds a majority interest in SIGI. In addition, the following two officers and directors of Primoris also serve as officers and directors of SIGI: Brian Pratt (SIGI chairman and director) and John M. Perisich (SIGI secretary).

Primoris leases properties from SIGI located in Bakersfield, Pittsburg and San Dimas, California, as well as a property in Pasadena, Texas. During the three months ended March 31, 2010 and 2009, the Company paid $221 and $190, respectively, in lease payments to SIGI for the use of these properties.

The Company leased an airplane from SIGI for business use. During the three months ended March 31, 2009, the Company paid $60 in lease payments to SIGI for the use of the airplane. This lease was terminated on March 31, 2009 when SIGI sold the airplane.

Primoris leases a property from Roger Newnham, a stockholder of the Company’s common stock and a manager at the subsidiary Born Heaters Canada. The property is located in Calgary, Canada. During the three months ended March 31, 2010 and 2009, Primoris paid $62 and $86, respectively, in lease payments to Mr. Newnham for the use of this property. The three-year lease for the Calgary property commenced in October 2005 and was renewed and extended until September 2010.

Note 15—Income Taxes

The effective tax rate for the three months ended March 31, 2010 (“First Quarter 2010”) was 37.1%. The rate for the First Quarter 2010 differs from the U.S. federal statutory rate of 35% due primarily to state income taxes and the Domestic Production Activity Deduction.

To determine its quarterly provision for income taxes, the Company uses an estimated annual effective tax rate, which is based on expected annual income, statutory tax rates and tax planning opportunities available in the various jurisdictions to which the Company is subject. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability in the effective tax rate from quarter to quarter.  The Company recognizes interest and penalties related to uncertain tax positions, if any, in income tax expense.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences of temporary differences between the financial reporting basis and tax basis of the Company’s assets and liabilities. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The tax years 2006 through 2009 remain open to examination by the United States Internal Revenue Service.  The tax years 2005 through 2009 remain open to examination by the other major taxing jurisdictions to which the Company is subject.

Note 16—Dividends and Earnings Per Share

On March 4, 2010, the Company declared a cash dividend of $0.025 per common share, payable to stockholders of record as of March 31, 2010 and to holders of shares of the Company’s Series A Non-Voting Contingent Convertible Preferred stock (“Preferred Stock”) issued in connection with the December 18, 2009 acquisition of JCG.  The dividend, totaling $1,102 was paid on April 15, 2010.

16