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**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**WASHINGTON, D.C. 20549**

 

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**FORM 10-K**

 

**(Mark One)**

** **

**x****     ****ANNUAL REPORT PURSUANT TOSECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the fiscal year endedDecember 31, 2009**

** **

**OR**

** **

**o****        ****TRANSITION REPORT PURSUANTTO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**

** **

**For the transition period from                         to                         **

 

**Commissionfile number: 0001-34145**

 

**PrimorisServices Corporation**

(Exact name of registrant as specified in its charter)

 

| **Delaware**                                                    | ** ** | **20-4743916**                        |
|-----------------------------------------------------------------|------------|---------------------------------------|
| (State or other jurisdiction of  incorporation or organization) |       | (I.R.S. Employer  Identification No.) |
| ** **                                                      | ** ** | ** **                            |
| **26000 Commercentre Drive  Lake Forest, California**           | ** ** | **92630**                             |
| (Address of principal executive offices)                        |       | (Zip Code)                            |

 

**(949) 598-9242**

(Registrant’s telephone number, including area code)

 

 

Securities registered pursuant to Section 12(b) ofthe Act:

 
| **Title of each class** | ** ** | **Name of exchange on which registered** |
|----------------------------------------|------------|-------------------------------------------------------------------|
| Common Stock, $0.0001 par value        |       | The NASDAQ Stock Market LLC                                  |
| Units                                  |       | The NASDAQ Stock Market LLC                                  |
| Common Stock Purchase Warrants         |       | The NASDAQ Stock Market LLC                                  |

 

Securities registered pursuant to Section 12(g) ofthe Act:

**None**

 

Indicate by check mark if the registrant is a well-knowseasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o  No x

 

Indicate by check mark if the registrant is notrequired to file reports pursuant to Section 13 or Section 15(d) ofthe Act.  Yes o  No x

 

Indicate by check mark whether the registrant (1) hasfiled all reports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months (or forsuch shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past90 days.  Yes x  No o

 

Indicate by check mark whether the registrant hassubmitted electronically and posted on its corporate Web site, if any, everyInteractive Data File required to be submitted and posted pursuant to Rule 405of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months(or for such shorter period that the registrant was required to submit and postsuch files).  Yes o  No o

 

Indicate by check mark if disclosure of delinquentfilers pursuant to Item 405 of Regulation S-K is not containedherein, and will not be contained, to the best of registrant’s knowledge, indefinitive proxy or information statements incorporated by reference in Part IIIin this Form 10-K or any amendment to this Form 10-K. x

 

Indicate by check mark whether the registrant is alarge accelerated filer, an accelerated filer, a non-accelerated filer, or asmaller reporting company (as defined in Rule 12b-2 of the Exchange Act).

 

| Large accelerated filer o |   | Accelerated filer x              |
|------------------------------------------|--------|--------------------------------------------|
| Non-accelerated filer o        |   | Smaller Reporting Company o |

 

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

 

The aggregate market value of the voting common equityheld by non-affiliates of the registrant was approximately $87.2 million basedupon the average bid and asked price of such common equity as of June 30,2009 (the last business day of the Registrant’s most recently completed secondfiscal quarter). On March 9, 2010, there were 33,121,567 shares of commonstock, par value $0.0001, outstanding. For purposes of this Annual Report on Form 10-K,in addition to those stockholders which fall within the definition of “affiliates”under Rule 405 of the Securities Act of 1933, holders of ten percent ormore of the Registrant’s common stock are deemed to be affiliates.

** **

**DocumentsIncorporated by Reference**

 

Portions of the Proxy Statement to be delivered tostockholders in connection with the Registrant’s 2010 Annual Meeting ofStockholders and to be filed on or before 120 days after the end of theRegistrant’s fiscal year end are incorporated by reference into Part IIIof this Annual Report on Form 10-K. With the exception of those portionsthat are specifically incorporated in this Annual Report on Form 10-K,such Proxy Statement shall not be deemed filed as part of this Annual Report onForm 10-K or incorporated by reference herein.

 

 

 

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Table of Contents

 

**TABLE OFCONTENTS**

 
| ** **                                      | ** ** | ** **                                                                                                         | ** ** | **Page**   |
|-------------------------------------------------|------------|--------------------------------------------------------------------------------------------------------------------|------------|------------|
| **Part I**                                 |       |                                                                                                               | ** ** | ** ** |
| Item 1.                                    |       | Business                                                                                                           |       | 3          |
| Item 1A.                                   |       | Risk Factors                                                                                                       |       | 9          |
| Item 1B.                                   |       | Unresolved  Staff Comments                                                                                         |       | 18         |
| Item 2.                                    |       | Properties                                                                                                         |       | 19         |
| Item 3.                                    |       | Legal  Proceedings                                                                                                 |       | 20         |
| Item 4.                                    |       | Submission  of Matters to a Vote of Security Holders                                                               |       | 20         |
| ** **                                      |       |                                                                                                               |       |       |
| **Part II**                                |       |                                                                                                               |       |       |
| Item 5.                                    |       | Market for Registrant’s Common  Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |       | 20         |
| Item 6.                                    |       | Selected  Financial Data                                                                                           |       | 23         |
| Item 7.                                    |       | Management’s  Discussion and Analysis of Financial Condition and Results of Operations                        |       | 24         |
| Item 7A.                                   |       | Quantitative  and Qualitative Disclosures About Market Risk                                                        |       | 41         |
| Item 8.                                    |       | Financial  Statements and Supplementary Data                                                                       |       | 42         |
| Item 9.                                    |       | Changes  In and Disagreements With Accountants on Accounting and Financial Disclosure                              |       | 42         |
| Item 9A.                                   |       | Controls  and Procedures                                                                                           |       | 42         |
| Item 9B.                                   |       | Other  Information                                                                                                 |       | 43         |
| ** **                                      |       |                                                                                                               |       |       |
| **Part III**                               |       |                                                                                                               |       |       |
| Item 10.                                   |       | Directors,  Executive Officers and Corporate Governance                                                            |       | 43         |
| Item 11.                                   |       | Executive  Compensation                                                                                            |       | 44         |
| Item 12.                                   |       | Security  Ownership of Certain Beneficial Owners and Management and Related Stockholder  Matters                   |       | 44         |
| Item 13.                                   |       | Certain  Relationships and Related Transactions, and Director Independence                                         |       | 44         |
| Item 14.                                   |       | Principal  Accounting Fees and Services                                                                            |       | 44         |
| ** **                                      |       |                                                                                                               |       |       |
| **Part IV**                                |       |                                                                                                               |       |       |
| Item 15.                                   |       | Exhibits  and Financial Statement Schedules                                                                        |       | 44         |
|                                            |       |                                                                                                               |       |       |
| **Signatures**                                  |       | 49                                                                                                                 |
|                                            |       |                                                                                                               |       |       |
| **Index  to Consolidated Financial Statements** |       | F-1                                                                                                                |

 

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**FORWARD-LOOKING STATEMENTS**

* *

*This AnnualReport on Form 10-K contains forward-looking statements within the meaningof Section 27A of the Securities Act of 1933, as amended (the “SecuritiesAct”), and Section 21E of the Securities Exchange Act of 1934, as amended(the “Exchange Act”), which are subject to the “safe harbor” created by thosesections. Forward-looking statements include information concerning ourpossible or assumed future results of operations, business strategies,financing plans, competitive position, industry environment, potential growthopportunities, the effects of regulation and the economy, generally.Forward-looking statements include all statements that are not historical factsand can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,”“expects,” “intends, “may,” “plans,” “potential,” “predicts,” “projects,” “should,”“will,” “would” or similar expressions.*

* *

*Forward-lookingstatements involve known and unknown risks, uncertainties and other factorswhich may cause our actual results, performance or achievements to bematerially different from any future results, performance or achievementsexpressed or implied by the forward-looking statements. We discuss many ofthese risks in detail in “Item 1A. Risk Factors”. Also, forward-lookingstatements represent our management’s beliefs and assumptions only as of thedate of this Annual Report on Form 10-K. You should read this AnnualReport on Form 10-K completely and with the understanding that our actualfuture results may be materially different from what we expect.*

* *

*Giventhese uncertainties, you should not place undue reliance on theseforward-looking statements. We assume no obligation to update theseforward-looking statements publicly, or to update the reasons actual resultscould differ materially from those anticipated in any forward-lookingstatements, even if new information becomes available.*

 

**PART I**

** **

**ITEM 1. BUSINESS**

** **

**Business Overview**

 

Primoris ServicesCorporation, a Delaware corporation formed in October 2006 (“Primoris”,the “Company”, “we”, “us” or “our”), is a holding company of varioussubsidiaries, which form a diversified engineering and construction companyproviding a wide range of construction, fabrication, maintenance, replacementand engineering services to major public utilities, petrochemical companies,energy companies, municipalities and other customers. Since 1946, our primarysubsidiary in California is ARB, Inc. (“ARB”). ARB is engaged primarily inthe infrastructure, underground pipeline, directional drilling and otherstructure construction and maintenance services.

 

OnDecember 18, 2009, the Company acquired James Construction Group, LLC, aFlorida limited liability company (“JCG”). JCG is one of the largest general contractors based in the Gulf Coaststates, 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., awell-known Louisiana company that has been in business for over 80 years.  Headquartered in Baton Rouge, Louisiana, JCGserves government and private clients in a broad geographical region thatincludes the entire Gulf Coast region of the United States.

 

Primoris companies install,replace, repair and rehabilitate natural gas, refined product, water andwastewater pipeline systems, and constructs mechanical facilities, and otherstructures, including power plants, petrochemical facilities, refineries andparking structures. In addition, we provide maintenance services, includinginspection, overhaul and emergency repair services, for cogeneration plants,refineries and similar mechanical facilities.

 

JCG’sheavy civil division provides services in heavy civil construction projects,including highway and bridge construction, concrete paving, levee construction,airport runway and taxiway construction and marine facility construction. JCG’sinfrastructure and maintenance division provides large earthwork and sitedevelopment, landfill construction, site remediation and mining supportservices. JCG’s industrial division, with a client base comprised primarily ofprivate industrial companies, provides all phases of civil and structuralconstruction, mechanical equipment erection, process pipe installation andboiler, furnace and heater installation and repair.

 

Prior to the JCGacquisition, substantial portions of our activities were performed in thewestern United States, primarily in California. Through our Canadian subsidiaryOnquest, Inc. and its subsidiary, Born Heaters, ULC, we provide engineeringdesign services for fired heaters and furnaces primarily used in refineryapplications. Through our subsidiary Cardinal Contractors, Inc., weconstruct water and wastewater facilities in the southeast United States. Inaddition, we have strategic presences in Florida and Texas through oursubsidiaries Cardinal Mechanical and Cravens Services, Inc.

 

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**Company History and the July 2008 Merger**

 

Rhapsody Acquisition Corp. (“Rhapsody”)was a blank check company formed on April 24, 2006 as a vehicle to effecta merger, capital stock exchange, asset acquisition or other similar businesscombination with an operating business. On October 10, 2006, Rhapsody closed its initial public offeringand raised cash to affect a transaction. Rhapsody’s common stock, warrants topurchase common stock (“Warrants”) and Units (each unit consisting of one shareof common stock and one Warrant) traded on the OTC Bulletin Board under thesymbols “RPSD”, “RPSDW” and “RPSDU”, respectively. On February 19, 2008,Rhapsody entered into an Agreement and Plan of Merger (“Merger Agreement”) withPrimoris Corporation, a privately held Nevada corporation (“Former Primoris”),and certain stockholders of Former Primoris. On July 31, 2008, with theconsent of both the Rhapsody stockholders and the stockholders of FormerPrimoris, the merger was completed. In connection with the merger, Rhapsodychanged its name to “Primoris Services Corporation”, whose common stock,Warrants and Units have traded since August 4, 2008 on the NASDAQ GlobalMarket under the symbols “PRIM”, “PRIMW” and “PRIMU”, respectively. WhileRhapsody was the surviving legal entity in the merger, Former Primoris wastreated as the acquiring entity for accounting purposes. Unless specificallynoted otherwise, as used throughout this Annual Report on Form 10-K, “Primoris”,the “Company” or “we,” “our,” or “us” refers to the business, operations andfinancial results of Former Primoris prior to, and Primoris ServicesCorporation subsequent to, the closing of the merger on July 31, 2008,between us and Former Primoris, as the context requires. “Rhapsody” refers toour operations or financial results prior to the closing of the merger.

 

The merger with Rhapsody wasaccounted for as a reverse acquisition in accordance with accounting principlesgenerally accepted in the United States (“GAAP”). Under this method ofaccounting, Rhapsody was treated as the “acquired” company for financialreporting purposes. This determination was primarily based on the operationsand management of Former Primoris comprising the ongoing operations andmanagement of the Company after the merger. In accordance with guidanceapplicable to these circumstances, the merger was considered to be a capitaltransaction in substance. Accordingly, for accounting purposes, the merger wastreated as the equivalent of Former Primoris issuing stock for Rhapsody’s netassets, accompanied by a recapitalization. Our pre-merger net assets are statedat historical cost, with no goodwill or other intangible assets recorded aspart of the merger transaction. Operations prior to the merger are those ofFormer Primoris.

 

As part of the July 2008merger, holders of all of the issued and outstanding shares of common stock ofFormer Primoris and two foreign managers of Former Primoris (collectively, the “FormerPrimoris Holders”) received an aggregate of (i) 24,094,800 shares of ourcommon stock at the closing of the merger plus (ii) the right to receive2,500,025 additional shares of our common stock for the fiscal year ending December 31,2008 and 2,499,975 shares for the fiscal year ending December 31, 2009 fora total of 5,000,000 additional shares, provided that we achieved specifiedfinancial milestones. Of the 24,094,800 shares of common stock issued at theclosing of the merger, 1,807,110 were placed into escrow to provide funds tosatisfy Rhapsody’s rights to indemnification under the Merger Agreement.  The Company achieved the specified financialmilestone for 2008 and consequently, 2,500,025 shares were issued to the FormerPrimoris stockholders in March 2009. Additionally, for the year ended December 31, 2009, the specifiedfinancial milestone for 2009 was met, and we expect to issue 2,499,975 sharesin March 2010 to the Former Primoris Holders.

 

At the time of the July 2008merger, Brian Pratt, our Chief Executive Officer and President of the Company,beneficially held more than 50% of the voting power of the Company, through hisownership of shares of our common stock and by the delivery of revocableproxies to Mr. Pratt from certain of our stockholders. The Company wasconsidered a “controlled company” for purposes of the NASDAQ listingrequirements (a corporation which more than 50% of the voting power is held byan individual, a group or another company). Therefore, the Company was notsubject to the NASDAQ listing requirements that would otherwise require that theboard of directors have a majority of independent directors that executivecompensation and director nominations be subject to independent directoroversight.  On December 18, 2009,the Company completed the acquisition of JCG and appointed two new directors,the former executive chairman and the chief executive officer of JCG to thePrimoris Board of Directors.  As of December 17,2009 the Board of Directors determined that six of the ten directors wereindependent under the applicable NASDAQ listing requirements.

 

OnDecember 18, 2009, we completed the acquisition of the equity interests ofJCG, following which JCG became our wholly-owned subsidiary.  Under the terms of the purchase agreement,the purchase amounted to $125.0 million in initial consideration at closing,consisting of a combination of $7.0 million in cash, shares of Primoris Series ANon-Voting Contingent Convertible Preferred Stock valued at $64.5 million and a$53.5 million promissory note.  Inaddition, if JCG attains certain specified financial goals for the fiscal yearending December 31, 2010, we have agreed to pay the sellers an additional$10.0 million earnout consideration, payable in shares of our common stock.

 

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**Services**

 

Currently, the Companyprovides services in two business segments, Construction Services andEngineering.  Construction Servicesrepresented approximate 87.6% of revenues for 2009 and 84.4% in 2008.  Engineering represented approximately 12.4%of revenues in 2009 and 15.6% in 2008.

 

The segment operations areas follows:

 

***Construction Services***

 

Our Construction Servicessegment specializes in a range of services that include designing, building/installing,replacing, repairing/rehabilitating and providing management services forconstruction related projects. Our services include:

 

·                  Providing installation of undergroundpipeline, cable and conduits for entities in the petroleum, petrochemical andwater industries;

 

·                  Providing installation and maintenance ofindustrial facilities for entities in the petroleum, petrochemical and waterindustries;

 

·                  Providing installation of complex commercialand industrial cast-in-place structures;

 

·                  Providing large earthwork and sitedevelopment, site remediation and mining support services; and

 

·                  Since the acquisition of JCG, services alsoinclude heavy civil construction projects, including highway and bridgeconstruction, concrete paving, levee construction, airport runway and taxiwayconstruction and marine facility construction.

 

***Engineering***

 

The Engineering segmentspecializes in designing, supplying and installing high-performance furnaces,heaters, burner management systems, and related combustion and processtechnologies for clients in the oil refining, petrochemical, and powergeneration industries. It also furnishes turnkey project management with thetechnical expertise and the ability to deliver custom engineering solutionsworldwide.

** **

**Segment reporting for 2010**

 

As a result of the acquisition of JCG, management will change thePrimoris reportable segments effective on January 1, 2010.  The three new segments will be ConstructionServices — East, Construction Services — West and Engineering.

 

The Construction Services — East segment will incorporate the JCGconstruction services business, located primarily in the southern UnitedStates, specializing in highway, industrial and environmental projects and willinclude the current Construction Services businesses located in the Gulf Coastregion of the United States, which includes Cardinal Contractors, Inc.,Cardinal Mechanical and Cravens Services, Inc. The newly formedConstruction Services-West segment will include the Construction Servicesperformed in the western United States, primarily in the state of California.The current Engineering segment will remain unchanged.

** **

**Strategy**

 

Our strategy emphasizes thefollowing key elements:

 

·                  *Diversificationthrough Controlled Expansion. *We continue toemphasize both the expansion of services beyond our traditional focus and theaddition of new customers. In December 2009, we completed the acquisitionof JCG as part of this strategy.  We willcontinue to evaluate acquisitions that offer growth opportunities and theability to leverage our resources as a leading service provider to the oil andgas, power, refining and water industries. The current strategy also includespotential selective expansion to new geographic regions.

 

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·                  *Emphasison Retention of Existing Customers and Recurring Revenue. *In order to fully leverageour relationships with our existing customer base, we believe it is importantto maintain strong customer relationships and to expand our base of recurringrevenue sources and recurring customers.

 

·                  *Ownershipof Equipment. *Many of ourservices are equipment intensive. The cost of construction equipment provides asignificant barrier to entry into several of our businesses. We believe thatour ownership of a large and varied construction fleet and our maintenancefacilities enhances our access to reliable equipment at a favorable cost.

 

·                  *StableWork Force. *We maintain astable work force of skilled, experienced laborers, many of whom arecross-trained in projects such as pipeline and facility construction, refinerymaintenance, and piping systems.

 

·                  *SelectiveBidding. *We selectively bid onprojects that we believe offer an opportunity to meet our profitabilityobjectives, or that offer the opportunity to enter promising new markets. Inaddition, we review our bidding opportunities to attempt to minimizeconcentration of work with any one customer, in any one industry, or instressed labor markets.

 

**Backlog**

 

Backlog is discussed inItem 7. “*Management’s Discussion andAnalysis of Financial Condition and Results of Operations*” of thisAnnual Report on Form 10-K.

** **

**Customers**

 

We have longstandingrelationships with major utility, refining, petrochemical, power andengineering companies. We have completed major underground and industrialprojects for a number of large natural gas transmission and petrochemicalcompanies in the western United States, as well as significant projects throughour engineering subsidiary.  With the December 2009completion of the JCG acquisition, we have expanded our customer base toinclude a significant presence in the Gulf Coast region of the United States.We enter into a large number of contracts each year and the projects can varyin length — from three months, to as long as 12 to 36 months forcompletion on larger projects. Although we have not been dependent upon any onecustomer in any year, a small number of customers may constitute a substantialportion of our total revenues.

 

Our customers have includedmany of the leading energy and utility companies in the United States,including, among others, Duke Energy, Conoco Phillips, British Petroleum,Pacific Gas & Electric, Sempra Energy, Williams, Valero, Chevron,Calpine, Kinder Morgan and Praxair.

 

The following customersaccounted for more than 5% of our revenues in the periods indicated:

 
| **Description of customer’s business** | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Public gas and electric  utility            |       | 14.4     | %          | 7.6      | %          | 6.0      | %          |
| Public gas and electric  utility            |       | 11.9     | %          | *        |       | *        |       |
| Public gas utility                          |       | 9.1      | %          | *        |       | 5.7      | %          |
| Engineering contractor                      |       | *        |       | 9.9      | %          | —   |       |
| Engineering contractor                      |       | *        |       | 11.3     | %          | 10.3     | %          |
| Totals                                      |       | 35.4     | %          | 28.8     | %          | 22.0     | %          |

 

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(*)                                 Indicates acustomer with less than 5% of revenues during such period.

 

For the year ended December 31,2009, approximately 58.8% of total revenues were generated from the Company’stop ten customers. Additionally, approximately 8.4% of the Company’s accountsreceivable were due from one customer. For the year ended December 31,2009, the Company earned approximately 11.9% of its total revenue from thiscustomer.

 

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**Ongoing Projects**

 

The following is a summaryof our selected ongoing construction projects at December 31, 2009:

 
| **Segment**           | ** ** | **Project**                       | ** ** | **Location**         | ** ** | **Contract  Amount** | ** ** | **Estimated  Completion  Date** | ** ** | **Remaining  Backlog at  December 31,  2009** | ** ** |
|-----------------------|------------|-----------------------------------|------------|----------------------|------------|----------------------|------------|---------------------------------|------------|----------------------------------------------------|------------|
| ** **            | ** ** | ** **                        | ** ** | ** **           | ** ** | **(Millions)**       | ** ** | ** **                      | ** ** | **(Millions)**                                     | ** ** |
| Construction Services |       | 138 kV Transmission Line          |       | Las Vegas, NV   |       | $                    | 15.0       |                            | 03/2010    |                                               | $          | 15.0 |   |
| Construction Services |       | Parking Structure                 |       | Long Beach, CA       |       | $                    | 38.0       |                            | 12/2011    |                                               | 38.0       |   |
| Construction Services |       | Delevan Compressor Power Retrofit |       | Willows, CA          |       | $                    | 54.0       |                            | 04/2011    |                                               | 40.0       |   |
| Construction Services |       | Bell County US 190                |       | Bell County, LA      |       | $                    | 45.0       |                            | 06/2011    |                                               | 27.0       |   |
| Construction Services |       | I12 Design Build                  |       | Baton Rouge, LA      |       | $                    | 100.0      |                            | 11/2011    |                                               | 83.0       |   |
| Construction Services |       | Causeway Blvd Exchange            |       | Metarie, LA          |       | $                    | 51.0       |                            | 03/2012    |                                               | 50.0       |   |
| Construction Services |       | LA1 Bridge                        |       | Lafourche Parish, LA |       | $                    | 138.0      |                            | 11/2011    |                                               | 91.0       |   |
| Engineering           |       | Waste Heat Recovery               |       | Australia            |       | $                    | 28.0       |                            | 09/2011    |                                               | 28.0       |   |
| Engineering           |       | Waste Heat Recover                |       | Thailand             |       | $                    | 28.0       |                            | 03/2010    |                                               | 1.0        |   |
|                       |            |                                   |            |                      |            |                      |            |                                 |            |                                                    |            |  |  |

 

**Competition**

 

We face substantial competition on large construction projects fromregional and national contractors. Competitors on small construction projectsrange from a few large construction companies to a variety of smallercontractors. We compete with many local and regional firms for constructionservices and with a number of large firms on select projects. Each businesssegment faces varied competition depending on the type of project and servicesoffered.

 

We believe that the primaryfactors influencing competition in our industry are price, reputation forquality, delivery and safety, relevant experience, availability of skilledlabor, machinery and equipment, financial strength, knowledge of local marketsand conditions, and estimating abilities. We believe that we compete favorablyin all of the foregoing factors.

** **

**Geographic Areas — Financial Information**

 

The following table setsforth our revenues from external customers attributable to our operations inthe countries identified below for the years ended December 31, 2009, 2008and 2007, and the total assets located in those countries for the years ended December 31,2009 and 2008. Our revenue from operations in the United States are related toprojects primarily in the geographic United States. Our revenue from operationsin Canada are primarily derived from our office in Calgary, Canada, but mayrelate to specific projects in other countries. In December 2009, we determined to discontinue all operations inEcuador and in February 2010, entered into an agreement for the sale ofthe Ecuador business. As a result, the table below does not include theinformation attributable to our discontinued Ecuador subsidiary.

 
| ** **        | ** ** | **Year Ended  December 31,** | ** ** | **Total  Assets at  December 31,** | ** ** |
|-------------------|------------|-----------------------------------|------------|-----------------------------------------|------------|
| ** **        | ** ** | **2009**                          | ** ** | **2008**                                | ** ** | **2007** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Country**       | ** ** | **Revenue**                       | ** ** | **%**                                   | ** ** | **Revenue** | ** ** | **%** | ** ** | **Revenue** | ** ** | **%** | ** ** | **2009 (1)** | ** ** | **2008 (1)** | ** ** |
| ** **        | ** ** | **(Thousands)**                   | ** ** | ** **                              | ** ** | **(Thousands)** | ** ** | ** ** | ** ** | **(Thousands)** | ** ** | ** ** | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** |
| United States     |       | $                                 | 445,979    |                                    | 95.5       |   | $ | 577,090 |   | 96.5 |   | $ | 521,663 |   | 96.1 |   | $ | 465,025 |   | $ | 231,432 |   |
| Non-United States |       | 21,031                            |       | 4.5                                     |       | 20,732 |   | 3.5 |   | 20,961 |   | 3.9 |   | 5,760 |   | 12,514 |   |
| TOTAL             |       | $                                 | 467,010    |                                    | 100.0      |   | $ | 597,822 |   | 100.0 |   | $ | 542,624 |   | 100.0 |   | $ | 470,723 |   | $ | 243,946 |   |

 

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(1)          Totalassets within the United States include current assets of discontinuedoperations of Ecuador of $5.3 million and $6.9 million as of December 31,2009 and 2008, respectively.

 

**Risks Attendant to Foreign Operations**

 

International operations aresubject to foreign economic and political uncertainties. Unexpected and adversechanges in the foreign countries in which we operate could result in projectdisruptions, increased costs and potential losses. Our business is subject tofluctuations in demand and to changing domestic and international economic andpolitical conditions which are beyond our control. In 2009, as set forth in thetable above, approximately 4.5% of our revenue was attributable to externalcustomers in foreign countries. The current expectation is that a similarportion of revenue will continue to come from international projects for theforeseeable future.

 

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The lack of a well-developed legal system in some foreign countries mayalso make it difficult to enforce contractual rights. There are significantrisks due to civil strife, acts of war, terrorism and insurrection. The levelof exposure to these risks will vary with respect to each project, depending onthe particular stage of each such project. For example, the risk exposure withrespect to a project in an early development stage will generally be less thanthe risk exposure with respect to a project in the middle of construction. Tothe extent that our international business is affected by unexpected andadverse foreign economic and political conditions, we may experience projectdisruptions and losses, which can significantly reduce our overall revenue andprofits. We are able to mitigate significant portions of these risks byfocusing on U.S. and European based clients (although the projects may belocated elsewhere) and U.S. dollar based or hedged contracts.

 

During the years 2005through 2009, the Company had operations in Ecuador.  In December 2009, management determinedthat the Ecuador operations would be discontinued and the business sold.  Refer to Note 11 *“DiscontinuedOperations”* to the consolidated financial statements included in Part II,Item 8, “*Financial Statements andSupplementary Data*” for further discussion.

** **

**Contract Provisions and Subcontracting**

 

A substantial portion of ourrevenue is derived from contracts that are “fixed price” or “fixed unit price”contracts. Under a fixed price contract, we undertake to provide labor,equipment and services required by a project for a competitively bid ornegotiated fixed price. The materials required under a fixed price contract,such as pipe, turbines, boilers and vessels are often supplied by the partyretaining us. Under a fixed unit price contract, we are committed to providingmaterials or services required by a project at fixed unit prices. While thefixed unit price contract shifts the risk of estimating the quantity of unitsrequired for a particular project to the party retaining us, any increase inour unit cost over the unit price bid, whether due to inflation, inefficiency,faulty estimates or other factors, is borne by us.

 

Construction contracts areprimarily obtained through competitive bidding or through negotiations withlong-standing customers. We are typically invited to bid on projects undertakenby recurring customers who maintain pre-qualified contractor lists. Contractorsare selected for the pre-approved contractor lists by virtue of their priorperformance for such customers, as well as their experience, reputation forquality, safety record, financial strength and bonding capacity.

 

In evaluating bidopportunities, we consider such factors as the customer, the geographiclocation of the work, the availability of labor, our competitive advantage ordisadvantage relative to other likely contractors, our current and projectedworkload, the likelihood of additional work, and the project’s cost andprofitability estimates. We use computer-based estimating systems and ourestimating staff has significant experience in the construction industry. Theproject estimates form the basis of a project budget against which performanceis tracked through a project cost system, thereby enabling management tomonitor a project. Project costs are accumulated and monitored weekly againstbillings and payments to assure proper control of cash flow on the project.

 

All government contracts andmany other contracts provide for termination of the contract for theconvenience of the party. In addition, many contracts are subject to certaincompletion schedule requirements with liquidated damages in the event schedulesare not met. We have not been materially adversely affected by these provisionsin the past.

 

Weact as prime contractor on a majority of the construction projects weundertake. In the construction industry, the prime contractor is normallyresponsible for the performance of the entire contract, including subcontractwork. Thus, we are subject to increased costs associated with the failure ofone or more subcontractors to perform as anticipated. In our capacity as primecontractor and, when acting as a subcontractor, we perform most of the work onour projects with our own resources, but we do subcontract specializedactivities such as blasting, hazardous waste removal and electrical work.

 

Our gas distributionservices are typically provided pursuant to renewable contracts, on a “unit-cost”basis. Fees on unit-cost contracts are negotiated and are earned based on unitscompleted. Historically, substantially all of the gas distribution customershave renewed their maintenance contracts. Facilities maintenance services, suchas regularly scheduled and emergency repair work, are provided on an ongoingbasis at predetermined rates.

** **

**Insurance and Bonding**

 

We maintain generalliability and excess liability insurance, covering our construction equipment,and workers’ compensation insurance, in amounts consistent with industrypractices. In the State of California, we self-insure our workers’ compensationclaims in an amount of up to $250,000 per occurrence, and we maintain insurancecovering larger claims. Management believes our insurance programs areadequate.

 

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We maintain a diligentsafety and risk management program that has resulted in a favorable lossexperience factor. Through our safety director and the employment of a largestaff of regional and site specific safety managers, we have been able toeffectively assess and control potential losses and liabilities in both thepre-construction and performance phases of our projects. Though we stronglyfocus on safety in the workplace, we cannot give assurances that we can preventor reduce all injuries or claims in our workplace.

 

In connection with ourbusiness, we generally are required to provide various types of surety bondsguaranteeing our performance under certain public and private sector contracts.Our ability to obtain surety bonds depends upon our capitalization, workingcapital, backlog, past performance, management expertise and other factors andthe surety company’s current underwriting standards.

** **

**Regulation**

 

Our operations are subjectto various federal, state, local and international laws and regulationsincluding:

 

·                  Licensing, permitting andinspection requirements;

·                  Building codes;

·                  Permitting and inspectionrequirements applicable to construction projects; and

·                  Special bidding, procurementand other requirements on government projects.

 

We believe that we have allthe licenses required to conduct our operations and that we are in substantialcompliance with applicable regulatory requirements.

 

**Employees**

 

We believe our employees areour most valuable resource. Our ability to maintain sufficient continuous workfor approximately 2,000 hourly employees instills in such employeesloyalty to and understanding of our policies and contributes to our strongproduction, safety and quality record.

 

As of December 31,2009, we employed approximately 638 salaried employees and approximately2,010 hourly employees, which includes approximately 318 salariedemployees and 1,287 hourly employees from the December 18, 2009acquisition of JCG. The total number of hourly personnel employed is subject tothe volume of construction in progress. During 2009, and including theemployees from the JCG acquisition, the number of hourly employees ranged fromapproximately 1,700 to 2,600.

 

The following is a summaryof employees by function and geography at December 31, 2008:

 
| ** ** | ** ** | **CA** | ** ** | **FL** | ** ** | **TX** | ** ** | **LA** | ** ** | **Other US** | ** ** | **Canada** | ** ** | **Total** | ** ** |
|------------|------------|--------|------------|--------|------------|--------|------------|--------|------------|--------------|------------|------------|------------|-----------|------------|
| Salaried   |       | 234    |       | 24     |       | 78     |       | 265    |       | 8            |       | 29         |       | 638       |       |
| Hourly     |       | 543    |       | 112    |       | 264    |       | 1,019  |       | 72           |       | 0          |       | 2,010     |       |
| Total      |       | 777    |       | 136    |       | 342    |       | 1,284  |       | 80           |       | 29         |       | 2,648     |       |

 

Several of our subsidiarieshave operations that are unionized through the negotiation and execution of collectivebargaining agreements. These collective bargaining agreements have varyingterms and are subject to renegotiation upon expiration. We have experienced norecent work stoppages and believe our employee and union relations aregood.

** **

**ITEM 1A.  RISKFACTORS**

 

Our business is subject to avariety of risks and uncertainties, including, but not limited to, the risksand uncertainties described below. The following list is not all-inclusive.There can be no assurance that we have correctly identified and appropriatelyassessed all factors affecting our business or that the publicly available andother information with respect to these matters is complete and correct.Additional risks and uncertainties not presently known to us or that wecurrently believe to be immaterial also may adversely affect us. Thesedevelopments could have material adverse effects on our business, financialcondition and results of operations.

 

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**Risks Related to Our Business andOperations**

 

***Our financial and operating resultsmay vary significantly from quarter-to-quarter and year-to-year, which mayadversely affect the price and value of our common stock.***

 

Ourannual and quarterly results may be adversely affected by:

 

·                  Changes in our mix ofcustomers, projects, contracts and business;

·                  Regional and/or generaleconomic conditions;

·                  Variations and changes inthe margins of projects performed during any particular quarter;

·                  Increases in the costs to perform servicescaused by changing weather conditions;

·                  The termination of existing agreements orcontracts;

·                  The budgetary spending patterns of customers;

·                  Increases in construction costs that we maybe unable to pass through to our customers;

·                  Cost or schedule overruns on fixed-pricecontracts;

·                  Availability of qualified labor to executespecific projects;

·                  Changes in bonding requirements and bondingavailability applicable to existing and new agreements;

·                  Costs we incur to support growth internallyor through acquisitions or otherwise;

·                  The timing and volume of work under contract;and

·                  Losses experienced in our operations nototherwise covered by insurance.

 

Accordingly, our operatingresults in any particular quarter may not be indicative of the results that youmay expect for any other quarter or for the entire year. Such quarterly andannual fluctuations in our financial and operating results may affect the valueof our common stock.

 

***Our business is labor intensive. Wedepend on key personnel and we may not be able to operate and grow our businesseffectively if we lose the services of any of our key personnel or are unableto attract qualified and skilled personnel in the future. This could lead to adecrease in our overall competitiveness, resulting in an adverse effect on ourbusiness, operating results, financial condition and value of our common stock.***

 

We are dependent upon theefforts of our key personnel and our ability to retain them and hire otherqualified employees. In particular, we are dependent upon the management andleadership of Brian Pratt, who is our Chief Executive Officer, as well as othermembers of executive and senior management. The loss of any of the executiveofficers or other key personnel could affect our ability to run our businesseffectively. Competition for senior management personnel is intense and we maynot be able to retain our personnel even though we have entered into employmentagreements with certain of them. The loss of any key person requires theremaining key personnel to divert immediate and substantial attention toseeking a replacement. An inability to find a suitable replacement for anydeparting executive or senior officer on a timely basis could adversely affectour ability to operate and grow our business.

 

Our ability to maintain ourproductivity and profitability may be limited by our ability to employ, trainand retain skilled personnel necessary to meet our requirements. We may not beable to maintain an adequate skilled labor force necessary to operateefficiently and to support our growth strategy. We have from time-to timeexperienced shortages of certain types of qualified personnel. For example,there is a shortage of engineers, project managers, field supervisors, andother skilled workers capable of working on and supervising the construction ofunderground and industrial facilities, as well as providing engineeringservices. The supply of experienced engineers, project managers, fieldsupervisors and other skilled workers may not be sufficient to meet current orexpected demand. The commencement of new, large-scale infrastructure projectsor increased demand for workers available to us, could affect our business,even if we are not awarded such projects. Labor shortages or increased laborcosts could impair our ability to maintain our business or grow our revenues.If we are unable to hire employees with the requisite skills, we may also beforced to incur significant training expenses. The occurrence of any of theforegoing could have an adverse effect on our business, operating results,financial condition and value of our common stock.

*** ***

***We may be unsuccessful at generatinginternal growth, which may affect our ability to expand our operations or growour business, which may cause an adverse effect on our financial condition,results of operations and cash flows.***

 

Our ability to generateinternal growth may be affected by, among other factors, our ability to:

 

·                  Attract new customers;

·                  Increase the number of projects performed forexisting customers;

·                  Hire and retain qualified personnel;

·                  Successfully bid for new projects; and

·                  Adapt the range of services we offer toaddress our customers’ evolving construction needs.

 

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In addition, our customersmay reduce the number or size of projects available to us due to theirinability to obtain capital. Many of the factors affecting our ability togenerate internal growth may be beyond our control, and we cannot be certainthat our strategies will be successful or that we will be able to generate cashflow sufficient to fund our operations and to support internal growth. If weare unsuccessful, we may not be able to achieve internal growth, expand ouroperations or grow our business and the failure to do so could have an adverseeffect on our financial condition, results of operations and cash flow.

 

***Demand for our services may decreaseduring an economic recession, and such lack of demand may adversely affect ourbusiness.***

 

The engineering andconstruction industries historically have experienced cyclical fluctuations infinancial results due to economic recessions, downturns in business cycles ofour customers, material shortages, price increases by subcontractors, interestrate fluctuations and other economic factors beyond our control. If the generallevel of economic activity deteriorates, our customers may delay or cancelupgrades, expansions, and/or maintenance and repairs to their systems. Manyfactors, including the financial condition of the industry, could adverselyaffect our customers and their willingness to fund capital expenditures in thefuture.

 

We expect that thecontinuing challenges in credit conditions and the current downturn in theUnited States will cause some of our customers to delay or postponeconstruction projects. Forecasts are predicting continuing declines in constructionactivity in the United States during 2010.

 

We are also dependent on theamount of work our customers outsource. In a slower economy, our customers maydecide to outsource less infrastructure services reducing demand for ourservices. In addition, consolidation, competition or capital constraints in theindustries we serve may result in reduced spending by our customers.

*** ***

***We derive a significant portion ofour revenues from a few customers, and the loss of one or more of thesecustomers could have significant effects on our revenues, resulting in adverseeffects on our financial condition, results of operations and cash flows.***

 

Our customer base is highlyconcentrated, with our top ten customers accounting for 58.8% of our revenue in2009, 54.7% of our revenue in 2008 and 46.5% in 2007. Our revenue couldsignificantly decline if we lose one or more of our significant customers. Inaddition, revenues under our contracts with significant customers may vary fromperiod-to-period depending on the timing and volume of work which suchcustomers order in a given period and as a result of competition from thein-house service organizations of several of our customers. Reduced demand forour services or a loss of a significant customer could have an adverse effecton our financial condition, results of operations and cash flows.

*** ***

***Our actual cost may be greater thanexpected in performing our fixed-price and unit-price contracts, causing us torealize significantly lower profits on our projects, which would have an adverseeffect on our financial condition, results of operations and cash flows.***

 

We currently generate, andexpect to continue to generate, a portion of our revenue and profits underfixed-price and unit-price contracts. The portion of revenue generated fromfixed-price and unit-price contracts for 2009, 2008 and 2007 was 68%, 67% and65%, respectively. The portion of gross profit generated from fixed-price andunit-price contracts for 2009, 2008 and 2007 was 55%, 64% and 51%,respectively. We must estimate the costs of completing a particular project tobid these types of contracts. The actual cost of labor and materials, however,may vary from the costs we originally estimated and we may not be successful inrecouping additional costs from our customers. These variations, along withother risks inherent in performing fixed-price and unit-price contracts, maycause gross profits for a project to differ from those we originally estimatedand could result in reduced profitability or losses on projects due to changesin a variety of factors such as:

 

·                  Failure to properly estimate costs ofengineering, materials, equipment or labor;

·                  Unanticipated technical problems with thestructures, materials or services being supplied by us, which may require thatwe spend our own money to remedy the problem;

·                  Project modifications creating unanticipatedcosts;

·                  Changes in the costs of equipment, materials,labor or subcontractors;

·                  Our suppliers or subcontractors failure toperform;

·                  Changes in local laws and regulations;

·                  Delays caused by local weather conditions;and

·                  Exacerbation of any one or more of thesefactors as projects grow in size and complexity.

 

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Depending upon the size of aparticular project, variations from the estimated contracts costs could have anadverse effect on our financial condition, results of operations and cashflows.

 

***We may lose business to competitorsthrough the competitive bidding processes, which could have an adverse effecton our financial condition, results of operations and cash flows.***

 

We are engaged in highlycompetitive businesses in which customer contracts are often awarded through biddingprocesses based on price and the acceptance of certain risks. We compete withother general and specialty contractors, both foreign and domestic, includinglarge international contractors and small local contractors. The strongcompetition in our markets requires maintaining skilled personnel, investing intechnology and also puts pressure on profit margins. Because of this, we couldbe prevented from obtaining contracts for which we have bid.

*** ***

***We may pay our suppliers andsubcontractors before receiving payment from our customers for the relatedservices, we could experience an adverse affect on our financial condition,results of operations and cash flows.***

 

We use subcontractors andmaterial suppliers for portions of certain work, and our customers pay us forthose related services. If we pay our suppliers and subcontractors formaterials purchased and work performed for customers who fail to pay, or suchcustomers delay in paying us for the related work or materials, we couldexperience a material adverse effect on our financial condition, results ofoperations and cash flows.

*** ***

***Our unionized workforce may commencework stoppages, which could adversely affect our operations.***

 

As of December 31,2009, approximately 21% of our hourly employees, primarily consisting of fieldlaborers, were covered by collective bargaining agreements. Although themajority of these agreements prohibit strikes and work stoppages, we cannot becertain that strikes or work stoppages will not occur in the future.Strikes or work stoppages would adversely impact our relationships withour customers and could have an adverse effect on our financial condition,results of operations and cash flow.

*** ***

***Our business growth could outpacethe capability of our internal infrastructure and may prohibit us fromexpanding our operations or execute our business plan, which failures mayadversely affect the value of our common stock.***

 

Our internal infrastructuremay not be adequate to support our operations as they expand. To the extentthat we are unable to buy or build equipment necessary for a project, eitherdue to a lack of available funding or equipment shortages in the marketplace,we may be forced to rent equipment on a short-term basis or to find alternativeways to perform the work without the benefit of equipment ideally suited forthe job, which could increase the costs of completing the project. We often bidfor work knowing that we will have to rent equipment on a short-term basis andwe include our assumptions of market equipment rental rates into our bid. Ifmarket rates for rental equipment increase between the time of bid submissionand project execution, our margins for the project may be reduced. In addition,our equipment requires continuous maintenance, which we generally providethrough our own repair facilities. If we are unable to continue to maintain theequipment in our fleet, we may be forced to obtain additional third-partyrepair services at a higher cost or be unable to bid on contracts.

*** ***

***A significant portion of our businessdepends on our ability to provide surety bonds and we may be unable to competefor or work on certain projects if we are not able to obtain the necessarysurety bonds, which could result in an adverse affect on our financialcondition, results of operations and cash flows.***

 

Our contracts frequentlyrequire that we provide payment and performance bonds to our customers.Furthermore, under standard terms in the surety market, sureties issue orcontinue bonds on a project-by-project basis and can decline to issue bonds atany time or require the posting of additional collateral as a condition toissuing or renewing any bonds.

 

Current or future marketconditions, as well as changes in our sureties assessments of our operating andfinancial risk, could cause our surety providers to decline to issue or renew,or substantially reduce the amount of bonds for our work and could increase ourbonding costs. These actions could be taken on short notice. If our suretyproviders were to limit or eliminate our access to bonding, our alternativeswould include seeking bonding capacity from other sureties, finding morebusiness that does not require bonds and posting other forms of collateral forproject performance, such as letters of credit or cash. We may be unable tosecure these alternatives in a timely manner, on acceptable terms, or at all.Accordingly, if we were to experience an interruption or reduction in theavailability of bonding capacity, we may be unable to compete for or work oncertain projects and such interruption or reduction could have an adverseeffect on our financial condition, results of operations and cash flows.

 

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***Our bonding requirements may limitour ability to incur indebtedness, which would limit our ability to refinanceour existing credit facilities or to execute our business plan, and potentiallyresult in an adverse effect on our business.***

 

Our ability to obtain suretybonds depends upon various factors including our capitalization, workingcapital and amount of our indebtedness. In order to help ensure that we canobtain required bonds, we may be limited in our ability to incur additionalindebtedness that may be needed to refinance our existing credit facilitiesupon maturity and to execute our business plan. Our inability to incuradditional indebtedness could have an adverse effect on our business, operatingresults and financial condition.

*** ***

***Our business may be affected bydifficult work sites and environments, which may adversely affect our abilityto procure materials and labor, which may adversely affect our overallbusiness.***

 

We perform our work under avariety of conditions, including, but not limited to, difficult and hard toreach terrain, difficult site conditions and busy urban centers where deliveryof materials and availability of labor may be impacted. Performing work underthese conditions can slow our progress, potentially causing us to incurcontractual liability to our customers. These difficult conditions may alsocause us to incur additional, unanticipated costs that we might not be able topass on to our customers.

*** ***

***Our results of operations could be adversely affected as aresult of goodwill impairments.***

 

When we acquire a business, we record an assetcalled “goodwill” equal to the excess amount we pay for the business, includingliabilities assumed, over the fair value of the tangible and intangible assetsof the business we acquire. For example, in connection with the acquisition of JCG,we recorded approximately $56.1 million in goodwill and $31.7 millionof intangible assets based on the application of the acquisition method ofaccounting. Goodwill and other intangible assets that have indefinite usefullives cannot be amortized, but instead must be tested at least annually forimpairment, while intangible assets that have finite useful lives are amortizedover their useful lives. The accounting literature provides specific guidancefor testing goodwill and other non-amortized intangible assets for impairment.Refer to Item 7. *“Management’sDiscussion and Analysis of Financial Condition and Results of Operations —Critical Accounting Polices”*for a detailed discussion. Managementis required to make certain estimates and assumptions when allocating goodwillto reporting units and determining the fair value of a reporting unit’s netassets and liabilities, including, among other things, an assessment of marketconditions, projected cash flows, investment rates, cost of capital and growthrates, which could significantly impact the reported value of goodwill andother intangible assets. Fair value is determined using a combination of thediscounted cash flow, marketmultiple and market capitalization valuation approaches. Absent any impairmentindicators, we perform our impairment tests annually during the fourth quarter.If there is a decrease in market capitalization below book value in the future,this may be considered an impairment indicator. Any future impairments,including impairments of the goodwill or intangible assets recorded inconnection with the acquisition of JCG, and other past or future acquisitions,would negatively impact our results of operations for the period in which theimpairment is recognized.

 

***Duringthe ordinary course of our business, we may become subject to lawsuits orindemnity claims, which could materially and adversely affect our business andresults of operations.***

 

We have in the past been, and may in the future be, named as a defendantin lawsuits, claims and other legal proceedings during the ordinary course ofour business. These actions may seek, among other things, compensation foralleged personal injury, workers’ compensation, employment discrimination,breach of contract, property damage, punitive damages, civil penalties or otherlosses or injunctive or declaratory relief. In addition, we generally indemnifyour customers for claims related to the services we provide and actions we takeunder our contracts with them, and, in some instances, we may be allocated riskthrough our contract terms for actions by our customers or other third parties.Because our services in certain instances may be integral to the operation andperformance of our customers’ infrastructure, we may become subject to lawsuitsor claims for any failure of the systems that we work on, even if our servicesare not the cause of such failures, and we could be subject to civil andcriminal liabilities to the extent that our services contributed to anyproperty damage, personal injury or system failure. The outcome of any of theselawsuits, claims or legal proceedings could result in significant costs anddiversion of management’s attention to the business. Payments of significantamounts, even if reserved, could adversely affect our reputation, liquidity andresults of operations.

 

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***Wemay incur liabilities or suffer negative financial or reputational impactsrelating to occupational health and safety matters.***

 

Our operations are subject to extensive laws and regulations relating tothe maintenance of safe conditions in the workplace. While we have invested,and will continue to invest, substantial resources in our occupational healthand safety programs, our industry involves a high degree of operational riskand there can be no assurance that we will avoid significant liabilityexposure. Although we have taken what we believe are appropriate precautions,we have suffered fatalities in the past and may suffer additional fatalities inthe future. Serious accidents, including fatalities, may subject us tosubstantial penalties, civil litigation or criminal prosecution. Claims fordamages to persons, including claims for bodily injury or loss of life, couldresult in substantial costs and liabilities, which could materially andadversely affect our financial condition, results of operations or cash flows.In addition, if our safety record were to substantially deteriorate over timeor we were to suffer substantial penalties or criminal prosecution forviolation of health and safety regulations, our customers could cancel ourcontracts and not award us future business.

 

***Opportunitieswithin the government arena could subject us to increased governmentalregulation and costs.***

 

Most government contracts are awarded through a regulated competitivebidding process. As we pursue increased opportunities in the government arena,management’s focus associated with the start up and bidding process may bediverted away from other opportunities. Involvement with government contractscould require a significant amount of costs to be incurred before any revenuesare realized from these contracts. In addition, as a government contractor, weare subject to a number of procurement rules and other public sectorliabilities, any deemed violation of which could lead to fines or penalties ora loss of business. Government agencies routinely audit and investigategovernment contractors. Government agencies may review a contractor’sperformance under its contracts, cost structure, and compliance with applicablelaws, regulations and standards. If government agencies determine through theseaudits or reviews that costs were improperly allocated to specific contracts,they will not reimburse the contractor for those costs or may require thecontractor to refund previously reimbursed costs. If government agenciesdetermine that we engaged in improper activity, we may be subject to civil andcriminal penalties. In addition, if the government were to even allege improperactivity, we also could experience serious harm to our reputation. Manygovernment contracts must be appropriated each year. If appropriations are notmade in subsequent years we would not realize all of the potential revenuesfrom any awarded contracts.

 

***Inability to perform our obligationsunder Engineer, Procure and Construct (“EPC”) contracts may lead to highercosts, which would adversely affect our business.***

 

EPC contracts require us toperform a range of services for our customers, some of which we routinely subcontractto other parties. The portion of revenue generated from EPC contracts for 2009,2008 and 2007 was 4%, 8% and 9%, respectively. The portion of gross profitgenerated from EPC contracts for 2009, 2008 and 2007 was 9%, 3% and 0%,respectively. In most instances, these contracts require completion of aproject by a specific date, achievement of certain performance standards orperformance of our services at certain standards of quality. If we subsequentlyfail to meet such dates or standards, we may be held responsible for costsresulting from such failure. Our inability to obtain the necessary material andequipment to meet a project schedule or the installation of defective materialor equipment could have an adverse effect on our financial condition, resultsof operations and cash flows.

 

***We require subcontractors to assistus in providing certain services and we may be unable to retain the necessarysubcontractors to complete certain projects resulting in an adverse affect inour business.***

 

We use subcontractors toperform portions of our contracts and to manage workflow, particularly fordesign, engineering, procurement and some foundation work. We are not dependenton any single subcontractor. However, general market conditions may limit theavailability of subcontractors on which we rely to perform portions of ourcontracts causing delays and increases in our costs, which results could havean adverse effect on our financial condition, results of operations and cashflows.

 

***Backlog may not be realized or maynot result in revenues or profits, which failure in realizing revenues orprofits could result in an adverse effect on our financial condition, resultsof operations and cash flows.***

 

Backlog is difficult todetermine accurately and different companies within our industry define backlogdifferently. We refer to “backlog” as our estimated revenue on uncompletedcontracts, including the amount of revenue on contracts on which work has notbegun, minus the revenue we have recognized under such contracts. We calculatebacklog differently for different types of contracts. For our fixed pricecontracts, we include the full remaining portion of the contract in ourcalculation of backlog. For our unit-price, time-and-equipment,time-and-materials and cost-plus contracts, we do not include any revenue inthe calculation of backlog, regardless of the duration of the contract. Inaddition, we work with some of our customers under master service agreements (“MSAs”).We do not include any projected revenue from MSAs in our calculation ofbacklog.

 

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Most contracts may beterminated by our customers on short notice, typically 30 to 90 days, butsometimes less. Reductions in backlog due to cancellation by a customer, or forother reasons, could significantly reduce the revenue and profit we actuallyreceive from contracts in backlog. In the event of a project cancellation, wemay be reimbursed for certain costs but we typically have no contractual rightto the total revenues reflected in our backlog. Projects may remain in backlogfor extended periods of time. Given these factors and our method of calculatingbacklog, our backlog at any point in time may not accurately represent therevenue that we expect to realize during any period and our backlog as of theend of a fiscal year may not be indicative of the revenue we expect to earn inthe following fiscal year. Consequently, there can be no assurances as to theaccuracy of our customers’ requirements or our estimates. Inability to realizerevenue from our backlog could have an adverse effect on our financialcondition, results of operations and cash flows.

 

***Our use of percentage-of-completionaccounting could result in a reduction or elimination of previously reportedprofits, which may result in an adverse affect on our financial condition andresults of operations.***

 

We recognize revenue usingthe percentage-of-completion method of accounting, using the cost-to-costmethod, where revenues are estimated based on the percentage of costs incurredto date to total estimated costs. This method is used because managementconsiders expended costs to be the best available measure of progress on thesecontracts. This accounting method is standard for fixed-price contracts. Thepercentage-of-completion accounting practice we use results in our recognizingcontract revenues and earnings ratably over the contract term in proportion to ourincurrence of contract costs. The earnings or losses recognized on individualcontracts are based on estimates of contract revenues, costs and profitability.Contract losses are recognized in full when determined, and contract profitestimates are adjusted based upon ongoing reviews of contract profitability.Penalties are recorded when known or finalized, which generally is during thelatter stages of the contract. In addition, we record adjustments to estimatedcosts of contracts when we believe the change in the estimate is probable andthe amounts can be reasonably estimated. These adjustments could result in bothincreases and decreases in profit margins. Actual results could differ fromestimated amounts and could result in a reduction or elimination of previouslyrecognized earnings. In certain circumstances, it is possible that suchadjustments could be significant and could have an adverse effect on ourfinancial condition, results of operations and cash flows.

 

***Our financial results are based uponestimates and assumptions that may differ from actual results and suchdifferences between the estimates and actual results may have an adverse affecton our financial condition, results of operations and cash flows.***

 

In preparing ourconsolidated annual and quarterly financial statements in conformity withgenerally accepted accounting principles, many estimates and assumptions areused by management in determining the reported revenues and expenses recognizedduring the periods presented, and disclosures of contingent assets andliabilities known to exist as of the date of the financial statements. Theseestimates and assumptions must be made because certain information that is usedin the preparation of our financial statements cannot be calculated with a highdegree of precision from data available, is dependent on future events, or isnot capable of being readily calculated based on generally acceptedmethodologies. Often times, these estimates are particularly difficult todetermine and we must exercise significant judgment. Estimates may be used inour assessments of the allowance for doubtful accounts, useful lives ofproperty and equipment, fair value assumptions in analyzing goodwill andlong-lived asset impairments, self-insured claims liabilities, revenuerecognition under percentage-of-completion accounting and provisions for incometaxes. Actual results for all estimates could differ materially from theestimates and assumptions that we use, which could have an adverse effect onour financial condition, results of operations and cash flows.

 

***The timing of new contracts mayresult in unpredictable fluctuations in our cash flow and profitability, whichcould adversely affect our business.***

 

Substantial portions of ourrevenues are derived from project-based work that is awarded through acompetitive bid process. The portion of revenue generated from the competitivebid process for 2009, 2008 and 2007 was 54%, 45% and 44%, respectively. It isgenerally very difficult to predict the timing and geographic distribution ofthe projects that we will be awarded. The selection of, timing of or failure toobtain projects, delays in award of projects, the re-bidding or termination ofprojects due to budget overruns, cancellations of projects or delays in completionof contracts could result in the under-utilization of our assets and reduce ourcash flows. Even if we are awarded contracts, we face additional risks thatcould affect whether, or when, work will begin. For example, some of ourcontracts are subject to financing, permitting and other contingencies that maydelay or result in termination of projects. This can present difficulty inmatching workforce size 

 

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and equipment location with contract needs.In some cases, we may be required to bear the cost of a ready workforce andequipment that is larger than necessary, resulting in unpredictability in ourcash flow, expenses and profitability. If any expected contract award or therelated work release is delayed or not received, we could incur substantialcosts without receipt of any corresponding revenues. Moreover, constructionprojects for which our services are contracted may require significantexpenditures by us prior to receipt of relevant payments by a customer and mayexpose us to potential credit risk if such customer should encounter financialdifficulties. Finally, the winding down or completion of work on significantprojects that were active in previous periods will reduce our revenue andearning if such significant projects have not been replaced in the currentperiod.

 

***If we fail to integrate acquisitionssuccessfully, we may experience operational challenges and risk which may havean adverse effect on our business and results of operations.***

 

As part of our growthstrategy, we may acquire companies that expand, complement or diversify ourbusiness. In December 2009, we completed the acquisition of JCG, a largeconstruction company in the southern United States.  The JCG acquisition and future acquisitionsmay expose us to operational challenges and risks, including, among others:

 

·                  The diversion of management’s attention from theday-to-day operations of the combined company;

·                  The management of a significantly larger companythan before completion of an acquisition;

·                  The assimilation of new employees and theintegration of business cultures;

·                  Retaining key personnel;

·                  The integration of information, accounting,finance, sales, billing, payroll and regulatory compliance systems;

·                  Challenges in keeping existing customers andobtaining new customers;

·                  Challenges in combining service offerings and salesand marketing activities;

·                  The assumption of unknown liabilities of theacquired business for which there are inadequate reserves; and

·                  The potential impairment of acquired goodwill andintangible assets.

 

If our management is not able to effectively manage the integrationprocess or if any significant business activities are interrupted as a resultof the integration process of any acquisitions, our business could suffer andour results of operations and financial condition may be negatively affected.

 

***Wemay not be successful in continuing to meet the requirements of theSarbanes-Oxley Act of 2002.***

 

The Sarbanes-Oxley Act of 2002 has many requirements applicable to usregarding corporate governance and financial reporting, including therequirements for management to report on our internal controls over financialreporting and for our independent registered public accounting firm to expressan opinion over the operating effectiveness of our internal control overfinancial reporting. During 2009, we continued actions to ensure our ability tocomply with these requirements. As of December 31, 2009, our internalcontrol over financial reporting was effective; however, there can be noassurance that our internal control over financial reporting will be effectivein future years. Failure to maintain effective internal controls or theidentification of significant internal control deficiencies in acquisitionsalready made or made in the future could result in a decrease in the marketvalue of our common stock and our other publicly traded securities, the reducedability to obtain financing, the loss of customers, penalties and additionalexpenditures to meet the requirements.

 

***Our business may be materially adversely impacted by regional, nationaland/or global requirements to significantly limit or reduce greenhouse gasemissions in the future.***

 

Greenhouse gases that resultfrom human activities, including burning of fossil fuels, have been the focusof increased scientific and political scrutiny and are being subjected tovarious legal requirements. International agreements, national laws, state lawsand various regulatory schemes limit or otherwise regulate emissions ofgreenhouse gases, and additional restrictions are under consideration bydifferent governmental entities. We derive a significant amount of revenues andcontract profits from engineering and construction services to clients that ownand/or operate a wide range of process plants and own and/or operate electricpower generating plants that generate electricity from burning natural gas orvarious types of solid fuels. These plants emit greenhouse gases as part of theprocess to generate electricity or other products. Compliance with the existinggreenhouse gas regulation may prove costly or difficult. It is possible thatowners and operators of existing or future process plants and electricgenerating plants could be subject to new or changed environmental regulationsthat result in significantly limiting or reducing the amounts of greenhouse gasemissions, increasing the cost of emitting such gases or requiring emissionsallowances. The costs of controlling such emissions or obtaining requiredemissions allowances could be significant. It also is possible that necessarycontrols or allowances may not be available. Such regulations could negativelyimpact client investments in capital projects in our markets, which couldnegatively impact the market for our products and/or services. This couldmaterially adversely affect our business, financial condition, results ofoperations and cash flows.

 

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***Our international operations exposeus to legal, political and economic risks in different countries as well ascurrency exchange rate fluctuations that could harm our business and financialresults.***

 

During 2009 and 2008,revenue attributable to our services outside of the United States wasapproximately 4.5% and 3.5% of our total revenue, respectively. This revenue isderived from our operations in Canada. There are risks inherent in doingbusiness internationally, including:

 

·                  Imposition of governmental controls andchanges in laws, regulations, policies, practices, tariffs and taxes;

·                  Political and economic instability;

·                  Changes in United States and other nationalgovernment trade policies affecting the market for our services;

·                  Potential non-compliance with a wide varietyof laws and regulations, including the United States Foreign Corrupt PracticesAct and similar non-United States laws and regulations;

·                  Currency exchange rate fluctuations,devaluations and other conversion restrictions;

·                  Restrictions on repatriatingforeign profits back to the United States; and

·                  Difficulties in staffing and managinginternational operations.

 

Any of these factors couldhave a material adverse effect on our business, financial condition, results ofoperations and cash flows. We review foreign operations annually to determinethe viability and outlook for those operations.

 

During the years 2005through 2009, the Company had operations in Ecuador, and in December 2009,management determined that the Ecuador operations would be discontinued and thebusiness sold.  Refer to Note 11 *“Discontinued Operations”* to the consolidated financialstatements included in Part II, Item 8, “*FinancialStatements and Supplementary Data*” for further discussion.

 

**Risks Related to our Common Stock**

 

***Our common stock is subject topotential dilution to our stockholders.***

 

As of December 31,2009, there were outstanding Warrants to purchase an aggregate of 4,617,499shares of common stock at a price of $5.00 per share and an option to purchase450,000 Units at a price of $8.80 per Unit (each unit consisting of one shareof common stock and one Warrant). The Warrants are exercisable until October 2,2010. The Warrants will likely be exercised only when the market price of ourcommon stock is greater than the $5.00 per share exercise price of theWarrants. The Units are exercisable until October 2, 2011. To the extentsuch Warrants or option are exercised, additional shares of our common stockwill be issued, which will result in dilution to our stockholders and increasethe number of shares eligible for resale in the public market. Sales ofsubstantial numbers of such shares, as well as the sale of shares in the publicmarket issued pursuant to our 2008 Long-term Incentive Equity Plan couldadversely affect the market price of our common stock.

 

In addition, on December 18,2009, the Company completed the acquisition of JCG and paid initialconsideration that included a combination of cash, notes payable and 81,852.78shares of our Series A Non-Voting Contingent Convertible Preferred Stock (“PreferredStock”). Subject to the approval of our stockholders, the Preferred Stock willconvert into an aggregate of 8,185,278 shares of common stock, thus dilutingour stockholders.  Further, if JCGachieves certain financial milestones for the year ending December 31,2010, we will issue to the sellers a number of shares of common stock equal to$10 million, divided by the average closing price of our common stock, asreported on NASDAQ, for the 20 business days prior to December 31,2010.  The issuance of these shares wouldfurther dilute our stockholders.

 

***The NASDAQ Global Market may delistour securities from quotation on its exchange which could limit investors’ability to make transactions in our securities and subject us to additionaltrading restrictions.***

 

The Company is listed on theNASDAQ Global Market exchange, which has certain listing requirements that wemust comply with. We may be unable to maintain the listing of our securities inthe future.

 

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If NASDAQ delists oursecurities from trading on its exchange, we could face significant materialadverse consequences, including:

 

·                  A limited availability of market quotationsfor our securities;

·                  A limited amount of news and analyst coveragefor our company; and

·                  A decreased ability to issue additionalsecurities or obtain additional financing in the future.

 

***Our securities on the NASDAQ GlobalMarket are deemed to be shares of a “controlled company” within the meaning ofthe NASDAQ Global Market listing requirements and, as a result, we will beexempt from certain corporate governance requirements, which may result inreduced corporate governance protections to our stockholders.***

 

Currently, Brian Pratt, theChief Executive Officer and President of the Company, beneficially holds morethan 50% of the voting power of the Company, through his ownership of shares ofour common stock and by the delivery of revocable proxies to Mr. Prattfrom certain of our stockholders. As a result, the Company is considered a “controlledcompany” for purposes of the NASDAQ listing requirements (a corporation whichmore than 50% of the voting power is held by an individual, a group or anothercompany). Therefore, the Company is not subject to the NASDAQ listingrequirements that would otherwise require that the board of directors have amajority of independent directors and that executive compensation and directornominations be subject to independent director oversight. Accordingly, theCompany’s stockholders do not have the same protections afforded tostockholders of other companies and our independent directors do not have thesame ability to influence the business policies and affairs as independentdirectors of companies that are subject to all of such NASDAQ corporategovernance requirements.

 

As part of the December 18,2009 acquisition of JCG, the Company issued 81,852.78 shares of PreferredStock. Subject to the approval of our stockholders, the Preferred Stock willconvert into an aggregate of 8,185,278 shares of common stock.  If the conversion is approved, Mr. Prattwill no longer beneficially hold greater than 50% of our voting power for theelection of directors and we will no longer be considered a controlledcompany.  As a result, we will no longerbe exempt from the NASDAQ listing requirements described above and we will berequired to comply with these requirements.

 

***Three of our director-officers aresignificant stockholders, which will make it possible for them to havesignificant influence over the outcome of all matters submitted to ourstockholders for approval and which influence may be alleged to conflict withour interests and the interests of our other stockholders.***

 

As of December 31,2009, three of our director-officers and principal stockholders owned anaggregate in excess of 50% of the outstanding shares of our common stock. Onhis own, with the revocable proxies that have been granted to him, Brian Prattbeneficially owned and had the power to vote approximately 58.2% of theoutstanding shares of our common stock at December 31, 2009. Thesestockholders will have significant influence over the outcome of all matterssubmitted to our stockholders for approval, including the election of ourdirectors and other corporate actions. In addition, such influence by one ormore of these affiliates could have the effect of discouraging others fromattempting to purchase us, take us over, and/or reducing the market priceoffered for our common stock in such an event.

 

**ITEM 1B.**                    **UNRESOLVED STAFF COMMENTS**

 

None.

 

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**ITEM 2.**                             **PROPERTIES**

 

**Facilities**

 

Our executive offices arelocated at 26000 Commercentre Drive, Lake Forest, California 92630. Thetelephone number at our executive office is (949) 598-9242. TheConstruction Services segment of our business has regional offices located inPittsburg, San Francisco, Bakersfield and San Diego, California. The ConstructionServices segment also has regional offices located in Baton Rouge, Louisiana,Conroe and Pasadena, Texas and Sarasota and Fort Lauderdale, Florida.  The Engineering segment of our business hasoffices located in San Dimas, California and in Calgary, Canada.

 

We lease all of thefacilities used in our operations. The leases are generally for 10 to 12-yearterms, expiring through 2019. The aggregate lease payments made for ourfacilities in 2009 were $2.9 million. We believe that our facilities areadequate to meet our current and foreseeable requirements for the next severalyears.

 

We lease some of ourfacilities, employees and certain construction and transportation equipmentfrom Stockdale Investment Group, Inc. (“SIGI”). All of these leases wereentered into on similar terms as negotiated with an independent third party.Our majority stockholder, Chief Executive Officer, President and Chairman ofthe Board, Brian Pratt, also is a majority interest holder in SIGI. Inaddition, two of our officers and/or directors also serve as officers and/ordirectors of SIGI, as follows (with their respective positions with SIGIreflected in parentheses): Brian Pratt (chairman and director) and John M.Perisich (secretary). Additionally, one of our officers and directors, John P.Schauerman, also served as an officer and director of SIGI prior to the July 2008merger (president and director).

 

**Property, Plant and Equipment**

 

We own and maintain bothconstruction and transportation equipment. In 2009, 2008 and 2007, we spentapproximately $9.3 million, $10.1 million and $2.2 million,respectively, in cash for capital equipment. Additionally, we incurred debt forthe acquisition of property and equipment in the amounts of approximately$4.7 million in 2009, $7.1 million in 2008 and $6.6 million in 2007.An estimated breakdown of capital equipment as of December 31, 2009 is asfollows:

 

·                  Heavy construction and specializedequipment—1,053 units, including 583 units of equipment related to theacquisition of JCG; and

·                  Transportation equipment—896 units, alsoincluding 426 units of equipment related to the acquisition of JCG.

 

We believe the ownership ofequipment is preferable to leasing to ensure the equipment is available asneeded. In addition, ownership has historically resulted in lower equipmentcosts. We attempt to obtain projects that will keep our equipment fullyutilized in order to increase profit. All equipment is subject to scheduledmaintenance to insure reliability. Maintenance facilities exist at each of ourregional offices as well as on-site on major jobs to properly service andrepair equipment. Major equipment not currently utilized is rented to thirdparties whenever possible to supplement equipment income.

 

The following summarizestotal property, plant and equipment, net of accumulated depreciation, as of December 31,2009 and 2008:

 
| ** **                                       | ** ** | **2009**            | ** ** | **2008**            | ** ** | **Useful Life**             | ** ** |
|--------------------------------------------------|------------|---------------------|------------|---------------------|------------|-----------------------------|------------|
| ** **                                       | ** ** | **(In  Thousands)** | ** ** | **(In  Thousands)** | ** ** | ** **                  | ** ** |
| Land and buildings                               |       | $                   | 5,433      |                | $          | 805                         |       | 30 years |   |
| Leasehold improvements                           |       | 3,460               |       | 988                 |       | Lease life                  |       |
| Office equipment                                 |       | 632                 |       | 671                 |       | 3 - 5 years  |       |
| Construction equipment                           |       | 104,337             |       | 46,993              |       | 3 - 7 years  |       |
| Transportation equipment                         |       | 10,538              |       | 10,119              |       | 3 - 18 years |       |
|                                             |       | 124,400             |       | 59,576              |       |                        |       |
| Less: accumulated  depreciation and amortization |       | (31,832             | )          | (33,352             | )          |                        |       |
| Net property, plant and  equipment               |       | $                   | 92,568     |                | $          | 26,224                      |       |   |   |

 

The amounts shown in 2009 include theproperty, plant and equipment of $61.3 million as a result of the December 18,2009 acquisition of JCG, primarily in construction equipment.

 

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**ITEM 3.**                             **LEGAL PROCEEDINGS**

 

**Legal Proceedings**

 

We are from time to timesubject to claims and legal proceedings arising out of our business. Ourmanagement believes that we have meritorious defenses to the claims. Althoughwe are unable to ascertain the ultimate outcome of such matters, after reviewand consultation with counsel and taking into consideration relevant insurancecoverage and related deductibles, management believes that the outcome of thesematters will not have a materially adverse effect on our financial condition orresults of operations.

 

**Government Regulations**

 

Our operations are subjectto compliance with regulatory requirements of federal, state, and municipalagencies and authorities, including regulations concerning labor relations,affirmative action and the protection of the environment. While compliance withapplicable regulatory requirements has not adversely affected operations in thepast, there can be no assurance that these requirements will not change andthat compliance with such requirements will not adversely affect operations.

 

**ITEM 4.**                             **SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS**

 

Reserved.

 

**PART II**

 

**ITEM 5.**                             **MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS ANDISSUER PURCHASES OF EQUITY SECURITIES**

 

**Market Information**

 

On July 31, 2008, wemerged with Former Primoris, and thereafter our common stock, Warrants andUnits (each unit consisting of one share of common stock and one Warrant) begantrading on the NASDAQ Global Market under the symbols “PRIM”, “PRIMW” and “PRIMU”,respectively. Previously, our common stock traded on the OTC Bulletin Boardunder the ticker symbol “RPSD”.

 

As of March 9, 2010, we hadoutstanding 33,121,567 shares of common stock, which were held of record by         stockholders. These holders of record include depositories that hold shares ofstock for brokerage firms, which in turn, hold shares of stock for numerous beneficialowners.

 

The following table showsthe range of market prices of our common stock during 2009 and  2008.

 
| ** **                             | ** ** | **Market price per  Share** | ** ** |
|----------------------------------------|------------|---------------------------------------|------------|
| ** **                             | ** ** | **High**                              | ** ** | **Low** | ** ** |
| **Year  ended December 31, 2009** |       |                                  |       |   |   |
| First quarter                          |       | $                                     | 5.44       |   | $ | 3.25 |   |
| Second quarter                         |       | $                                     | 7.63       |   | $ | 3.93 |   |
| Third quarter                          |       | $                                     | 8.00       |   | $ | 6.87 |   |
| Fourth quarter                         |       | $                                     | 8.40       |   | $ | 7.00 |   |
| ** **                             |       |                                  |       |   |   |
| **Year  ended December 31, 2008** |       |                                  |       |   |   |
| First quarter                          |       | $                                     | 7.99       |   | $ | 7.51 |   |
| Second quarter                         |       | $                                     | 8.49       |   | $ | 7.80 |   |
| Third quarter                          |       | $                                     | 8.64       |   | $ | 3.44 |   |
| Fourth quarter                         |       | $                                     | 7.70       |   | $ | 3.28 |   |

 

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**Dividend Policy**

 

Thefollowing table shows cash dividends to our common stockholders declared by theCompany during the two years ended December 31, 2009:

 
| **Declaration Date**   | ** ** | **Payable  Date**      | ** ** | **Record  Date**         | ** ** | **Type**          | ** ** |
|------------------------|------------|------------------------|------------|--------------------------|------------|-------------------|------------|
| August 8, 2008    |       | October 10,  2008 |       | September 23,  2008 |       | $0.025  per share |       |
| November 10, 2008 |       | January 15,  2009 |       | December 23,  2008  |       | $0.025  per share |       |
| March 16, 2009    |       | April 15,  2009   |       | March 31,  2009     |       | $0.025  per share |       |
| May 19, 2009      |       | July 15,  2009    |       | June 30,  2009      |       | $0.025  per share |       |
| August 7, 2009    |       | October 15,  2009 |       | September 30,  2009 |       | $0.025  per share |       |
| November 11, 2009 |       | January 15,  2010 |       | December 31,  2009  |       | $0.025  per share |       |

 

The payment of futuredividends is contingent upon our revenues and earnings, capital requirementsand general financial condition of the company, as well as contractualrestrictions and other considerations deemed relevant by the board ofdirectors. No dividends or distributions will be payable to holders of sharesof common stock unless the full dividends or distributions are paid to theholders of the Series A Preferred Stock at the same time.  Dividends on the Series A PreferredStock are non-cumulative.

 

On March 4, 2010, acash dividend of $0.025 per share was declared and payable to stockholders ofrecord as of March 31, 2010, with an anticipated distribution date on orabout April 15, 2010.

 

**Equity Compensation Plan Information**

 

Thefollowing table gives information about our common stock that may be issuedupon the exercise of options, warrants and rights under all of our existingequity compensation plans as of December 31, 2009.

 
| **Plan category**                                           | ** ** | **Number of securities  to be issued upon  exercise of  outstanding options,  warrants and rights  (a)** | ** ** | **Weighted-average  exercise price of  outstanding options,  warrants and rights  (b)** | ** ** | **Number of securities  remaining available  for future issuance  under equity  compensation plans  (excluding securities  reflected in column (a))  (c)** | ** ** |
|-------------------------------------------------------------|------------|----------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
| Equity compensation plans  approved by security holders     |       | 0                                                                                                        |       | 0                                                                                       |       | 1,520,000                                                                                                                                                       |       |
| Equity compensation plans  not approved by security holders |       | 0                                                                                                        |       | 0                                                                                       |       | 0                                                                                                                                                               |       |
| Total                                                       |       | 0                                                                                                        |       | 0                                                                                       |       | 1,520,000                                                                                                                                                       |       |

 

These securities representshares of common stock available for issuance under our 2008 Long-termIncentive Equity Plan (“2008 Equity Plan”). The material features of our 2008Equity Plan are described in Notes 2, 25 and 26 to our consolidatedfinancial statements for the year ended December 31, 2009 included in Part II,Item 8 “*Financial Statements andSupplementary Data*”.

 

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**Repurchases of Securities**

 

On March 27, 2009, we announced that weentered into a Rule 10b5-1 trading plan with CJS Securities, Inc. tofacilitate the repurchase of up to $1 million of our common stock purchaseWarrants.  Each Warrant entitles theholder to purchase one share of our common stock at a price of $5.00 per shareand is exercisable at any time on or prior to October 2, 2010, unlessearlier redeemed.

 

From March 27, 2009 through May 15,2009, CJS Securities completed the purchase of 188,500 Warrants. The Warrantspurchased represented approximately 3.9% of the 4,894,456 redeemable Warrantsoutstanding as of March 26, 2009. No purchases were made during the third and fourth quarters of 2009.

 

**Unregistered Sales of Securities During the FourthQuarter of 2009**

 

During the fourth quarter 2009, we completedthe acquisition of two companies in which some of the consideration consistedof unregistered securities of the Company. The aggregate consideration paid inthese transactions was $9.1 million in cash, $53.5 million in promissory notes,139,082 shares of common stock and 81,852.78 shares of Preferred Stock.

 

In addition, the Company provided forcontingent consideration to the sellers if they achieve certain financialperformance targets. The contingent consideration, totaling $12.5 million,included $0.5 million payable in cash and $12.0 million payable in shares ofCompany common stock. The number of shares of common stock payable under thecontingent consideration will be based on future share prices of the Company’scommon stock, under the terms of the Purchase Agreements.

 

All securities listed on the following tableare issued shares of convertible preferred stock and shares of our commonstock. Contingent consideration is not included in the table. We relied on Section 4(2) ofthe Securities Act, as the basis for exemption from registration. For allissuances, the purchasers were “accredited investors” as defined in Rule 501of the Securities Act.  All issuanceswere as a result of privately negotiated transactions, and not pursuant topublic solicitations.

 
| **Period**                                    | ** ** | **Number of  Shares**                   | ** ** | **Purchaser**                     | ** ** | **Consideration**        |
|-----------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------|------------|--------------------------|
| October 1 through December 31, 2009 |       | 139,082 common shares                   |       | Stockholders of acquired  company |       | Sale of acquired company |
| October 1 through December 31, 2009 |       | 81,852.78 convertible  preferred shares |       | Stockholders of acquired  company |       | Sale of acquired company |

 

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# **ITEM 6.**          SELECTEDFINANCIAL DATA

 

Thefollowing selected financial data should be read in conjunction with Item 7, “*Management’s Discussion and Analysis of FinancialCondition and Results of Operations*” and our audited financialstatements and the accompanying notes included elsewhere in this Annual Reporton Form 10-K.

 
| ** **                                                           | ** ** | **Year Ended December 31,**                        | ** ** |
|----------------------------------------------------------------------|------------|-------------------------------------------------------------------|------------|
| ** **                                                           | ** ** | **2009**                                                          | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| ** **                                                           | ** ** | **(In thousands except per share data)** | ** ** |
| **Statement of Operations Data:**                                    |       |                                                              |       |   |   |   |   |   |   |   |   |
| Revenues                                                             |       | $                                                                 | 467,010    |   | $ | 597,822 |   | $ | 542,624 |   | $ | 430,006 |   | $ | 356,643 |   |
| Cost of revenues                                                     |       | 391,435                                                           |       | 527,380 |   | 482,556 |   | 391,276 |   | 331,744 | (1) |
| Gross profit                                                         |       | 75,575                                                            |       | 70,442 |   | 60,068 |   | 38,730 |   | 24,899 |   |
| Selling, general and administrative expense                          |       | 34,781                                                            |       | 30,544 |   | 28,580 |   | 25,660 |   | 20,497 |   |
| Merger related stock expense                                         |       | 390                                                               |       | 4,050 |   | — |   | — |   | — |   |
| Operating income                                                     |       | 40,404                                                            |       | 35,848 |   | 31,488 |   | 13,070 |   | 4,402 |   |
| Other income (expense)                                               |       | 7,707                                                             |       | 6,380 |   | (1,856 | ) | 1,316 |   | 927 |   |
| Income from continuing operations, before income taxes               |       | 48,111                                                            |       | 42,228 |   | 29,632 |   | 14,386 |   | 5,329 |   |
| Income tax provision                                                 |       | (18,350                                                           | )          | (4,926 | ) | (895 | ) | (1,175 | ) | (10 | ) |
| Income from continuing operations                                    |       | $                                                                 | 29,761     |   | $ | 37,302 |   | $ | 28,737 |   | $ | 13,211 |   | $ | 5,319 |   |
|                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| Income (loss) from  discontinued operations, net of tax—(2)     |       | (3,849                                                            | )          | (869 | ) | (1,603 | ) | (11 | ) | 252 |   |
| Net income (loss)                                                    |       | $                                                                 | 25,912     |   | $ | 36,433 |   | $ | 27,134 |   | $ | 13,200 |   | $ | 5,571 |   |
| **Earnings  (loss) per share:**                                      |       |                                                              |       |   |   |   |   |   |   |   |   |
| Basic:                                                               |       |                                                              |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations                                   |       | $                                                                 | 0.93       |   | $ | 1.42 |   | $ | 1.23 |   | $ | 0.56 |   | $ | 0.22 |   |
| Income (loss) from  discontinued operations —(2)                |       | $                                                                 | (0.12      | ) | $ | (0.03 | ) | $ | (0.07 | ) | $ | 0.00 |   | $ | 0.01 |   |
| Net income                                                           |       | $                                                                 | 0.81       |   | $ | 1.39 |   | $ | 1.16 |   | $ | 0.56 |   | $ | 0.23 |   |
|                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| Diluted:                                                             |       |                                                              |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations                                   |       | $                                                                 | 0.86       |   | $ | 1.32 |   | $ | 1.23 |   | $ | 0.56 |   | $ | 0.22 |   |
| Income (loss) from  discontinued operations —(2)                |       | $                                                                 | (0.11      | ) | $ | (0.03 | ) | $ | (0.07 | ) | $ | 0.00 |   | $ | 0.01 |   |
| Net income                                                           |       | $                                                                 | 0.75       |   | $ | 1.29 |   | $ | 1.16 |   | $ | 0.56 |   | $ | 0.23 |   |
| ** **                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Weighted  average common shares outstanding:**                     |       |                                                              |       |   |   |   |   |   |   |   |   |
| Basic                                                                |       | 31,937                                                            |       | 26,258 |   | 23,458 |   | 23,402 |   | 23,897 |   |
| Diluted                                                              |       | 34,418                                                            |       | 28,156 |   | 23,458 |   | 23,402 |   | 23,897 |   |
| ** **                                                           |       |                                                              |       |   |   |   |   |   |   |   |   |
| **Pro  Form Data - 2005 to 2008 (unaudited)—(3)**          |       |                                                              |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations, before income taxes, as reported |       |                                                              |       | $ | 42,228 |   | $ | 29,632 |   | $ | 14,386 |   | $ | 5,329 |   |
| Pro forma provision for  income taxes                                |       |                                                              |       | (16,797 | ) | (11,794 | ) | (5,726 | ) | (2,121 | ) |
| Pro forma income from continuing operations                          |       |                                                              |       | $ | 25,431 |   | $ | 17,838 |   | $ | 8,690 |   | $ | 3,208 |   |
| Pro forma income (loss)  from discontinued operations — (2)     |       |                                                              |       | (592 | ) | (993 | ) | (7 | ) | 152 |   |
| Pro forma net income                                                 |       |                                                              |       | $ | 24,839 |   | $ | 16,845 |   | $ | 8,653 |   | $ | 3,360 |   |
| **Pro Forma  Earnings (loss) per share (unaudited):**                |       |                                                              |       |   |   |   |   |   |   |   |   |
| Basic:                                                               |       |                                                              |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations                                   |       |                                                              |       | $ | 0.97 |   | $ | 0.76 |   | $ | 0.37 |   | $ | 0.13 |   |
| Income (loss) from discontinued  operations — (2)               |       |                                                              |       | $ | (0.02 | ) | $ | (0.04 | ) | $ | 0.00 |   | $ | 0.01 |   |
| Net income                                                           |       |                                                              |       | $ | 0.95 |   | $ | 0.72 |   | $ | 0.37 |   | $ | 0.14 |   |
|                                                                 |       |                                                              |       |   |   |   |   |   |   |   |   |
| Diluted:                                                             |       |                                                              |       |   |   |   |   |   |   |   |   |
| Income from continuing  operations                                   |       |                                                              |       | $ | 0.90 |   | $ | 0.76 |   | $ | 0.37 |   | $ | 0.13 |   |
| Income (loss) from  discontinued operations — (2)               |       |                                                              |       | $ | (0.02 | ) | $ | (0.04 | ) | $ | 0.00 |   | $ | 0.01 |   |
| Net income                                                           |       |                                                              |       | $ | 0.88 |   | $ | 0.72 |   | $ | 0.37 |   | $ | 0.14 |   |

 

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| ** **                              | ** ** | **As of December 31,** | ** ** |
|-----------------------------------------|------------|-----------------------------|------------|
| ** **                              | ** ** | **2009**                    | ** ** | **2008** | ** ** | **2007** | ** ** | **2006** | ** ** | **2005** | ** ** |
| **Balance  Sheet Data:**                |       |                        |       |   |   |   |   |   |   |   |   |
| Cash and cash equivalents               |       | $                           | 90,004     |   | $ | 72,848 |   | $ | 62,628 |   | $ | 12,865 |   | $ | 16,035 |   |
| Short term investments                  |       | $                           | 30,058     |   | $ | 15,036 |   | $ | — |   | $ | — |   | $ | — |   |
| Accounts receivable, net                |       | $                           | 108,492    |   | $ | 90,622 |   | $ | 112,468 |   | $ | 104,844 |   | $ | 57,636 |   |
| Total assets                            |       | $                           | 476,027    |   | $ | 252,212 |   | $ | 220,973 |   | $ | 162,309 |   | $ | 125,982 |   |
| Total current liabilities               |       | $                           | 242,192    |   | $ | 168,392 |   | $ | 150,123 |   | $ | 97,828 |   | $ | 73,670 |   |
| Long-term debt, net of  current portion |       | $                           | 77,955     |   | $ | 26,965 |   | $ | 22,641 |   | $ | 21,328 |   | $ | 18,597 |   |
| Stockholders’ equity               |       | $                           | 143,959    |   | $ | 55,430 |   | $ | 46,923 |   | $ | 42,207 |   | $ | 32,165 |   |

 

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(1)           For the year 2005, cost ofrevenues includes $3.6 million for a provision for estimated losses onuncompleted contracts.

 

(2)           During December 2009,the Company determined to discontinue all operations in Ecuador and a plan wasput in place to sell the stock ownership in the Company.  As a result, the results of operations andcash flows for these operations are reflected as discontinued operations for allperiods presented.

 

During 2004, Former Primoris decided to ceaseall operations in Chile. During 2005, ARB Chile prevailed in a legal actionagainst a customer in Chile, resulting in a substantial payment included in thegain on discontinued operations for 2005 of $1.5 million.

 

(3)           Prior to the merger withRhapsody in July 2008, Former Primoris was taxed as an S-Corporation forpurposes of federal and state income taxes. As a result of the merger, theS-Corporation status terminated and the combined entity is now taxed as aC-Corporation under federal and state tax laws. The pro forma data reflects theimpact of the combined federal and state income taxes on a pro forma basis asif both Former Primoris and we had been taxed as a C-Corporation during thoseperiods 2005 through 2008, using an effective tax rate of 39.8%.

 

**ITEM 7.****        ****MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*You shouldread the following discussion of our financial condition and results ofoperations in conjunction with the financial statements and the notes to thosestatements included elsewhere in this Annual Report on Form 10-K. Thisdiscussion may contain forward-looking statements based upon currentexpectations that involve risks and uncertainties. See “Forward LookingStatements” elsewhere in this Annual Report on Form 10-K. Our actualresults may differ materially from those anticipated in these forward-lookingstatements as a result of many factors, including certain risks inherent withour business as discussed in “Item 1A Risk Factors”.*

 

Primoris is a holdingcompany with various subsidiaries that cumulatively form a diversifiedengineering and construction company providing a wide range of construction,fabrication, maintenance, replacement and engineering services to major publicutilities, petrochemical companies, energy companies, municipalities and othercustomers.

 

We install, replace, repairand rehabilitate natural gas, refined product, water and wastewater pipelinesystems, and also constructs mechanical facilities and other structures,including power plants, petrochemical facilities, refineries and parkingstructures. In addition, we provide maintenance services, including inspection,overhaul and emergency repair services, to cogeneration plants, refineries andsimilar mechanical facilities. Through our subsidiary Onquest, Inc., weprovide engineering and design services for fired heaters and furnacesprimarily used in refinery applications. Through our subsidiary CardinalContractors, Inc., we construct water and wastewater facilities inFlorida. A substantial portion of our activities have been performed in thewestern United States, and more specifically in California. In addition, wehave strategic presences in Florida, Texas and Canada.

 

OnDecember 18, 2009, the Company completed the acquisition of JCG.  JCG is one of the largest general contractorsbased in the Gulf Coast states, and is engaged in highway, industrial andenvironmental construction, primarily in Louisiana, Texas and Florida.  JCG is the successor company to T. L. Jamesand Company, Inc., a well-known Louisiana company that has been inbusiness for over 80 years. Headquartered in Baton Rouge, Louisiana, JCG serves government andprivate clients in a broad geographical region that includes the entire GulfCoast region of the United States.

 

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JCG’sheavy civil division provides services in heavy civil construction projects,including highway and bridge construction, concrete paving, levee construction,airport runway and taxiway construction and marine facility construction. JCG’sinfrastructure and maintenance division provides large earthwork and sitedevelopment, landfill construction, site remediation and mining supportservices. JCG’s industrial division, with a client base comprised primarily ofprivate industrial companies, provides all phases of civil and structural construction,mechanical equipment erection, process pipe installation and boiler, furnaceand heater installation and repair.

 

As discussed elsewhere inthis Annual Report on Form 10-K, on July 31, 2008, we completed amerger of Rhapsody Acquisition Corp. and Former Primoris. Unless specificallynoted otherwise, as used throughout this Management’s Discussion and Analysissection, “Primoris”, the “Company” or “we,” “our,” or “us” refers to thebusiness, operations and financial results of Former Primoris prior to, andPrimoris subsequent to, the closing of the merger on July 31, 2008,between Rhapsody and Former Primoris as the context requires. “Rhapsody” refersto the operations or financial results of Rhapsody Acquisition Corp. prior tothe closing of the merger.

 

The July 2008 mergerwas accounted for as a reverse acquisition. Under this method of accounting, wewere treated as the “acquired” company for financial reporting purposes. Thisdetermination was primarily based on the operations and management of FormerPrimoris comprising the ongoing operations and management of the Company afterthe merger. In accordance with guidance applicable to these circumstances, themerger was considered to be a capital transaction in substance. Accordingly,for accounting purposes, the merger was treated as the equivalent of FormerPrimoris issuing stock for our net assets, accompanied by a recapitalization.Our pre-merger net assets are stated at historical cost, with no goodwill orother intangible assets recorded.

 

We provide services in thefollowing two segments:

 

***Construction Services Segment:***

 

The Construction Servicessegment specializes in a range of services that include designing,building/installing, replacing, repairing/rehabilitating and providingmanagement services for construction related projects. Our services include:

 

·      Providing installation ofunderground pipeline, cable and conduits for entities in the petroleum,petrochemical and water industries;

·      Providing installation andmaintenance of industrial facilities for entities in the petroleum,petrochemical and water industries; and

·      Providing installation ofcomplex commercial and industrial cast-in-place structures.

·      Providing large earthworkand site development, site remediation and mining support services; and

·      Since the acquisition ofJCG, services also include heavy civil construction projects, including highwayand bridge construction, concrete paving, levee construction, airport runwayand taxiway construction and marine facility construction.

 

***Engineering Segment:***

 

The Engineering groupspecializes in designing, supplying and installing high-performance furnaces,heaters, burner management systems, and related combustion and processtechnologies for clients in the oil refining, petrochemical, and powergeneration industries. It also furnishes turnkey project management with thetechnical expertise and the ability to deliver custom engineering solutionsworldwide.

 

**Outlook**

 

In 2009, we experienced asignificant reduction in revenues, especially in our California industrial andFlorida water markets, as we were affected by the economic downturn andvolatile capital markets. Many of our customers reduced spending and theawarding of new contracts in 2009, and we expect that economic conditions willremain challenging for the next few quarters. As a result, while we expect the first half of 2010 to be less robustthan seen in prior years, we remain positive about the long-term opportunitiesin the industries we serve.

 

*Constructions Services —West*

 

Our legacy business isfocused primarily on infrastructure projects in California.  We anticipate that our utility customers willcontinue their efforts to improve their underground pipeline and cable andconduit projects; however, if economic conditions worsen, spending on theseprojects could be reduced.  Activity inindustrial (above-ground) projects will remain at reduced levels for the nextseveral quarters as the economic slowdown has reduced the need for additionalpower plants and the fluctuating oil prices have put pressure on refinerymargins and refinery capital projects. While currently at reduced levels, we expect a recovery and longer termgrowth in this sector.  In addition, demandin this sector could increase significantly depending on the impact ofrenewable energy initiatives.  Californiarenewable portfolio standards require that one third of energy usage in thestate be from renewable sources by 2020. Since current estimates are that 12 to 15% of the state’s energy meetsthe renewable portfolio standards, significant potential opportunitiesexist.  In addition, certain portions ofthe American Recovery and Reinvestment Act (“ARRA”) of 2009 may increase demandfor our services.  The ARRA includesincentives for renewable energy in the form of grants, tax cuts, tax creditsand loans.  At this time, we cannotpredict the timing of these projects that would implement the renewablestandards or incentive programs.

 

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*Construction Services —East*

 

The economic downturnsignificantly reduced the revenues of our water and wastewater facilityconstruction company in 2009, which is our largest contributor of revenues inthe state of Florida.  While there may bea positive impact of the ARRA on this market segment in 2010, we anticipatethat significant improvements may not occur until there is an improvement inthe residential housing market in the southeastern United States.

 

With the acquisition of JCGin December 2009, we anticipate an increase in Primoris revenues in2010.  In calendar 2009, revenues for JCGwere approximately $360 million, and based on JCG’s backlog and the status ofits projects, we anticipate no reduction in that revenue level in 2010.  The general economic climate will impact thefuture level of highway construction in JCG’s markets, and there can be noassurance that contract awards in 2010 will allow JCG to maintain that level infuture years.  We believe that theinfrastructure needs in the Gulf Coast region will provide us with a long-termgrowth opportunity.

 

*Engineering*

 

Our product engineeringsegment experienced a significant decline in 2009 as our customers reacted tothe reduced price of oil compared to 2008 and a general slowdown in energyusage.  We anticipate continuing marketuncertainty during 2010, however, we expect reasonable market growth innon-U.S. areas, primarily in Asia.  Webelieve that the operational improvements provided by high-performance heaterscan provide future opportunities in this segment.

 

*Conclusion*

 

In 2009, many of ourcustomers reduced capital spending as a result of the recession and capitalmarkets volatility.  It is uncertain whenthese current unfavorable economic and market conditions will improve, or ifthey will deteriorate further in the near term. While some ofthese issues are expected to persist in the first half of 2010, we areoptimistic that with our greater size and available resources, as a result ofthe JCG acquisition, we are positioned to capitalize on what we believe willbe  a stronger operating environment inthe second half of 2010 and into 2011. 

 

While we increased our grossmargin as a percentage of revenues in 2009 compared to 2008, we believe that inthe near-term, margins may decline as competitors bid projects moreaggressively in order to maintain their revenue level and cash flow.  In addition, quarterly gross margins may benegatively impacted by adverse weather conditions and project delays.  We expect that over the long-term we canmaintain and improve our margins based on the expected growth opportunities inour markets and our ability to benefit from our increased scale of operations.

 

In 2010, we will continue tofocus on those aspects of our business that we can control.  Those aspects include the margins we accepton projects that we bid, our management of cash including collection ofreceivables, our emphasis on safety programs and quality and our continuing managementof all levels of cost.  We expect tomaintain a strong competitive position with existing customers and in ourcurrent markets.  We will continue toevaluate potential strategic acquisitions and investments in order to grow ourgeographic area of operations and services.

 

While we cannot predict thetiming or the overall impact of the growth opportunities, especially in lightof the current economic downturn and volatile financial markets, we believethat we have the capability and expertise to continue our growth and capitalizeon opportunities in the markets that we serve.

 

**Material trends and uncertainties**

 

We generate our revenue fromboth large and small construction and engineering projects. The award of thesecontracts is dependent on a number of factors, many of which are not within ourcontrol. Business in the construction industry is cyclical. We depend in parton spending by companies in the energy, and oil and gas industries, as well ason municipal water and wastewater customers. Over the past several years, bothour Construction Services and Engineering segments have benefited from demandfor more efficient and more environmentally friendly energy and powerfacilities and from the strength of the oil and gas industry. Economic factors outsideof our control may affect the amount and size of contracts in any particularperiod.

 

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We and our customers are operating in a challenging business environmentin light of the economic downturn and weak capital markets. We are closelymonitoring our customers and the effect that changes in economic and marketconditions may have on them. We have experienced reduced spending by ourcustomers in late 2008 and throughout 2009, which we attribute to negativeeconomic and market conditions, and we anticipate that these negativeconditions will continue to affect demand for our services in the near-termuntil conditions improve. However, we believe that most of our customers, someof whom are regulated utilities, remain financially stable in general and willbe able to continue with their business plans in the long-term withoutsubstantial constraints.

 

**Seasonality andcyclicality**

 

Our revenues and results of operations can be subject to seasonal andother variations. These variations are influenced by weather, customer spendingpatterns, bidding seasons, project schedules and timing and holidays.Typically, our revenues are lowest in the first quarter of the year becausecold, snowy or wet conditions cause delays. The second quarter is typicallybetter than the first, as some projects begin, but continued cold and wetweather can often impact second quarter productivity. The third quarter istypically the best of the year, as a greater number of projects are underwayand weather is more accommodating to work on projects. Generally, revenuesduring the fourth quarter of the year are lower than the third quarter but higherthan the second quarter. Many projects are completed in the fourth quarter andrevenues often are impacted positively by customers seeking to spend theircapital budget before the end of the year; however, the holiday season andinclement weather sometimes can cause delays and thereby reduce revenues andincrease costs.

 

Additionally, our industry can be highly cyclical. As a result, ourvolume of business may be adversely affected by declines or delays in newprojects in various geographic regions in the United States. Project schedules,in particular in connection with larger, longer-term projects, can also createfluctuations in the services provided, which may adversely affect us in a givenperiod. The financial condition of our customers and their access to capital,variations in the margins of projects performed during any particular period,regional, national and global economic and market conditions, timing ofacquisitions, the timing and magnitude of acquisition assimilation costs,interest rate fluctuations and other factors may also materially affect ourperiodic results. Accordingly, our operating results for any particular periodmay not be indicative of the results that can be expected for any other period.

 

**Results of operations**

 

Revenue, gross profit,operating income and net income for the years ended December 31, 2009,2008 and 2007 were as follows:

 
| ** **                                  | ** ** | **2009**        | ** ** | **2008**          | ** ** | **2007**        | ** ** |
|---------------------------------------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|
| ** **                                  | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ***Statement of Operations Data:***         |       |            |       |              |       |            |       |   |   |   |   |   |   |
| Revenues                                    |       | $               | 467,010    |              | 100.0      | %               | $          | 597,822 |   | 100.0 | % | $ | 542,624 |   | 100.0 | % |
| Gross profit                                |       | 75,575          |       | 16.2              | %          | 70,442          |       | 11.8 | % | 60,068 |   | 11.1 | % |
| Selling, general and administrative expense |       | 34,781          |       | 7.4               | %          | 30,544          |       | 5.1 | % | 28,580 |   | 5.3 | % |
| Merger related stock expense                |       | 390             |       | 0.1               | %          | 4,050           |       | 0.7 | % | — |   | — |   |
| Operating income                            |       | 40,404          |       | 8.7               | %          | 35,848          |       | 6.0 | % | 31,488 |   | 5.8 | % |
| Other income (expense)                      |       | 7,707           |       | 1.7               | %          | 6,380           |       | 1.1 | % | (1,856 | ) | (0.3 | )% |
| Income before income taxes                  |       | 48,111          |       | 10.3              | %          | 42,228          |       | 7.1 | % | 29,632 |   | 5.5 | % |
| Provision for income taxes                  |       | (18,350         | )          | (3.9              | )%         | (4,926          | )          | (0.9 | )% | (895 | ) | (0.2 | )% |
| Income from continuing operations           |       | 29,761          |       | 6.4               | %          | 37,302          |       | 6.2 | % | 28,737 |   | 5.3 | % |
| Loss on discontinued operations             |       | (3,849          | )          | (0.9              | )%         | (869            | )          | (0.1 | )% | (1,603 | ) | (0.3 | )% |
| Net income                                  |       | 25,912          |       | 5.5               | %          | $               | 36,433     |   | 6.1 | % | $ | 27,134 |   | 5.0 | % |
|                                             |            |                 |            |                   |            |                 |            |  |  |  |  |  |  |  |  |  |

 

Revenue decreased$130.8 million, or 21.8%, for 2009 as compared to 2008 as a result reducedrevenues for projects in the refining and water and wastewater sectors.Revenues in our Engineering segment declined, reflecting completion of an unusuallylarge project at the end of 2008. In 2009, our Construction Services segmentprovided 87.6% of total revenues compared to 84.4% of total revenues in 2008.

 

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Gross profit increased by$5.1 million, or 7.3%, for 2009 as compared to 2008 reflecting highermargin work in the cable and conduit and pipeline sectors.  For 2009, gross profit provided by ourConstruction Services segment represented 91.9% of the total gross profitcompared to 92.2% of total gross profit in 2008.

 

Revenue increased$55.2 million, or 10.2%, for 2008 as compared to 2007 as a result ofgrowth in both of our segments, led primarily by strong growth in facility workin our Construction Services segment. Both our Engineering segment and foreignoperations revenues increased reflecting the strength of the petroleumindustry. In 2008, our Construction Services segment provided 84.4% of totalrevenues compared to 85.8% of total revenues in 2007.

 

Gross profit increased by$10.4 million, or 17.3%, for 2008 as compared to 2007 reflecting highermargin work in the refining and energy sectors of the economy. For 2008, grossprofit provided by our Construction Services segment represented 92.2% of thetotal gross profit compared to 87.1% of total gross profit in 2007.

 

**Geographic areas — financial information**

 

Revenue by geographic areafor the years ended December 31, 2009, 2008 and 2007 was as follows:

 
| ** **        | ** ** | **2009**        | ** ** | **2008**          | ** ** | **2007**        | ** ** |
|-------------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|
| ** **        | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ***Country:***    |       |            |       |              |       |            |       |   |   |   |   |   |   |
| United States     |       | $               | 445,979    |              | 95.5       | %               | $          | 577,090 |   | 96.5 | % | $ | 521,663 |   | 96.1 | % |
| Non-United States |       | 21,031          |       | 4.5               | %          | 20,732          |       | 3.5 | % | 20,961 |   | 3.9 | % |
| Total revenue     |       | $               | 467,010    |              | 100.0      | %               | $          | 597,822 |   | 100.0 | % | $ | 542,624 |   | 100.0 | % |

 

Note that revenue isattributed to the countries based on our reporting entity that records thetransaction.

 

**Segment Results**

 

The following discussiondescribes the significant factors contributing to the results of our twooperating segments.

 

*ConstructionServices Segment*

 

Revenue and gross profit forthe Construction Services segment for the years ending December 31, 2009,2008 and 2007 were as follows:

 
| ** **                  | ** ** | **2009**        | ** ** | **2008**          | ** ** | **2007**        | ** ** |
|-----------------------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|
| ** **                  | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ***Construction Services*** |       |            |       |              |       |            |       |   |   |   |   |   |   |
| Revenue                     |       | $               | 409,237    |              |       |            | $          | 504,880 |   |   |   | $ | 465,324 |   |   |   |
| Gross profit                |       | $               | 69,471     |              | 17.0       | %               | $          | 64,964 |   | 12.9 | % | $ | 52,309 |   | 11.2 | % |

 

Construction Servicessegment revenues decreased by $95.6 million, or 18.9% for 2009 compared to2008 as a result of decreases in our California industrial business of $114.4million and our Florida water and wastewater construction company of $27.8million.  These decreases were dueprimarily to the substantial completion of refinery and water and wastewaterconstruction projects in 2008 which were not replaced with new projects in 2009as the general economy caused potential customers to delay constructionprojects.  In addition, the impact of thework slowdown and demobilizations at the Richmond Refinery project, asdiscussed in the Backlog section below, also had an impact on expected revenuesfor the California industrial business. The revenue reduction was partially offset by revenue increases of $25.2million in California underground projects, including pipeline and cable andconduit projects as well as an increase of $16.8 million of revenues from theJCG and Cravens acquisitions.

 

Construction Servicessegment gross profit increased by $4.5 million, or 7.0%, for 2009 comparedto 2008. The increase resulted from improved margins as a percentage of revenueto 17.0% in 2009 from 12.9% in 2008, as well as the addition of new subsidiariesat the end of 2009, partially offset by reduced profits in the refining sectorbecause of lower revenues, and lower revenues and profits obtained from thirdparty equipment rentals.

 

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Revenue for the ConstructionServices segment increased by $39.6 million, or 8.5%, for 2008 compared to2007. This revenue increase was led primarily by a $98.2 million increasein Construction Services for industrial facilities primarily in the refiningindustry as customers increased their capacity and upgraded theirinfrastructure in an environment of increasing worldwide petroleum pricing. Therevenue increase was offset by reductions of revenue of $61.6 millionprimarily in pipeline, water and wastewater and cable and conduit undergroundprojects and cast-in-place structure projects reflecting significant workcompleted at the end of 2007 and early 2008, thus affecting revenuecomparisons.

 

Construction Servicessegment gross profit increased by $12.7 million, or 24.2%, for 2008compared to 2007. The increase resulted from both increased revenue andimproved margins as a percent of revenue to 12.9% in 2008 from 11.2% in 2007.Of the $12.7 million gross profit increase, approximately$4.2 million was due to increased revenues and $8.5 million was dueto the improved gross profit percentage. The primary reasons for the grossprofit margin increase were changes from lower margin water and wastewater andunderground and structure projects to higher margin industrial projects in thepetroleum and power industry.

 

*EngineeringSegment*

 

Revenue and gross profit forthe Engineering segment for the years ended December 31, 2009, 2008 and2007 were as follows:

 
| ** **                | ** ** | **2009**        | ** ** | **2008**          | ** ** | **2007**        | ** ** |
|---------------------------|------------|-----------------|------------|-------------------|------------|-----------------|------------|
| ** **                | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ***Engineering Segment*** |       |            |       |              |       |            |       |   |   |   |   |   |   |
| Revenue                   |       | $               | 57,773     |              |       |            | $          | 92,942 |   |   |   | $ | 77,300 |   |   |   |
| Gross profit              |       | $               | 6,104      |              | 10.6       | %               | $          | 5,478 |   | 5.9 | % | $ | 7,759 |   | 10.0 | % |

 

Engineering segment revenuedecreased by $35.2 million, or 37.8%, for 2009 compared to 2008. Therevenue decrease was primarily the result of major alliance work and a majorprocess plant being completed in 2009. Alliance projects generated $19.5revenue in 2009 compared to $36.4 million in 2008.

 

Engineering segment grossprofit increased by $0.6 million, or 11.4%, for 2009 compared to 2008. Theincrease resulted from increased margin on a major project in Thailand andsuccessful completion of a major process plant, partially offset by reducedgross profit margins in alliance work.

 

Revenue increased by$15.6 million, or 20.2%, for 2008 compared to 2007. The primary reason forthe increase was the affect of an alliance agreement we made with a majorclient in November 2007. Alliance projects generated $36.4 million inrevenue in 2008 compared to $16.7 million in 2007.

 

Engineering segment grossprofit declined by $2.3 million, or 29.4%, for 2008 compared to 2007. Thedecrease was the result of a significant decrease in the gross profitpercentage, which declined to 5.9% of revenue in 2008 from 10.0% in 2007. Atthe 2007 gross profit margin, the gross profit impact from the increase inrevenues for 2008 was $1.6 million while the gross profit margin decreasereduced profitability by $3.9 million. In 2008, we reversed gross profiton certain alliance projects by $2.1 million and we recognized a lowergross profit percentage on a $48.1 million project which was completed in2009. In addition, at the unusually high 2008 revenue levels for the segment,we allocated a greater percentage of general and administrative expenses tocost of sales, reducing the gross profit margin. We expect that the grossprofitability in this segment will trend toward higher historical levels in2009.

 

**Segment reporting for 2010**

 

As a result of theacquisition of JCG, management will change Primoris’ reportable segmentseffective on January 1, 2010.  Thethree new segments will be Construction Services — East, Construction Services —West and Engineering.

 

The Construction Services —East segment will incorporate the JCG construction services business, locatedprimarily in the southern United States, specializing in highway, industrialand environmental projects and will include the current Construction Servicesbusinesses located in the Gulf Coast region of the United States, whichincludes Cardinal Contractors, Inc., Cardinal Mechanical and CravensServices, Inc. The newly formed Construction Services-West segment willinclude the Construction Services performed in the western United States,primarily in the state of California. The current Engineering segment willremain unchanged.

 

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**Selling, general and administrative expenses**

 

Selling, general andadministrative expenses (“SG&A”) increased $4.2 million, or 13.9%, for2009 compared to 2008. The increase was due primarily to various factors,including $1.2 million for acquisition expenses related to the JCG and Cravensacquisition due diligence efforts, a lower allocation of $1.8 million ofgeneral and administrative expenses to costs of sales primarily in ourengineering segments due to lower revenue levels in 2009. In addition, 2009expenses increased by $1.6 million reflecting additional public companyexpenses, including increases in directors fees, audit fees, Sarbanes Oxleycompliance costs, consultant fees, legal fees and payroll.  In 2009, we were a public company for twelvemonths, compared to only five months in 2008. Additional increases in SG&Aexpenses for 2009 compared to 2008 included $0.6 million for depreciation andamortization expense, $0.3 million for insurance expenses, $0.3 million forincentive compensation expense and $0.5 million in SG&A expenses as aresult of JCG operations beginning on December 18, 2009, the acquisitiondate. SG&A expenses were offset by gains on the sales of equipment of $3.2million in 2009 compared with a $0.6 million in 2008.

 

SG&A expenses as apercentage of revenue increased to 7.4% for 2009 from 5.1% for 2008.  The increase as a percentage of revenues wasprimarily due to the impact of the decrease in revenues as well as the increasein acquisition expenses and lower overhead recovery.

 

SG&A increased$2.0 million, or 6.9%, for 2008 compared to 2007. The increase was dueprincipally to an increase in personnel expenses of $4.1 million to meetfuture growth, partially offset by higher absorption of overhead expenses of$2.3 million, as a result of increased activity in the Engineeringsegment, a decrease in legal fees of $0.6 million, and an increase in gainon sales of fixed assets of $0.5 million.

 

SG&A as a percentage ofrevenue decreased to 5.1% for 2008, from 5.3% for 2007. The decrease inSG&A as a percentage of revenue was primarily related to the relativelyfixed accounting, administrative and management expenses, which did notincrease proportionally with the increased revenue. These benefits werepartially offset by increased SG&A from public company reportingobligations, primarily increased accounting and legal expenses.

 

**Merger related stock expense**

 

On February 19, 2008,we entered into an Agreement and Plan of Merger with Former Primoris andcertain stockholders of Former Primoris (“Merger Agreement”). In connectionwith the Merger Agreement, we entered into agreements with two foreign managersthat called for the issuance of 507,600 shares of our common stock. In accordancewith ASC Topic 718 “*Compensation — StockCompensation*”, we recognized $3.7 million of non-cash expensesand recorded an increase to additional paid-in capital. The issuance of theshares was a non-recurring event directly related to the consummation of themerger and therefore, the entire value of the shares at July 31, 2008 wastaken as a charge to earnings.

 

The Merger Agreementprovided for the issuance of additional earn-out shares to the Former Primorisstockholders for both 2008 and 2009 financial results. In 2008, we achieved thefinancial performance target, and in March 2009, we issued 2,500,025shares to the Former Primoris stockholders. We also recorded an expense of $0.4 million for the 52,668 shares issuedto the two foreign members.

 

Similarly, in 2009, weachieved the financial performance target, and we will issue 2,499,975 sharesto the Former Primoris stockholders in March 2010.  In 2009, we recorded a non-cash expense of$0.4 million and an increase in additional paid-in capital for the 52,668shares that will be issued to the foreign managers in March 2010.

 

**Other income and expense**

 

Non-operating income andexpense items for the years ended December 31, 2009, 2008 and 2007 were asfollows:

 
| ** **                                | ** ** | **2009**        | ** ** | **2008**        | ** ** | **2007**        | ** ** |
|-------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| ** **                                | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** |
| ***Other income (expense)***              |       |            |       |            |       |            |       |
| Income from  non-consolidated investments |       | $               | 8,753      |            | $          | 6,065           |       | $ | (1,359 | ) |
| Foreign exchange gain  (loss)             |       | 293             |       | 855             |       | (471            | )          |
| Interest income                           |       | 640             |       | 1,710           |       | 1,747           |       |
| Interest expense                          |       | (1,979          | )          | (2,250          | )          | (1,773          | )          |
| Total other income                        |       | $               | 7,707      |            | $          | 6,380           |       | $ | (1,856 | ) |

 

Equity income (loss) fromnon-consolidated investments for 2009 consisted of $8.8 million income from theOtay Mesa Power Partners (“OMPP”) joint venture, a power plant constructionproject near San Diego, California which was in the final stages of completionat the end of 2009, and minor income of our other investments in jointventures.

 

For 2008, we recognizedincome of $6.1 million from OMPP.

 

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Income from non-consolidatedjoint ventures for 2007 consisted of income of $2.2 million from the OMPP jointventure.  In December 2007, we made thedecision to record a $3.6 million “other than temporary impairment” of ourinvestment in ARB Arendal because of a client dispute with an uncertainoutcome, resulting in a net loss of $1.4 million for the year.

 

In the second quarter of2009, we made advances to ARB Arendal of $1.0 million and we reserved the fullamount of these advances.  In the fourthquarter of 2009, we sold our investment in ARB Arendal to our partner for aminimal sum, and we received repayment of our $1.0 million advance.

 

Foreign exchange gain for2009 and 2008 and foreign exchange loss for 2007 reflect currency exchangefluctuations of the United States dollar compared to the Canadian dollar. Ourcontracts in Calgary, Canada are sold based on United States dollars, but aportion of the work is paid for with Canadian dollars, which has created acurrency exchange difference.

 

Interest income decreasedfor 2009 and 2008 compared to 2007 as a result of declining interest rates andour decision to invest our excess cash balances in Treasury bills andcertificate of deposits (“CD’s”) purchased through the CDARS (Certificate ofDeposit Account Registry Service) rather than commercial paper.  The decrease was partially offset by higheraverage cash balances in the 2009 and 2008 period.

 

Interest expense decreasedby $0.3 million for 2009 and increased $0.5 million for 2008 compared to2007 reflecting our financing of acquisitions of property and equipment of$14.0 million and $17.2 million for 2009 and 2008, respectively, with long-termbank debt.  The weighted average interestrate on total debt outstanding at December 31, 2009, 2008 and 2007 was5.3%, 6.1% and 6.3%, respectively.

 

**Provision for income taxes**

 

Our provision for income taxincreased $13.4 million for 2009 to $18.4 million from 2008 as aresult of the change of tax status from that of a Subchapter S of theInternal Revenue Code (“S-Corporation”) to that of a Subchapter C of theInternal Revenue Code (“C-Corporation”) as part of the Merger Agreement on July 31,2008. Thereafter, we became subject to federal and state income tax in thejurisdictions in which we do business, including California. With the change intax status, our effective tax rate for the year ended December 31, 2009and December 31, 2008 was 38.1% and 11.7%, respectively.  The effective tax rate for the year ended December 31,2008 included the impact of a $3.0 million tax benefit for establishingour beginning deferred tax assets. In the years prior to 2008, as anS-Corporation we had no provision for federal income tax and only minimal provisionfor state income tax.

 

The 2007 provision forincome taxes was principally the result of Canadian taxable income.  During the year ended December 31, 2007,as an S-Corporation, Primoris had no United States federal income taxobligations, since these obligations were the personal liability of itsstockholders.

 

**Pro forma net income data—unaudited**

 

Duringthe year ended December 31, 2009, the Company has been taxed as aC-Corporation.  To compare the 2009results with the prior year, the following pro forma information is presentedto provide for income tax provisions as if the company were taxed as aC-Corporation for the years ended December 31, 2008 and 2007.

 
| ** **                                                           | ** ** | **2008**        | ** ** | **2007**        | ** ** |
|----------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                                           | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** |
| ***Pro  Form Data — 2008 and 2007 (unaudited)***           |       |            |       |            |       |
| Income from continuing  operations, before income taxes, as reported |       | $               | 42,228     |            | $          | 29,632 |   |
| Pro forma provision for  income taxes                                |       | $               | (16,797    | )               | $          | (11,794 | ) |
| Pro forma income from  continuing operations                         |       | $               | 25,431     |            | $          | 17,838 |   |
| Pro forma income (loss)  from discontinued operations — (1)     |       | $               | (592       | )               | $          | (993 | ) |
| Pro forma net income                                                 |       | $               | 24,839     |            | $          | 16,845 |   |

 

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(1)           During December 2009,the Company determined to discontinue all operations in Ecuador and a plan wasput in place to sell the stock ownership in the Company.  As a result, the results of operations andcash flows for Ecuadorian operations are reflected as discontinued operationsfor all periods presented.

 

DuringSeptember 2004, the Company decided to cease all operations in Chile. Thefixed assets, consisting mainly of construction equipment, were sold locally orrepatriated in 2006. Related assets, liabilities, revenues and expenses wereinsignificant at and for the years ended December 31, 2008 and 2007.

 

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The estimated pro forma taxprovision amounts for both 2008 and 2007 were calculated using an effectivestatutory tax rate of approximately 39.8%.

 

**Discontinued Operations**

 

During December 2009,the Company determined to discontinue all operations in Ecuador and a plan wasput in place to sell the stock ownership in the business unit. As a result, theresults of operations and cash flows for these operations are reflected asdiscontinued operations for all periods presented.

 

The following tablesummarizes the results of the discontinued operations of Ecuador during theprior three years:

 
| ** **                                    | ** ** | **2009**        | ** ** | **2008**        | ** ** | **2007**        | ** ** |
|-----------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| ** **                                    | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** |
| ***Ecuador Business Unit***                   |       |            |       |            |       |            |       |
| Revenues                                      |       | $               | 18,247     |            | $          | 11,250          |       | $ | 5,042 |   |
| Cost of revenue                               |       | 23,457          |       | 11,249          |       | 5,758           |       |
| Gross (loss) profit                           |       | (5,210          | )          | 1               |       | (716            | )          |
| Selling, general and  administrative expenses |       | 895             |       | 978             |       | 937             |       |
| Operating loss                                |       | (6,105          | )          | (977            | )          | (1,653          | )          |
| Interest income                               |       | 7               |       | 9               |       | 3               |       |
| Loss before provision for  taxes              |       | (6,098          | )          | $               | (968       | )               | $          | (1,650 | ) |
| Income tax benefit                            |       | 2,249           |       | 99              |       | 47              |       |
| Income (loss) from  discontinued operations   |       | $               | (3,849     | )               | $          | (869            | )          | $ | (1,603 | ) |

 

At December 31, 2009,current assets of $5.3 million and current liabilities of $6.5 million,resulting in a net liability of $1.2 million, remain on the balance sheet forthe Ecuador operations.

 

In February 2010, theCompany entered into an agreement for the sale of the Ecuador business.  The Company agreed to pay $1.0 million ofremaining liabilities of the business, and the buyer is to pay to the Company acombination of $0.4 million in Primoris stock owned by the buyer, a $0.3million note payable, plus an indemnification to the Company of certainpotential liabilities. The sale was completed in March 2010. The sale hadno material impact to the Company.

 

During September 2004,the Company decided to cease all operations in Chile. The fixed assets,consisting mainly of construction equipment, were sold locally or repatriatedin 2006. Related assets, liabilities, revenues and expenses were insignificantat and for the years ended December 31, 2009, 2008 and 2007.

 

**Critical Accounting Policies and Estimates**

 

***General***—The preparation of financial statements inconformity with accounting principles generally accepted in the United Statesrequires us to make estimates and assumptions that affect the reported amountsof assets and liabilities and the disclosure of contingent assets andliabilities as of the date of the financial statements, and also affect theamounts of revenues and expenses reported for each period. These estimates andassumptions must be made because certain information that is used in thepreparation of our financial statements cannot be calculated with a high degreeof precision from data available, is dependent on future events, or is notcapable of being readily calculated based on generally accepted methodologies.Often, these estimates are particularly difficult to determine and we mustexercise significant judgment. Estimates may be used in our assessments ofrevenue recognition under percentage-of-completion accounting, the allowancefor doubtful accounts, useful lives of property and equipment, fair valueassumptions in analyzing goodwill and long-lived asset impairments,self-insured claims liabilities and deferred income taxes. Actual results coulddiffer from those that result from using the estimates under differentassumptions or conditions.

 

An accounting policy isdeemed to be critical if it requires an accounting estimate to be based onassumptions about matters that are highly uncertain at the time the estimate ismade, and different estimates that reasonably could have been used, or changesin the accounting estimates that are reasonably likely to occur periodically,could materially impact our consolidated financial statements.

 

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The following accountingpolicies are based on, among other things, judgments and assumptions made bymanagement that include inherent risks and uncertainties. Management’sestimates are based on the relevant information available at the end of eachperiod.

 

***Fixed-price contracts***—Fixed-price contracts carrycertain inherent risks, including underestimation of costs, problems with newtechnologies and economic and other changes that may occur over the contractperiod. We recognize revenues using the percentage-of-completion method forfixed-price contracts, which may result in uneven and irregular results.Unforeseen events and circumstances can alter the estimate of the costs andpotential profit associated with a particular contract. To the extent thatoriginal cost estimates are modified, estimated costs to complete increase,delivery schedules are delayed, or progress under a contract is otherwiseimpeded, cash flow, revenue recognition and profitability from a particularcontract may be overstated or understated.

 

***Revenue recognition***—We typically structurecontracts as unit-price, time and material, fixed-price or cost plus fixed fee.We believe that our operating results should be evaluated over a time horizonduring which major contracts in progress are completed and change orders, extrawork, variations in the scope of work and cost recoveries and other claims arenegotiated and realized.

 

We recognize revenue on thepercentage-of-completion method for all of the types of contracts described inthe paragraph above. Under the percentage-of-completion method, estimatedcontract income and resulting revenue is generally accrued based on costsincurred to date as a percentage of total estimated costs. Total estimatedcosts, and thus contract income, are impacted by changes in productivity,scheduling, and the unit cost of labor, subcontracts, materials and equipment.Additionally, external factors such as weather, client needs, client delays inproviding permits and approvals, labor availability, governmental regulationand politics may affect the progress of a project’s completion and thus thetiming of revenue recognition. If a current estimate of total contract costindicates a loss on a contract, the projected loss is recognized in full whendetermined.

 

We consider unapprovedchange orders to be contract variations on which we have customer approval forscope change, but not for price change associated with such scope change. Costsassociated with unapproved change orders are included in the estimated cost tocomplete the contracts and are expensed as incurred. We recognize revenue equalto costs incurred on unapproved change orders when realization of price approvalis probable and the estimated amount is equal to or greater than costs relatedto the unapproved change order. Revenue recognized on unapproved change ordersis included in “costs and estimated earnings in excess of billings” on theconsolidated balance sheets.

 

Unapproved change ordersinvolve the use of estimates, and it is reasonably possible that revisions tothe estimated costs and recoverable amounts may be required in future reportingperiods to reflect changes in estimates or final agreements with customers.

 

We consider claims to beamounts we seek or will seek to collect from customers or others forcustomer-caused changes in contract specifications or design, or othercustomer-related causes of unanticipated additional contract costs on which thereis no agreement with customers on both scope and price changes. Revenue fromclaims is recognized when agreement is reached with customers as to the valueof the claims, which in some instances may not occur until after completion ofwork under the contract. Costs associated with claims are included in theestimated costs to complete the contracts and are expensed when incurred.

 

***Income taxes***—We account for income taxes under the asset andliability method as set forth in ASC Topic 740 (formerly referred to as SFAS109, “*Accounting for Income Taxes*”), whichrequires the recognition of deferred tax assets and liabilities for theexpected future tax consequences of events that have been included in thefinancial statements. Under this method, deferred tax assets and liabilitiesare determined based on the temporary differences between the financialstatements and tax basis of assets and liabilities using enacted tax rates ineffect for the year in which the differences are expected to reverse. The affectof a change in tax rates on deferred tax assets and liabilities is recognizedin income in the period that includes the enactment date.

 

Deferredincome tax assets are reduced by a valuation allowance if, in the judgment ofour management, it is more likely than not that all or a portion of a deferredtax asset will not be realized. In making such determination, we consider allavailable positive and negative evidence, including recent financialoperations, projected future taxable income, scheduled reversals of deferredtax liabilities, tax planning strategies, and the length of tax assetcarryforward periods. The realization of deferred tax assets is primarilydependent upon our ability to generate sufficient future taxable earnings incertain jurisdictions. If we subsequently determine that the carrying value ofthese assets, which had been written down, would be realized in the future, thevalue of the deferred tax assets would be increased, thereby increasing netincome in the period when that determination was made.

 

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EffectiveJanuary 1, 2008, the Company also adopted “*Accountingfor Uncertainty in Income Taxes*” as set forth in the accountingguidance ASC Topic 740.

 

Until July 31, 2008,Former Primoris was taxed as an S-Corporation under Subchapter S of theInternal Revenue Code and similar codes in states in which Former Primoris wassubject to taxation, which meant that income was taxed for federal income taxpurposes to the stockholders.  After the merger, the combined entity becametaxable as a C-Corporation, which changed the level of taxation of FormerPrimoris from that of its stockholders to that of the company. For the twelvemonths ended December 31, 2008, we computed our provisionfor income taxes using a 39.8% tax rate, which reflects the rate necessary tobring the 2008 year-to-date provision for income taxes in line with theestimated annual effective tax rate of 11.7%. Our deferred income tax provisionin 2008 included approximately $4.2 million in net deferred tax benefitsresulting from the recognition of beginning deferred tax assets, withrealization expected primarily in 2009.

 

***Goodwill***—Goodwill is assessed for impairment annually andmore frequently if triggering events occur. In performing these assessments,management relies on various factors, including operating results, businessplans, economic projections, anticipated future cash flows, comparabletransactions and other market data. There are inherent uncertainties related tothese factors and judgment in applying them to the analysis of goodwill forimpairment. Since judgment is involved in performing fair value measurementsused in goodwill impairment analyses, there is risk that the carrying values ofour goodwill may be overstated.

 

We elected to make the firstday of the fourth quarter the annual impairment assessment date for goodwill.When testing for goodwill impairment, we follow the guidance prescribed in ASCTopic 350 *“Intangibles — Goodwill and Other”*(formerly referred to as SFAS No. 142, “*Goodwilland Other Intangible Assets*”). First, we compare the fair value of areporting unit with its carrying amount. Fair value for the goodwill impairmenttest is determined utilizing a discounted cash flow analysis based on ourbudgets discounted using our weighted average cost of capital and marketindicators of terminal year cash flows. Other valuation methods may be used tocorroborate the discounted cash flow method. If the carrying amount of areporting unit is in excess of its fair value, goodwill is consideredpotentially impaired and further tests are performed to measure the amount ofimpairment loss. In the second step of the goodwill impairment test, we comparethe implied fair value of reporting unit goodwill with the carrying amount ofthe reporting unit’s goodwill. If the carrying amount of the reporting unit’sgoodwill exceeds the implied fair value of that goodwill, an impairment loss isrecognized in an amount equal to the carrying amount of goodwill over itsimplied fair value. The implied fair value of goodwill is determined in thesame manner that the amount of goodwill recognized in a business combination isdetermined. We allocate the fair value of a reporting unit to all of the assetsand liabilities of that unit, including intangible assets, as if the reportingunit had been acquired in a business combination. Any excess of the fair valueof a reporting unit over the amounts assigned to its assets and liabilitiesrepresents the implied fair value of goodwill.

 

Disruptions to our business,such as end market conditions, protracted economic weakness, unexpectedsignificant declines in operating results of reporting units and thedivestiture of a significant component of a reporting unit may result in ourhaving to perform a goodwill impairment first step valuation analysis for someor all of our reporting units prior to the required annual assessment. Thesetypes of events and the resulting analysis could result in goodwill impairmentcharges in the future.

 

As further discussed in Note4 — “*Business Combinations*” of the Notes to Consolidated FinancialStatements included in Item 8 of this Form 10-K, primarily as aresult of the acquisition of JCG in December 2009, the balance of goodwillincreased to $59.7 million as of December 31, 2009 compared to$2.8 million as of December 31, 2008.

 

***Long-Lived Assets***—Assets held and used by theCompany, primarily property, plant and equipment, are reviewed for impairmentwhenever events or changes in business circumstances indicate that the carryingamount of the asset may not be fully recoverable. We perform undiscountedoperation cash flow analyses to determine if impairment exists. For purposes ofrecognition and measurement of an impairment for assets held for use, we groupassets and liabilities at the lowest level for which cash flows are separatelyidentified. If an impairment is determined to exist, any related impairmentloss is calculated based on fair value. The calculation of the fair value oflong-lived assets is based on assumptions concerning the amount and timing ofestimated future cash flows and assumed discount rates, reflecting varyingdegrees of perceived risk. Since judgment is involved in determining the fairvalue and useful lives of long-lived assets, there is a risk that the carryingvalue of our long-lived assets may be overstated or understated.

 

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***Reserve for uninsured risks***—Estimates are inherent inthe assessment of our exposure to material uninsured risks. Significantjudgments by us and reliance on third-party experts are utilized in determiningprobable and/or reasonably estimable amounts to be recorded or disclosed in thefinancial statements. The results of any changes in accounting estimates arereflected in the financial statements of the period in which the changes aredetermined.

 

We self-insure worker’scompensation claims to a certain level. We maintained a self-insurance reservetotaling approximately $9.5 million at December 31, 2009 andapproximately $5.5 million at December 31, 2008. Our accruals are based onjudgment, the probability of losses, and where applicable, the consideration ofopinions of internal and/or external legal counsel. The amount is included in “*accrued expenses and other current liabilities*”on our balance sheets. Actual payments that may be made in the future couldmaterially differ from such reserves.

 

**Liquidity and Capital Resources**

 

During the past two years,global market and economic conditions have been volatile and have had anadverse impact on financial markets in general. Many lenders and institutionalinvestors have reduced and, in some cases, ceased to provide funding toborrowers resulting in severely diminished liquidity and credit availability.At this time, the extent to which these conditions will persist is unclear. Atthis time, the Company’s cost and availability of funding has not beenadversely affected by the credit markets, and we do not expect it to bematerially impacted in the near future.

 

To date, we have experiencedno loss or lack of access to our cash or cash equivalents or funds under ourcredit facility; however, we can provide no assurances that access to our cash,cash equivalents and funds under our credit facility will not be impacted byadverse conditions in the financial markets.

 

We continue to have borrowingcapacity for our foreseeable needs based on our current cash flow forecast. Wecurrently have a $20.0 million credit facility which expires October 28,2012, under which we can issue letters of credit for up to $15.0 million.  We also have a credit facility of $15.0million, which expires October 27, 2010.

 

Additionally, the Companyhas a $10 million (Canadian dollars) facility for commercial letters ofcredit in Canada with an expiration date of December 31, 2012. As of December 31,2009 and 2008, total commercial letters of credit outstanding under this creditfacility totaled $5.3 million and $5.0 million, respectively.

 

At March 1, 2010, ournet cash and short term investment balance was $114.5 million. We believethat our cash position, amounts available under our credit facilities and cashprovided by operating activities will be adequate to cover our operational andbusiness needs at least through the remainder of 2010. In addition, we believethat we maintain the ability to consider strategic acquisitions that mayrequire cash.

 

**Cash Flows**

 

Cash flows during the yearsended December 31, 2009, 2008 and 2007 are summarized as follows:

 
| ** **                                        | ** ** | **2009**        | ** ** | **2008**        | ** ** | **2007**        | ** ** |
|---------------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| ** **                                        | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** |
| ***Change in cash***                              |       |            |       |            |       |            |       |
| Net cash provided (used) by  operating activities |       | $               | 28,082     |            | $          | 66,979          |       | $ | 71,826 |   |
| Net cash provided (used)  in investing activities |       | 5,412           |       | (24,360         | )          | (2,289          | )          |
| Net cash used in financing  activities            |       | (14,499         | )          | (32,129         | )          | (18,424         | )          |
| Net cash used in  discontinued operations         |       | (1,839          | )          | (270            | )          | (1,350          | )          |
| Net change in cash                                |       | $               | 17,156     |            | $          | 10,220          |       | $ | 49,763 |   |

 

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**Operating Activities**

 

The source of our cash flowfrom operating activities and the use of a portion of that cash in ouroperations for the years ended December 31, 2009, 2008 and 2007 were asfollows:

 
| ** **                                 | ** ** | **2009**        | ** ** | **2008**        | ** ** | **2007**        | ** ** |
|--------------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| ** **                                 | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** |
| ***Operating Activities***                 |       |            |       |            |       |            |       |
| Operating income                           |       | $               | 40,404     |            | $          | 35,848          |       | $ | 31,488 |   |
| Depreciation and  amortization             |       | 8,663           |       | 6,338           |       | 4,733           |       |
| Gain on sale of property  and equipment    |       | (3,217          | )          | (576            | )          | (258            | )          |
| Merger related stock  expense              |       | 390             |       | 4,050           |       | —          |       |
| Distributions received  from joint venture |       | 3,400           |       | 6,120           |       | 2,880           |       |
| Net deferred taxes                         |       | 1,179           |       | (4,166          | )          | —          |       |
| Changes in assets and  liabilities         |       | (3,341          | )          | 23,976          |       | 34,375          |       |
| Foreign exchange gain  (loss)              |       | 293             |       | 855             |       | (471            | )          |
| Interest income                            |       | 640             |       | 1,710           |       | 1,747           |       |
| Interest expense                           |       | (1,979          | )          | (2,250          | )          | (1,773          | )          |
| Provision for income taxes                 |       | (18,350         | )          | (4,926          | )          | (895            | )          |
| Net cash provided by  operating activities |       | $               | 28,082     |            | $          | 66,979          |       | $ | 71,826 |   |

 

The changes in assets andliabilities, excluding the impact of acquisitions, decreased operating cashflow by $3.3 million in 2009. The components of this change are includedin the consolidated statements of cash flow. The significant changes include a$15.8 million decrease in accounts receivable, a $7.0 milliondecrease in accounts payable and a decrease in accrued liabilities of $4.7 million.In addition, billings in excess of costs and estimated earnings decreased by$15.1 million while costs and estimated earnings in excess of billingsdecreased by $9.4 million, inventory and prepaid expenses increased by$3.8 million and restricted cash decreased by $1.7 million.

 

The decrease in restrictedcash was related to project completions causing the release of retentions. Thedecrease in billings in excess of costs and estimated earnings were principallydue to the progress and completion status of projects. The decrease in costsand estimated earnings in excess of billings derived from timing of costsincurred versus our contractual ability to bill our customers.

 

As of December 31,2009, accounts receivable represented 22.8% of total assets versus 36.0% in2008. Accounts payable represented 18.8% of the total liability as opposed to26.0% in 2008. This reflects the impact from the acquisition of twosubsidiaries in late 2009. Which strengthened our balance sheet position goingforward.

 

The provision for taxesincreased substantially by $13.4 million in 2009, reflecting the first fullyear of being taxed as a C-corporation.

 

***Investing activities***

 
| ** **                            | ** ** | **2009**        | ** ** | **2008**        | ** ** | **2007**        | ** ** |
|---------------------------------------|------------|-----------------|------------|-----------------|------------|-----------------|------------|
| ** **                            | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** | **(Thousands)** | ** ** |
| Capital expenditures —  cash     |       | $               | 9,314      |            | $          | 10,132          |       | $ | 2,185 |   |
| Capital expenditures —  financed |       | 4,723           |       | 7,076           |       | 6,570           |       |
| Total capital expenditures            |       | $               | 14,037     |            | $          | 17,208          |       | $ | 8,755 |   |

 

We purchased property andequipment for $14.0 million, $17.2 million and $8.8 million inthe years ended December 31, 2009, 2008 and 2007, respectively,principally for our construction activities. For 2009 purchases, we paid $9.3 million in cash and incurred$4.7 million in additional loan obligations, secured by the underlyingequipment. We believe the ownership of equipment is generally preferable torenting equipment on a project by project basis, as ownership helps to ensurethe equipment is available for our workloads when needed. In addition,ownership has historically resulted in lower overall equipment costs.

 

Our 2009 and 2008 purchaseswere at a higher level than previous years as we began to upgrade our equipmentto meet future California emission requirements.

 

We periodically sell andacquire equipment, typically to update our fleet. We received proceeds from thesale of used equipment of $4.3 and $1.3 million for 2009 and 2008,respectively. For the past few years, we have been able to rent major equipmentnot used for our own projects to third parties.

 

As part of our cashmanagement program, we invested $15.0 million both in 2009 and 2008 inshort term investments consisting primarily of CDs purchased through the CDARS(Certificate of Deposit Account Registry Service) process to provide FDICbacking of the CDs.

 

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The JCG acquisition on December 18,2009 added $34.5 million to our cash balance.

 

***Financing activities***

 

Financing activitiesrequired the use of $14.5 million of cash in 2009. Significanttransactions using cash flows from financing activities included:

 

·                  Final cashdistributions of $4.5 million were paid to the Former Primorisstockholders during 2009. During the period which the Company was anS-Corporation, we provided the Former Primoris stockholders distributions toallow them to pay their personal income tax liability stemming from the profitsof the Company in prior years;

 

·                  $3.2 millionfor payment of dividends;

 

·                  $17.3 millionproceeds from the issuance of long-term debt;

 

·                  $21.5 millionand $4.7 million in repayment of long-term debt during the years ended December 31,2009 and 2008, respectively, based on scheduled maturities of such debt; and

 

·                  $2.5 millionand $1.8 million in repayment of long-term capital leases during the yearended December 31, 2009 and 2008.

 

**Capital Requirements**

 

During the year 2009, ouroperations provided cash of $28.1 million, which included a reduction of$15.1 million of billings in excess of costs and estimated earnings.Billings in excess of costs and estimated earnings increase as we receive cashprior to performing the required work. If there were a reduction in the amount of work we perform, we mayexperience decreases in cash from operations as we use the cash previously paidto complete the work to be performed.

 

**Merger related cash**

 

We distributed approximately$48.9 million to the Former Primoris stockholders immediately prior to theclosing of the merger on July 31, 2008. In addition, on July 31,2008, the Rhapsody trust fund was liquidated and the proceeds of$41.3 million, including earned interest, were distributed. Of theseproceeds, $0.77 million was distributed to EarlyBirdCapital, Inc., whichincluded $0.4 million of deferred underwriting fees and $0.36 million ofinvestment banking fees, $0.6 million was distributed for services provided inrelation to the merger transaction, $0.36 million for legal fees, $0.12 millionfor NASDAQ filing fees, other miscellaneous expenses of $0.18 million, $0.19million was distributed to the merged company to pay accrued taxes and otheraccrued expenses for Rhapsody, and the remaining $39.7 million was madeavailable for our general corporate use.

 

Holders of 417,461 shares ofour common stock voted against the merger and elected to exercise their optionto convert their shares to cash in accordance with our original certificate ofincorporation. Each of these holders received $7.98 per share, or an aggregateof $3.3 million from the funds that had been held in the Rhapsody trustfund.

 

**Common Stock**

 

Prior to the July 2008merger, Former Primoris was a non-publicly traded entity with 4,368 sharesoutstanding. At the time of the merger, each Former Primoris share wasconverted into 5,400 shares of the Company, for 23,587,200 shares.Additionally, as part of the Merger Agreement, two foreign managers of FormerPrimoris were issued 507,600 shares of common stock.

 

In addition, the MergerAgreement provided for a potential additional 2,500,025 shares of common stockfor each of the years ended December 31, 2008 and 2009, if the Companyachieves specific financial targets. The 2008 financial target was achieved and2,500,025 shares were issued in March 2009.  The 2009 financial target was achieved and weexpect to issue 2,499,975 shares of our common stock in March 2010.

 

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*Impact of JCG Acquisitionon Common Stock*

 

On December 18, 2009, wecompleted the acquisition of JCG and paid initial consideration that included acombination of cash, notes payable and 81,852.78 shares of our Preferred Stock.  Subject to the approval of our stockholders,the Preferred Stock will convert into an aggregate of 8,185,278 shares ofcommon stock, which would represent an increase of approximately 24.7% of thenumber of shares outstanding on March 9, 2010.

 

In addition, if JCG’s incomebefore interest, taxes, depreciation and amortization (“EBITDA”), as defined inthe Purchase Agreement, for the fiscal year ending December 31, 2010 isequal to or greater than $35 million, we will issue a number of shares ofcommon stock equal to $10 million, divided by the average closing price of ourcommon stock, as reported on NASDAQ, for the 20 business days prior to December 31,2010.  The fair value of this contingentconsideration of $8.2 million was recorded as a liability on our balance sheetas of the acquisition date.

 

*Impact of CravensAcquisition on Common Stock*

 

On October 14, 2009, we announced that we hadacquired certain assets and assumed certain liabilities of Cravens Partners,Ltd. (“Cravens Partners”), a Texas-based provider of civil and utilityinfrastructure construction services. Following the completion of theacquisition, we created a wholly owned subsidiary named Cravens Services, Inc.The services of the new acquisition include excavation, underground utilities,drainage channels, facility upgrades, detention ponds and telecommunicationsinfrastructure projects.

 

Under the terms of thepurchase agreement, consideration included a combination of cash and a total of139,082 shares of our common stock at a value of $1.0 million, with 41,724 ofthose shares placed in escrow for up to a year, pending any claims arising subsequentto the transaction.

 

Additionally,we provided additional consideration for future earn-out payments based onattaining specified financial goals for the 3-year period 2009 to 2011.  The fair value for the contingentconsideration, of $1.8 million, was recorded as a liability on our balancesheet. A portion of the earn-out payments were achieved by the sellers as of December 31,2009 and $0.75 million of the earn-out was included as a current liability onthe balance sheet.  The $0.75 millionamount will include a cash payment of $0.15 million and the issuance of 74,906shares of our common stock valued at $0.6 million.

 

**Credit agreements**

 

In March 2007,we entered into a revolving line of credit agreement payable to Bank ofAmerica, N.A. (successor by merger to LaSalle Bank National Association) withan interest rate of prime or at LIBOR plus an applicable margin. The revolvingline was secured by substantially all of our assets. Under the line of creditagreement, we were able to borrow up to $30.0 million, and all amounts borrowedunder the line of credit were to be due March 31, 2010. On October 28,2009, we paid or cash collateralized all amounts due and owing under the lineof credit and terminated the line of credit agreement.

 

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

 

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

 

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

 

The Lender has agreed toissue for our account letters of credit of up to $15.0 million, under RevolvingLoan A.  The principal amount of each of Revolving Loan A and RevolvingLoan B will bear interest at either: (i) LIBOR plus an applicable marginas specified in the Agreement, or (ii) the prime rate announced by theLender plus an applicable margin as specified in the Agreement. The principalamount of any loan bearing interest at LIBOR plus an applicable margin may notbe prepaid in whole or in part at any time. However, if any such loan isprepaid, we will be subject to certain prepayment penalties. There is noprepayment penalty for any loan bearing interest at the prime rate announced bythe Lender plus an applicable margin.

 

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All loans made by theLender under the Agreement are secured by certain of our assets, including,among others, our cash, inventory, goods, equipment (excluding equipmentsubject to certain permitted liens) and accounts receivable. The Agreement alsocontains various restrictive covenants, including, among others, restrictionson investments, capital expenditures, minimum tangible net worth and debtservice coverage requirements.  Certain of our subsidiaries have executedjoint and several guaranties in favor of the Lender for all amounts under theAgreement.

 

In January 2008, theCompany entered into a credit facility (as amended) for purposes of issuingcommercial letters of credit in Canada, for an amount up to 10 million inCanadian dollars. The credit facility with a Canadian bank is for a term of5 years, and provides for an annual fee of 1% for any issued andoutstanding commercial letters of credit. Letters of credit can be denominatedin either Canadian or U.S. dollars. As of December 31, 2009 and 2008,total commercial letters of credit outstanding under this credit facilitytotaled $5.3 million and $5.0 million, respectively.

 

The term loan and line ofcredit facilities contain various restrictive covenants, including, among otherthings, restrictions on investments, capital expenditures, minimum workingcapital and tangible net worth requirements. The Company was in compliance withits restrictive covenants as of December 31, 2009 and 2008.

 

***Subordinated Promissory Note — JCG acquisition****.*  As further described in Note 4 — “*Business Combinations*” of the Notes to Consolidated Financial Statements included in Item 8 ofthis Form 10-K, the Company executed an unsecured Promissory Noteon December 18, 2009 in favor of the sellers of JCG with a principleamount of $53.5 million.  The PromissoryNote is due and payable on December 15, 2014 and bears interest atdiffering rates until maturity.  For thefirst 9 months of the term of the note, the Promissory Note bears interest atan annual rate equal to 5%.  For months10 through 18, the note will bear interest at an annual rate of 7%.  For the months 19 until the maturity date, thePromissory Note will bear interest at an annual rate of 8%.  Payments of principal and interest will bepayable in cash on an amortizing basis over 60 monthly payments.  The Promissory Note is subordinated toamounts owed to our senior lender and bonding agencies.

 

ThePromissory Note may be prepaid in whole or in part at any time and partialprepayment is required in the event the Company completes certain equityfinancing or obtains proceeds under certain new indebtedness. As long as thebalance of the Promissory Note is above $10 million, we have agreed to not takecertain actions without the prior written consent of the Promissory Noteholders, including, among others, purchase, acquire, redeem or retire anyshares of our common stock.

 

**Related Party Transactions:**

 

We entered into varioustransactions with Stockdale Investment Group, Inc. (“SIGI”). Our majoritystockholder, Chief Executive Officer, President and Chairman of the Board ofDirectors, Brian Pratt, also is a majority interest holder in SIGI. Inaddition, two of our officers and directors also serve as officers anddirectors of SIGI: Brian Pratt (SIGI chairman and director) and John M.Perisich (SIGI secretary).

 

Welease some of our facilities and certain construction and transportation equipmentfrom SIGI. All of these leases were entered into on similar terms as negotiatedwith an independent third party. We lease properties from SIGI located inBakersfield, Pittsburg and San Dimas, California, as well as a property inPasadena, Texas. During 2009, we paid $0.83 million in lease payments to SIGIfor the use of these properties. The lease for the Bakersfield propertycommenced on November 1, 2003 and will terminate on October 31, 2015,with an option by us to extend for two additional seven-year terms. The leasefor the Pittsburg property commenced on October 1, 2002 and will terminateon September 30, 2014, with an option by us to extend for two additionalseven-year terms. The lease for the San Dimas property commenced on April 1,2007 and will terminate on March 30, 2019, with an option by us to extendfor two additional seven-year terms. The lease for the Pasadena propertycommenced on August 9, 2007 and will terminate on July 31, 2019, withan option by us to extend for two additional seven-year terms.

 

We previously leased certainconstruction equipment from SIGI. We purchased all construction equipment andterminated all the associated leases with SIGI on the closing date of the July 2008merger. The purchase price of $1.1 million was determined using a fairmarket value appraisal.

 

The Company leased anairplane from SIGI for business use. During 2009 we paid $0.07 million in leasepayments to SIGI for the use of the airplane. This lease commenced on May 1,2004 and was terminated on March 31, 2009, when SIGI sold the airplane.

 

We lease a property fromRoger Newnham, one of our managers at Born Heaters Canada. The property islocated in Calgary, Canada. During the year ended December 31, 2009 wepaid $0.28 million in lease payments to Mr. Newnham for the use of thisproperty. The lease for the Calgary property commenced in 2005 and was extendeduntil September 2010. This lease was entered into on similar terms asnegotiated with an independent third party.

 

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**Contractual Obligations**

 

As of December 31,2009, we had $44.8 million of outstanding long-term debt and capital leaseobligations, outstanding subordinated debt of $53.5 million as a result of theJCG acquisition and no short-term borrowings.

 

A summary of contractualobligations as of December 31, 2009 were as follows:

 
| ** **                                    | ** ** | **Total**           | ** ** | **1 Year** | ** ** | **2 - 3  Years** | ** ** | **4 - 5  Years** | ** ** | **After 5  Years** | ** ** |
|-----------------------------------------------|------------|---------------------|------------|------------|------------|----------------------------|------------|----------------------------|------------|--------------------|------------|
| ** **                                    | ** ** | **(In  Thousands)** | ** ** |
| Long-term debt and capital  lease obligations |       | $                   | 44,804     |       | $          | 10,702                     |       | $                          | 18,108     |               | $          | 15,994 |   | $ | — |   |
| Interest on long-term debt                    |       | 5,679               |       | 2,190      |       | 2,790                      |       | 699                        |       | —             |       |
| Subordinated debt                             |       | 53,500              |       | 9,647      |       | 20,235                     |       | 23,618                     |       | —             |       |
| Interest on subordinated  debt                |       | 9,990               |       | 2,679      |       | 5,292                      |       | 2,019                      |       | —             |       |
| Equipment operating leases                    |       | 9,614               |       | 4,906      |       | 4,681                      |       | 27                         |       | —             |       |
| Real property leases                          |       | 5,216               |       | 1,811      |       | 2,839                      |       | 566                        |       | —             |       |
| Real property  leases—related parties    |       | 6,836               |       | 1,050      |       | 1,760                      |       | 1,767                      |       | 2,259              |       |
|                                          |       | $                   | 135,639    |       | $          | 32,985                     |       | $                          | 55,705     |               | $          | 44,690 |   | $ | 2,259 |   |
| Letters of credit                             |       | $                   | 11,989     |       | $          | 6,328                      |       | $                          | 4,984      |               | $          | 677 |   | — |   |

 

The interest amountrepresents interest payments for our fixed rate debt assuming that principalpayments are made as originally scheduled.

 

Included in the long-termdebt and capital lease obligations of $44.8 million shown above, is $12.0million assumed as part of the December 18, 2009 JCG acquisition.

 

**Off Balance Sheet Transactions**

 

The following representtransactions, obligations or relationships that could be considered materialoff-balance sheet arrangements.

 

·                  Letters ofcredit issued under our lines of credit. At December 31, 2009 we hadletters of credit outstanding of $12.0 million, including $5.6 millionrelating to the December 18, 2009 acquisition of JCG.

 

·                  Equipmentoperating leases with a balance of $9.6 million at December 31, 2009,including $4.6 million resulting from the December 18, 2009 acquisition ofJCG.

 

·                  In the ordinarycourse of our business, we may be required by our customers to post surety bidor completion bonds in connection with services that we provide. At December 31,2009 we had $773.8 million in outstanding bonds, which includes $524.5million resulting from the December 18, 2009 acquisition of JCG,

 

**Backlog**

 

In the industries in whichwe operate, backlog can be considered an indicator of potential futureperformance because it represents a portion of the future revenue stream.Different companies in our industry define backlog differently. We considerbacklog as the anticipated revenue from the uncompleted portions of existing contracts.We calculate backlog differently for different types of contracts. For ourfixed price and fixed unit price contracts, we include the full remainingportion of the contract in our calculation. Since their ultimate revenue amountis difficult to determine, we do not include unit-price, time-and-equipment,time-and-materials and cost-plus contracts in the calculation of backlog.

 

Most fixed price contractsmay be terminated by our customers on relatively short notice. In the event ofa project cancellation, we may be reimbursed for certain costs, but typicallywe have no contractual right to the total revenues reflected in backlog.Projects may remain in backlog for extended periods of time.

 

As of December 31, 2009,our total backlog was $795.4 million representing an increase of $444.4 million,or 126.6%, from $351.0 million as of December 31, 2008. Backlog from the December 18,2009 JCG acquisition represented $531.9 million of this increase. Excluding theJCG backlog, backlog at December 31, 2009 was $263.5 million, whichincreased by $48.3 million from September 30, 2009, but represented adecrease of $87.5 million from December 31, 2008. We expect thatapproximately 60% of the total backlog at December 31, 2009, will berecognized as revenue during 2010.

 

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Backlog by operating segmentat December 31, 2009, 2008 and 2007 was as follows:

 
| ** **                | ** ** | **2009**                   | ** ** | **2008**       | ** ** | **2007**   | ** ** |
|---------------------------|------------|----------------------------|------------|----------------|------------|------------|------------|
| **Segment:**              | ** ** | **Amount**                 | ** ** | **Percentage** | ** ** | **Amount** | ** ** | **Percentage** | ** ** | **Amount** | ** ** | **Percentage** | ** ** |
| ** **                | ** ** | **(Dollars in  Millions)** | ** ** |
| Construction Services (1) |       | $                          | 739.4      |           | 93.0       | %          | $          | 288.1 |   | 82.1 | % | $ | 352.7 |   | 76.2 | % |
| Engineering               |       | 56.0                       |       | 7.0            | %          | 62.9       |       | 17.9 | % | 110.2 |   | 23.8 | % |
|                      |       | $                          | 795.4      |           | 100.0      | %          | $          | 351.0 |   | 100.0 | % | $ | 462.9 |   | 100.0 | % |

 

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(1) —Includes backlog of $531.9 million as a result of the December 18, 2009JCG acquisition.

 

In July 2009, a judge’sruling following opposition from environmental groups in the state ofCalifornia halted the Chevron Corporation Richmond Refinery project inCalifornia. Chevron filed an appeal to overturn the judge’s order.  The future of the project remains in questionuntil the appeals court can decide the issues. Included in the Company’s backlog for this project at December 31,2009 amounted to $40.1 million, compared to $90.6 million as of December 31,2008.

 

Backlog should not beconsidered a comprehensive indicator of future revenues, as a significantportion of our revenues are derived from projects that are not part of abacklog calculation.  During 2009,approximately $135.3 million of revenue ($78.9 million attributable to Primorisand $56.4 million attributable to JCG during the calendar year) was generatedby projects completed under master service agreements, time and materialcontracts, and fixed unit price contracts.

 

**Effects of Inflation and Changing Prices**

 

Our operations are affectedby increases in prices, whether caused by inflation or other economic factors.We attempt to recover anticipated increases in the cost of labor, equipment,fuel and materials through price escalation provisions in certain majorcontracts or by considering the estimated effect of such increases when biddingor pricing new work or by entering into back-to-back contracts with suppliersand subcontractors.

 

**Recently Issued Accounting Pronouncements**

 

See Note 2 — “*Summary ofSignificant Accounting Policies*” of the Notes to ConsolidatedFinancial Statements included in Item 8 of this Form 10-K for adescription of recently issued accounting pronouncements, including theexpected dates of adoption and estimated effects on our results of operations,financial position and cash flows.

 

**ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

 

In the ordinary course ofbusiness, we are exposed to risks related to market conditions. These risksprimarily include fluctuations in foreign currency exchange rates, interestrates and commodity prices. We may seek to manage these risks through the useof financial derivative instruments. These instruments may include foreigncurrency exchange contracts and interest rate swaps.

 

We do not executetransactions or use financial derivative instruments for trading or speculativepurposes. We enter into transactions with counter parties that are generallyfinancial institutions in a matter to limit significant exposure with any oneparty.

 

As of December 31,2009, Primoris had five derivative financial instruments for the purpose ofhedging future currency exchange in Canadian dollars. The contracts enablePrimoris to purchase Canadian dollars before certain dates in 2010 at certainexchange rates. These contracts expire in January, February, April and June 2010.The related Canadian dollars purchased are two contracts for $1.5 million CADeach and one purchase and one sales contract for $2.0 million CAD, and onecontract for $0.5 million CAD. The related gain or loss on these contracts isnot significant at December 31, 2009. We intend to continue to hedgeforeign currency risks in those situations where we believe such transactionsare prudent.

 

At December 31, 2009,our long-term debt portfolio consisted of fixed rate instruments.

 

The carrying amounts forcash and cash equivalents, accounts receivable, short term investments, notespayable and accounts payable and accrued liabilities shown in the consolidatedbalance sheets approximate fair value at December 31, 2009, due to thegenerally short maturities of these items. At December 31, 2009, weinvested primarily in short-term dollar denominated bank deposits and other 90to 180 day certificates of deposits (“CDs”) through the CDARS (Certificateof Deposit Account Registry Service) process to provide FDIC backing of theCDs. We expect to hold our investments to maturity.

 

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**ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA**

 

Our financial statements,supplementary financial data and financial statement schedules are included ina separate section at the end of this Annual Report on Form 10-K. Thefinancial statements, supplementary data and schedules are listed in the indexon page F-1 of this Annual Report on Form 10-K and are incorporatedherein by reference.

 
| **ITEM 9.** | **CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON  ACCOUNTING AND FINANCIAL DISCLOSURE** |
|-------------|-------------------------------------------------------------------------------------------|

 

None.

 

**ITEM 9A. CONTROLS AND PROCEDURES**

 

**Evaluation of Disclosure Controls and Procedures**

 

We maintain disclosurecontrols and procedures that are designed to ensure that information requiredto be disclosed in our reports under the Exchange Act, is recorded, processed,summarized and reported within the time periods specified in the SEC’s rules andforms, and that such information is accumulated and communicated to management,including our Chief Executive Officer (“CEO”) and Executive Vice President,Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisionsregarding required disclosure. In designing and evaluating our disclosure controlsand procedures, our management recognized that any system of controls andprocedures, no matter how well designed and operated, can provide onlyreasonable assurance of achieving the desired control objectives, as ours aredesigned to do, and our management necessarily was required to apply itsjudgment in evaluating the cost-benefit relationship of possible controls andprocedures.

 

In connection with thepreparation of this Annual Report on Form 10-K, as of December 31,2009, an evaluation was performed under the supervision and with theparticipation of our management, including our CEO and CFO, of theeffectiveness of the design and operation of our disclosure controls andprocedures (as defined in Rule 13a-15(e) and 15d-15(e) under theExchange Act). Based on that evaluation, our CEO and CFO concluded that ourdisclosure controls and procedures were effective as of the end of the periodcovered by this Annual Report on Form 10-K to ensure that the informationrequired to be disclosed by us in our reports that we file or submit under theExchange Act is recorded, processed, summarized and reported within the timeperiods specified in the SEC’s rules and forms, and to ensure that theinformation required to be disclosed by us in reports that we file or submitunder the Exchange Act is accumulated and communicated to our management,including our CEO and CFO, as appropriate, to allow timely decisions regardingrequired disclosures.

 

**Management’s Annual Report on Internal Control OverFinancial Reporting**

 

Our management isresponsible for establishing and maintaining adequate internal control overfinancial reporting as defined in Rules 13a-15(f) and 15d-15(f) underthe Exchange Act. Our internal control over financial reporting is designed toprovide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordancewith generally accepted accounting principles. Our internal control overfinancial reporting includes those policies and procedures that:

 

(i)                                     pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of our assets;

 

(ii)                                  providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that our receipts and expenditures are being madeonly in accordance with authorizations of our management and directors; and

 

(iii)                               provide reasonableassurance regarding prevention or timely detection of unauthorized acquisition,use or disposition of our assets that could have a material effect on ourfinancial statements.

 

Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect misstatements. Also, projections of any evaluation of effectiveness tofuture periods are subject to the risk that controls may become inadequatebecause of changes in conditions, or that the degree of compliance with the policiesor procedures may deteriorate.

 

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Management assessed andevaluated the effectiveness of our internal control over financial reporting asof December 31, 2009. In making this assessment, management used thecriteria set forth by the Committee of Sponsoring Organizations of the TreadwayCommission in *Internal Control—IntegratedFramework*. Management reviewed the results of its assessment withthe Audit Committee of our Board of Directors. Based on the results ofmanagement’s assessment and evaluation, our CEO and CFO believe that ourinternal control over financial reporting is effective as of December 31,2009.

 

As discussed in Note 4 –“Business Combinations” of the Notes to Consolidated Financial Statementsincluded in Item 8 of this Form 10-K, we acquired James Construction Group, LLC(“JCG”) on December 18, 2009 and Cravens Partners, Ltd. (“Cravens”), on October3, 2009.  We have excluded from ourassessment of the effectiveness of our internal control over financialreporting as of December 31, 2009, the JCG and Cravens internal control overfinancial reporting, whose financial statements constitute approximately 59percent of total assets and approximately 4 percent of total revenues of theconsolidated financial statement amounts as of and for the year ended December31, 2009.

 

The independent registeredpublic accounting firm that audited our financials statements contained in thisannual report has issued an audit report on the effectiveness of our internalcontrol over financial reporting.  Therehas been no change in our internal control over financial reporting during ourmost recent fiscal quarter that has materially affected, or is reasonablylikely to materially affect our internal control over financial reporting.

 

**ITEM 9B.  OTHERINFORMATION**

 

None.

 

**PART III**

 

**ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE**

 

**Directors**

 

Information relating to theofficers and directors of our company, other corporate governance matters andother information required under this Item 10 is set forth in our ProxyStatement for our 2010 Annual Meeting of Stockholders (“Proxy Statement”) andis incorporated herein by reference.

 

As part of the PurchaseAgreement for the December 18, 2009 acquisition of JCG, we created two new“Class C’ directorships with terms expiring at the 2011 annual meeting ofstockholders.  Immediately following theclosing of the acquisition, Michael D. Killgore, one of the selling members ofJCG and JCG’s chief executive officer prior to the acquisition, and Robert A.Tinstman, who was formerly the executive chairman of JCG, were appointed tothese newly created “Class C” directorships.

 

**Executive Officers**

 

***Brian Pratt.***  Mr. Pratthas been our President and Chief Executive Officer since July 2008. Mr. Prattdirects strategy, establishes goals and oversees our operations. Prior to that,he served as the President, Chief Executive Officer and Chairman of the Boardof Former Primoris and its predecessor, ARB, Inc., a Californiacorporation, since 1983. He assumed operational and financial control of ARB in1983. Prior to the merger, Mr. Pratt was majority owner of FormerPrimoris. Mr. Pratt has over 30 years of hands-on operations andmanagement experience in the construction industry. Mr. Pratt completedfour years of courses in Civil Engineering at California Polytechnic College inPomona in 1974.

 

***Peter J. Moerbeek.***  Mr. Moerbeek was named as our ExecutiveVice President, Chief Financial Officer effective February 6, 2009. He hasserved as one of our Directors since July 2008. Previously, he served asChief Executive Officer of a private-equity funded company engaged in theacquisition and operation of water and wastewater utilities. As a founder ofthe company from June 2006 to February 2007, he was involved inraising equity capital for the fund. From August 1995 to June 2006, Mr. Moerbeekheld several positions with publicly traded Southwest Water Company, includingas Director from 2001 to 2006; as President and Chief Operating Officer from2004 to 2006; as President of the Services Group from 1997 to 2006; asSecretary from 1995 to 2004; and as Chief Financial Officer from 1995 to 2002.From 1989 to 2005, Mr. Moerbeek was the Chief Financial and OperationsOfficer for publicly-traded Pico Products, Inc. Mr. Moerbeek receiveda BSEE in 1969 and a MBA in 1971 from the University of Washington.

 

***John P. Schauerman.***  Mr. Schauerman was named as ourExecutive Vice President, Corporate Development effective February 6, 2009and has served as a Director since July 2008. He previously served as ourChief Financial Officer, and prior to the merger, he served as the ChiefFinancial Officer of Former Primoris since February 2008. He also servedas a Director of Former Primoris from 1993 to the time of the merger with us.He joined ARB in 1993 as Senior Vice President. In his current role, he isresponsible for developing and integrating our overall strategic plan,including the evaluation and structuring of new business opportunities andacquisitions, particularly in the area of renewable energy. Prior to joiningARB in 1993, he was Senior Vice President of Wedbush Morgan Securities. Mr. Schauermanreceived a B.S. in Electrical Engineering from UCLA in 1979 and an MBA in 1984from Columbia University.

 

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***Alfons Theeuwes.***  Mr. Theeuwes has served as our SeniorVice President, Finance and Accounting, since February 2008. Prior tothat, he served as Chief Financial Officer of Former Primoris since itsinception in January 2004. Previously, he was Chief Financial Officer of aFormer Primoris predecessor, ARB Inc. from 2001 to January 2004. Mr. Theeuwesis responsible for our administration and accounting. He joined ARB after a23-year career with a major engineering company in both Europe and the UnitedStates. Mr. Theeuwes received a degree in finance and accounting and isregistered as an accountant with the IDAC in Belgium.

 

***John M. Perisich.***  Mr. Perisich has served as our SeniorVice President and General Counsel since July 2008. Prior to that, heserved as Senior Vice President and General Counsel of Former Primoris since February 2006,and previous to that was Vice President and General Counsel of Former Primoris.Mr. Perisich joined ARB in 1995. Prior to joining Former Primoris, Mr. Perisichpracticed law at Klein, Wegis, a full service law firm based in Bakersfield,California. He received a B.A. degree from UCLA in 1987, and a J.D. from theUniversity of Santa Clara in 1991.

 

**ITEM 11. EXECUTIVE COMPENSATION**

 

Information required underthis Item 11 is set forth in our Proxy Statement and is incorporatedherein by reference, except for the information set forth under the caption, “*Compensation Committee Report*” of ourProxy Statement, which specifically is not incorporated herein by reference.

 
| **ITEM 12.** | **SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND  MANAGEMENT AND RELATED STOCKHOLDER MATTERS** |
|--------------|-----------------------------------------------------------------------------------------------------|

 

Information required underthis Item 12 is set forth in our Proxy Statement and is incorporatedherein by reference.

 

**ITEM 13.  CERTAINRELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE**

 

The information requiredunder this Item 13 is set forth in our Proxy Statement and is incorporatedherein by reference.

 

**ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES**

 

Information regardingprincipal accounting fees and services and other information required underthis Item 14 is set forth in our Proxy Statement and is incorporatedherein by reference.

 

**PART IV**

 

**ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES**

 

**(A)**                               We have filedthe following documents as part of this Report:

 

1.                                       ConsolidatedBalance Sheets of Primoris Services Corporation and subsidiaries as of December 31,2009 and 2008 and the related Consolidated Statements of Income, Stockholders’Equity and Cash Flows for the years ended December 31, 2009, 2008 and2007.

 

2.                                       Reports of MossAdams, LLP, independent registered public accounting firm, related to theconsolidated financial statements in part (A)(1) above.

 

3.                                       Notes to theconsolidated financial statements in part (A)(1) above.

 

4.                                       List of exhibitsrequired by Item 601 of Regulation S-K.  See part (B) below.

 

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**(B)**                               The following is a complete list ofexhibits filed as part of this Report, some of which are incorporated herein byreference from certain other of our reports, registration statements and otherfilings with the Securities and Exchange Commission (the “SEC”), as referencedbelow:

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                  |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.1     |       | Agreement and  Plan of Merger, dated February 19, 2008, by and among Rhapsody  Acquisition Corp., Primoris Corporation and certain stockholders of Primoris  Corporation (1)                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.2     |       | First Amendment to Agreement  and Plan of Merger, dated May 15, 2008, by and among Rhapsody Acquisition Corp., Primoris  Corporation and certain stockholders of Primoris Corporation (2)                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.3     |       | Membership  Interest Purchase Agreement, dated November 18, 2009, by and among  Primoris Services Corporation, James Construction Group, LLC, each of the  limited liability company members of James Construction Group, LLC and the  representative of the limited liability company members of James Construction  Group, LLC (3)                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.4     |       | First Amendment  to the Membership Interest Purchase Agreement, dated December 18, 2009,  by and among Primoris Services Corporation, James Construction Group, LLC,  each of the limited liability company members of James Construction Group, LLC  and the representative of the limited liability company members of James  Construction Group, LLC (4) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.5     |       | Second Amendment to  Membership Interest Purchase Agreement, dated January 14, 2010, by and  among Primoris Services Corporation, James Construction Group, LLC and the  representative of the limited liability company members of James Construction  Group, LLC (5)                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 3.1     |       | Fourth Amended and Restated  Certificate of Incorporation of Primoris Services Corporation (6)                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 3.2     |       | Amended and Restated Bylaws of  Primoris Services Corporation (7)                                                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 3.3     |       | Certificate of  Designations, Powers, Preferences and Rights of the Series A Non-Voting  Contingent Convertible Preferred Stock of Primoris Services Corporation,  dated December 14, 2009 (8)                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.1     |       | Specimen Unit Certificate (9)                                                                                                                                                                                                                                                                                                                                    |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.2     |       | Specimen Common Stock  Certificate (9)                                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.3     |       | Specimen Warrant Certificate  (10)                                                                                                                                                                                                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.4     |       | Form of  Unit Purchase Option (11)                                                                                                                                                                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.5     |       | Form of  Warrant Agreement between Continental Stock Transfer & Trust Company  and Primoris Services Corporation (10)                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.1    |       | Escrow Agreement  among Rhapsody Acquisition Corp., Brian Pratt, as Representative, and  Continental Stock Transfer & Trust Company, as Escrow Agent (1)                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.2    |       | Form of  Lock-Up Agreement by and among Rhapsody Acquisition Corp. and the former  stockholders and foreign managers of Primoris Corporation (12)                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.3    |       | Form of  Stock Escrow Agreement between Rhapsody Acquisition Corp., Continental Stock  Transfer & Trust Company and certain stockholders of Rhapsody  Acquisition Corp. (9)                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.4    |       | Form of  Registration Rights Agreement among Rhapsody Acquisition Corp. and certain  stockholders of Rhapsody Acquisition Corp. (9)                                                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.5    |       | Form of Subscription  Agreement among Rhapsody Acquisition Corp., Graubard Miller and each of  Eric S. Rosenfeld, Leonard B. Schlemm, Jon Bauer, Colin D.  Watson and Gotham Capital V (9)                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.6    |       | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Eric S. Rosenfeld (9)                                                                                                                                                                                                                 |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.7    |       | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Arnaud Ajdler (9)                                                                                                                                                                                                                          |

 

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| Exhibit 10.8  |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Leonard B. Schlemm (9)                                                                                                                                              |
|--------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.9  |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Jon Bauer (9)                                                                                                                                                       |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.10 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Colin D. Watson (9)                                                                                                                                                 |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.11 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and David Sgro (9)                                                                                                                                                      |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.12 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Greg Monahan (9)                                                                                                                                                    |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.13 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Joel Greenblatt (9)                                                                                                                                                 |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.14 |   | Employment  Agreement, dated February 19, 2008, by and among Primoris Services  Corporation and Brian Pratt (#) (7)                                                                                                                                                             |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.15 |   | Employment  Agreement, dated February 18, 2008, by and among Primoris Services  Corporation and John P. Schauerman (#)(7)                                                                                                                                                            |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.16 |   | Employment  Agreement, dated February 18, 2008, by and among Primoris Services  Corporation and John M. Perisich (#)(7)                                                                                                                                                              |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.17 |   | Employment  Agreement, dated February 18, 2008, by and among Primoris Services  Corporation and Alfons Theeuwes (#)(7)                                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.18 |   | Employment  Agreement, dated February 6, 2009, by and among Primoris Services  Corporation and Peter J. Moerbeek (#)(13)                                                                                                                                                             |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.19 |   | Employment  Agreement, dated November 18, 2009, by and among James Construction  Group, LLC and Michael D. Killgore (#)(4)                                                                                                                                                           |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.20 |   | 2008 Long-Term  Equity Incentive Plan (#)(14)                                                                                                                                                                                                                                             |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.21 |   | Voting  Agreement, dated July 31, 2008, by and among the Primoris Services  Corporation, Eric S. Rosenfeld, Brian Pratt, John P. Schauerman,  the Scott E. Summers and Sherry L. Summers Family Trust Dated  August 21, 2001, and Timothy R. Healy (7) |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.22 |   | Purchase Trading Plan  Agreement, dated March 26, 2009, by and among Primoris Services  Corporation and CJS Securities, Inc. (15)                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.23 |   | General  Agreement of Indemnity, dated in 2004, by and among Primoris Corporation,  ARB, Inc., ARB Structures, Inc., Cardinal Contractors,  Onquest, Inc. and Liberty Mutual Insurance Company (7)                                                                    |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.24 |   | Loan and  Security Agreement, dated March 22, 2007, by and among Primoris  Corporation and LaSalle Bank National Association (7)                                                                                                                                                     |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.25 |   | First Amendment  to Loan and Security Agreement, dated in 2007, by and among Primoris  Corporation and LaSalle Bank National Association (7)                                                                                                                                              |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.26 |   | Second Amendment  to Loan and Security Agreement, dated July 11, 2008, by and among  Primoris Corporation and LaSalle Bank National Association (7)                                                                                                                                  |

 

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| Exhibit 10.27 |   | Loan and Security  Agreement, dated October 28, 2009, by and between Primoris Services  Corporation and The PrivateBank and Trust Company (16)                                                                                                                                                                                                                         |
|--------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.28 |   | Promissory Note  and Aircraft Security Agreement and related documents thereto, dated  October 17, 2008, by and between Stellaris LLC and  U.S. Bancorp Equipment Finance, Inc. (17)                                                                                                                                                                    |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.29 |   | Escrow  Agreement, dated December 15, 2009, by and among Primoris Services  Corporation, the representative of the limited liability company members of  James Construction Group, LLC and Continental Stock Transfer & Trust  Company, as escrow agent (4)                                                                                                   |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.30 |   | Voting  Agreement, dated December 18, 2009, by and among certain Primoris  stockholders who represent, in the aggregate, in excess of 50% of the issued  and outstanding shares of common stock of Primoris Services Corporation,  James Construction Group, LLC and the representative of the limited liability  company members of James Construction Group, LLC (4) |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.31 |   | Promissory Note,  dated December 18, 2009, executed by Primoris Services Corporation in  favor of the limited liability company members of James Construction Group, LLC  (4)                                                                                                                                                                                          |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.32 |   | Subordination  Agreement, dated December 18, 2009, by and among The PrivateBank and  Trust Company and the limited liability company members of James Construction  Group, LLC (4)                                                                                                                                                                                     |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.33 |   | Subordination  Agreement, dated December 18, 2009, by and among Liberty Mutual  Insurance Company and the limited liability company members of James  Construction Group, LLC (4)                                                                                                                                                                                      |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.34 |   | Subordination  Agreement, dated December 18, 2009, by and among CNA Surety Corporation  and the limited liability company members of James Construction Group, LLC  (4)                                                                                                                                                                                                |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.35 |   | Promissory Note,  dated December 18, 2009, executed by James Construction Group, LLC in  favor of the limited liability company members of James Construction Group, LLC  (4)                                                                                                                                                                                          |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.36 |   | Noncompetition  Agreement, dated December 18, 2009, by and among Primoris Services  Corporation and Michael D. Killgore (4)                                                                                                                                                                                                                                            |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 14.1  |   | Code of Ethics (*)                                                                                                                                                                                                                                                                                                                                                          |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 21.1  |   | Subsidiaries and  equity investments of Primoris Services Corporation (17)                                                                                                                                                                                                                                                                                                  |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 23.1  |   | Consent of Moss  Adams, LLP (*)                                                                                                                                                                                                                                                                                                                                             |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 31.1  |   | Certification of chief  executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (*)                                                                                                                                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 31.2  |   | Certification of chief  financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (*)                                                                                                                                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 32.1  |   | Certification of chief  executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (*)                                                                                                                                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 32.2  |   | Certification of chief  financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (*)                                                                                                                                                                                                                                                               |

 

----

(#)                                 Managementcontract or compensatory plan, contract or arrangement.

(*)                                 Filed herewith.

(1)                                  Filed as anexhibit to our Current Report on Form 8-K, as filed with the SEC on February 20,2008, and which is incorporated herein by reference.

(2)                                  Filed as anexhibit to our Registration Statement on Form S-4 (File No. 333-150343),as filed with the SEC on July 1, 2008, and which is incorporated herein byreference.

(3)                                  Filed as an exhibit to our Current Reporton Form 8-K, as filed with the SEC on November 23, 2009, and which isincorporated herein by reference.

(4)                                  Filed as an exhibit to our Current Reporton Form 8-K, as filed with the SEC on December 23, 2009, and which isincorporated herein by reference.

(5)                                  Filed as an exhibit to our Current Reporton Form 8-K/A (Amendment No. 1), as filed with the SEC on January 22,2010, and which is incorporated herein by reference.

 

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(6)                                  Filed as an exhibit to our QuarterlyReport on Form 10-Q, as filed with the SEC on August 12, 2009, andwhich is incorporated herein by reference.

(7)                                  Filed as an exhibit to our Current Reporton Form 8-K, as filed with the SEC on August 6, 2008, and which isincorporated herein by reference.

(8)                                  Filed as exhibit to our Current Report onForm 8-K, as filed with the SEC on December 17, 2009, and which isincorporated herein by reference.

(9)                                  Filed as an exhibit to our RegistrationStatement on Form S-1 (File No. 333-134694), as filed with the SEC onJune 2, 2006, and which is incorporated herein by reference.

(10)                            Filed as an exhibit to our RegistrationStatement on Form S-1/A (Amendment No. 2) (File No. 333-134694),as filed with the SEC on August 28, 2006, and which is incorporated hereinby reference.

(11)                            Filed as an exhibit to our RegistrationStatement on Form S-1/A (Amendment No. 1) (File No. 333-134694),as filed with the SEC on July 14, 2006, and which is incorporated hereinby reference.

(12)                            Filed as an exhibit to our RegistrationStatement on Form S-4 (File No. 333-150343), as filed with the SEC onApril 21, 2008, and which is incorporated herein by reference.

(13)                            Filed as an exhibit to our Current Reporton Form 8-K, as filed with the SEC on February 12, 2009, and which isincorporated herein by reference.

(14)                            Attached as an annex to our RegistrationStatement on Form S-4/A (Amendment No. 4) (File No. 333-150343),as filed with the SEC on July 9, 2008, and which is incorporated herein byreference.

(15)                            Filed as an exhibit to our Current Reporton Form 8-K, as filed with the SEC on March 31, 2009, and which isincorporated herein by reference.

(16)                            Filed as an exhibit to our Current Reporton Form 8-K, as filed with the SEC on November 4, 2009, and which isincorporated herein by reference.

(17)                            Filed as an exhibit to our Annual Reporton Form 10-K, as filed with the SEC on March 24, 2009, and which isincorporated herein by reference.

 

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**SIGNATURES**

 

Pursuant to the requirementsof Section 13 or 15(d) of the Securities Exchange Act of 1934, theRegistrant has duly caused this Report to be signed on its behalf by theundersigned, thereunto duly authorized.

 

**Primoris Services Corporation(Registrant)**

 
| BY:    | /s/ BRIAN PRATT                          |   | BY:    | /s/ PETER J. MOERBEEK                                |
|--------|------------------------------------------|--------|--------|------------------------------------------------------|
|   | Brian Pratt                              |   |   | Peter J. Moerbeek                                    |
|   | *President  and Chief Executive Officer* |   |   | *Executive  Vice President, Chief Financial Officer* |

 

Date: March 10, 2010

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, this Report has been signed by thefollowing persons on behalf of the Registrant and in the capacities indicatedand on the date indicated.

 
| BY:    | /s/ BRIAN PRATT                     |   |   |
|--------|-------------------------------------|--------|--------|
|   | Brian Pratt                         |   |   |
|   | Chairman of the Board of  Directors |   |   |
|   |                                |   |   |
| BY:    | /s/ JOHN P. SCHAUERMAN              |   |   |
|   | John P. Schauerman                  |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ ERIC S. ROSENFELD               |   |   |
|   | Eric S. Rosenfeld                   |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ PETER J. MOERBEEK               |   |   |
|   | Peter J. Moerbeek                   |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ STEPHEN C. COOK                 |   |   |
|   | Stephen C. Cook                     |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ DAVID D. SGRO                   |   |   |
|   | David D. Sgro                       |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ THOMAS E. TUCKER                |   |   |
|   | Thomas E. Tucker                    |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ PETER C. BROWN                  |   |   |
|   | Peter C. Brown                      |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ ROBERT A. TINSTMAN              |   |   |
|   | Robert A. Tinstman                  |   |   |
|   | Director                            |   |   |
|   |                                |   |   |
| BY:    | /s/ MICHAEL D. KILLGORE             |   |   |
|   | Michael D. Killgore                 |   |   |
|   | Director                            |   |   |

 

Date: March 10, 2010

 

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**PRIMORIS SERVICES CORPORATION**

 

**INDEX TO FINANCIAL STATEMENTS**

 
| ** **                                                                                                      | ** ** | **Page** |
|-----------------------------------------------------------------------------------------------------------------|------------|----------|
| Report of Independent Registered Public Accounting  Firm                                                        |       | F-2      |
| Consolidated  Balance Sheets as of December 31, 2009 and 2008                                              |       | F-5      |
| Consolidated Statements of Income for the Years Ended  December 31, 2009, 2008 and 2007                    |       | F-6      |
| Consolidated Statements of Stockholders’ Equity for  the Years Ended December 31, 2009, 2008 and 2007 |       | F-7      |
| Consolidated Statements of Cash Flows for the Years  Ended December 31, 2009, 2008 and 2007                |       | F-8      |
| Notes to Consolidated Financial Statements                                                                      |       | F-10     |

 

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### **Reportof Independent Registered Public Accounting Firm**

 

TheBoard of Directors and Stockholders

PrimorisServices Corporation

 

Wehave audited the accompanying consolidated balance sheets of Primoris ServicesCorporation (the “Company”) as of December 31, 2009 and 2008, and therelated consolidated statements of income, stockholders’ equity, and cash flowsfor each of the three years in the period ended December 31, 2009.  These consolidated financial statements arethe responsibility of the Company’s management. Our responsibility is toexpress an opinion on the consolidated financial statements based on ouraudits.

 

Weconducted our audits in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whether theconsolidated financial statements are free of material misstatement. An auditincludes examining, on a test basis, evidence supporting the amounts anddisclosures in the financial statements. An audit also includes assessing theaccounting principles used and significant estimates made by management, aswell as evaluating the overall financial statement presentation. We believethat our audits provide a reasonable basis for our opinion.

 

Inour opinion, such consolidated financial statements present fairly, in allmaterial respects, the financial position of Primoris Services Corporation asof December 31, 2009 and 2008, and the results of its operations and itscash flows for each of the three years in the period ended December 31,2009, in conformity with accounting principles generally accepted in the UnitedStates of America.

 

Asdiscussed in Note 2 to the consolidated financial statements, the Companychanged the manner in which it accounts for business combinations with theadoption of the guidance originally issued in Statements of FinancialAccounting Standards No. 141(R) *Business Combinations*(codifiedin FASB ASC Topic 805 *Business Combinations*),effective January 1, 2009.

 

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the Company’s internal control overfinancial reporting as of December 31, 2009, based on the criteriaestablished in *Internal Control—IntegratedFramework* issued by the Committee of Sponsoring Organizations of theTreadway Commission and our report dated March 10, 2010, expressed anunqualified opinion on the Company’s internal control over financial reporting.

 

 

/s/Moss Adams, LLP

 

Irvine,California

March 10,2010

 

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### **Reportof Independent Registered Public Accounting Firm**

 

TheBoard of Directors and Stockholders

PrimorisServices Corporation

 

Wehave audited the internal control over financial reporting of Primoris ServicesCorporation (the “Company”) as of December 31, 2009, based on criteriaestablished in *Internal Control — Integrated Framework*issued by the Committee of Sponsoring Organizations of the Treadway Commission.As described in Management’s Annual Report on Internal Control Over FinancialReporting, management excluded from its assessment the internal control overfinancial reporting at James Construction Group, LLC and Cravens Partners,Ltd., which were acquired on December 18, 2009, and October 3, 2009,respectively, and whose financial statements constitute approximately 59% oftotal assets, and approximately 4% of revenues of the consolidated financialstatement amounts as of and for the year ended December 31, 2009.Accordingly, our audit did not include the internal control over financialreporting at James Construction Group, LLC and Cravens Partners, Ltd.  The Company’s management is responsible formaintaining effective internal control over financial reporting and for itsassessment of the effectiveness of internal control over financial reporting,included in the accompanying Management’s Annual Report on Internal Control OverFinancial Reporting. Our responsibility is to express an opinion on theCompany’s internal control over financial reporting based on our audit.

 

Weconducted our audit in accordance with the standards of the Public CompanyAccounting Oversight Board (United States). Those standards require that weplan and perform the audit to obtain reasonable assurance about whethereffective internal control over financial reporting was maintained in allmaterial respects. Our audit included obtaining an understanding of internalcontrol over financial reporting, assessing the risk that a material weaknessexists, testing and evaluating the design and operating effectiveness ofinternal control based on the assessed risk, and performing such otherprocedures as we considered necessary in the circumstances. We believe that ouraudit provides a reasonable basis for our opinion.

 

Acompany’s internal control over financial reporting is a process designed by,or under the supervision of, the company’s principal executive and principalfinancial officers, or persons performing similar functions, and effected bythe company’s board of directors, management, and other personnel to providereasonable assurance regarding the reliability of financial reporting and thepreparation of financial statements for external purposes in accordance withgenerally accepted accounting principles. A company’s internal control overfinancial reporting includes those policies and procedures that (1) pertainto the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) providereasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally acceptedaccounting principles, and that receipts and expenditures of the company arebeing made only in accordance with authorizations of management and directorsof the company; and (3) provide reasonable assurance regarding preventionor timely detection of unauthorized acquisition, use, or disposition of thecompany’s assets that could have a material effect on the financial statements.

 

Becauseof the inherent limitations of internal control over financial reporting,including the possibility of collusion or improper management override ofcontrols, material misstatements due to error or fraud may not be prevented ordetected on a timely basis. Also, projections of any evaluation of theeffectiveness of the internal control over financial reporting to futureperiods are subject to the risk that the controls may become inadequate becauseof changes in conditions, or that the degree of compliance with the policies orprocedures may deteriorate.

 

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Inour opinion, the Company maintained, in all material respects, effectiveinternal control over financial reporting as of December 31, 2009, basedon the criteria established in *Internal Control —Integrated Framework* issued by the Committee of SponsoringOrganizations of the Treadway Commission.

 

Wehave also audited, in accordance with the standards of the Public CompanyAccounting Oversight Board (United States), the consolidated financialstatements as of and for the year ended December 31, 2009, of the Companyand our report dated March 10, 2010 expressed an unqualified opinion onthose consolidated financial statements.

 

 

/s/Moss Adams, LLP

 

Irvine,California

March 10,2010

 

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**PRIMORIS SERVICES CORPORATION**

 

**CONSOLIDATED BALANCE SHEETS**

**(In Thousands, Except Share Amounts)**

 
| ** **                                                                                                                                                      | ** ** | **December 31,** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|
| ** **                                                                                                                                                      | ** ** | **2009**              | ** ** | **2008** | ** ** |
| ASSETS                                                                                                                                                          |       |                  |       |   |   |
| Current assets:                                                                                                                                                 |       |                  |       |   |   |
| Cash and cash equivalents                                                                                                                                       |       | $                     | 90,004     |   | $ | 72,848 |   |
| Short term investments                                                                                                                                          |       | 30,058                |       | 15,036 |   |
| Restricted cash                                                                                                                                                 |       | 6,845                 |       | 8,556 |   |
| Accounts receivable, net                                                                                                                                        |       | 108,492               |       | 90,622 |   |
| Costs and estimated  earnings in excess of billings                                                                                                             |       | 11,378                |       | 19,793 |   |
| Inventory                                                                                                                                                       |       | 22,275                |       | 2,349 |   |
| Deferred tax assets                                                                                                                                             |       | 5,630                 |       | 5,591 |   |
| Prepaid expenses and other  current assets                                                                                                                      |       | 5,501                 |       | 798 |   |
| Current assets from  discontinued operations                                                                                                                    |       | 5,304                 |       | 6,862 |   |
| Total current assets                                                                                                                                            |       | 285,487               |       | 222,455 |   |
| Property and equipment,  net                                                                                                                                    |       | 92,568                |       | 24,820 |   |
| Other assets                                                                                                                                                    |       | —                |       | 139 |   |
| Investment in  non-consolidated ventures                                                                                                                        |       | 5,599                 |       | 500 |   |
| Other intangible assets,  net                                                                                                                                   |       | 32,695                |       | 52 |   |
| Goodwill                                                                                                                                                        |       | 59,678                |       | 2,842 |   |
| Non-current assets of  discontinued operations                                                                                                                  |       | —                |       | 1,404 |   |
| Total assets                                                                                                                                                    |       | $                     | 476,027    |   | $ | 252,212 |   |
| LIABILITIES AND STOCKHOLDERS’ EQUITY                                                                                                                       |       |                  |       |   |   |
| Current liabilities:                                                                                                                                            |       |                  |       |   |   |
| Accounts payable                                                                                                                                                |       | $                     | 62,568     |   | $ | 50,991 |   |
| Billings in excess of  costs and estimated earnings                                                                                                             |       | 114,035               |       | 71,193 |   |
| Accrued expenses and other  current liabilities                                                                                                                 |       | 34,992                |       | 25,171 |   |
| Distributions and  dividends payable                                                                                                                            |       | 2,987                 |       | 5,696 |   |
| Current portion of capital  leases                                                                                                                              |       | 4,220                 |       | 2,198 |   |
| Current portion of  long-term debt                                                                                                                              |       | 6,482                 |       | 5,679 |   |
| Current portion of subordinated  debt                                                                                                                           |       | 10,397                |       | — |   |
| Current liabilities of  discontinued operations                                                                                                                 |       | 6,511                 |       | 7,464 |   |
| Total current liabilities                                                                                                                                       |       | 242,192               |       | 168,392 |   |
| Long-term debt, net of  current portion                                                                                                                         |       | 26,368                |       | 26,624 |   |
| Long-term capital leases,  net of current portion                                                                                                               |       | 7,734                 |       | 341 |   |
| Long-term subordinated  debt, net of current portion                                                                                                            |       | 43,853                |       | — |   |
| Deferred tax liabilities                                                                                                                                        |       | 2,643                 |       | 1,425 |   |
| Other long-term  liabilities                                                                                                                                    |       | 9,278                 |       | — |   |
| Total liabilities                                                                                                                                               |       | 332,068               |       | 196,782 |   |
| Commitments and  contingencies                                                                                                                                  |       |                  |       |   |   |
| Stockholders’ equity                                                                                                                                       |       |                  |       |   |   |
| Preferred stock—$.0001 par  value, 1,000,000 shares authorized, issued and outstanding 81,852.78 and 0 at  December 31, 2009 and 2008, respectively   |       | —                |       | — |   |
| Common stock—$.0001 par  value; authorized 90,000,000; issued and outstanding: 32,704,903 and  29,977,339 at December 31, 2009 and 2008, respectively |       | 3                     |       | 3 |   |
| Additional paid-in capital                                                                                                                                      |       | 100,644               |       | 34,796 |   |
| Retained earnings                                                                                                                                               |       | 42,982                |       | 20,528 |   |
| Accumulated other  comprehensive income                                                                                                                         |       | 330                   |       | 103 |   |
| Total stockholders’ equity                                                                                                                                 |       | 143,959               |       | 55,430 |   |
| Total liabilities and  stockholders’ equity                                                                                                                |       | $                     | 476,027    |   | $ | 252,212 |   |

 

See accompanying notes.

 

F-5

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Table of Contents

 

**PRIMORIS SERVICES CORPORATION**

 

**CONSOLIDATED STATEMENTS OF INCOME**

**(InThousands, Except Per Share Amounts)**

 
| ** **                                                                       | ** ** | **Year Ended  December 31,** | ** ** |
|----------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                       | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Revenues                                                                         |       | $                                 | 467,010    |   | $ | 597,822 |   | $ | 542,624 |   |
| Cost of revenues                                                                 |       | 391,435                           |       | 527,380 |   | 482,556 |   |
| Gross profit                                                                     |       | 75,575                            |       | 70,442 |   | 60,068 |   |
| Selling, general and administrative  expenses                                    |       | 34,781                            |       | 30,544 |   | 28,580 |   |
| Merger related stock  expense                                                    |       | 390                               |       | 4,050 |   | — |   |
| Operating income                                                                 |       | 40,404                            |       | 35,848 |   | 31,488 |   |
| Other income (expense):                                                          |       |                              |       |   |   |   |   |
| (Loss) income from  non-consolidated investments                                 |       | 8,753                             |       | 6,065 |   | (1,359 | ) |
| Foreign exchange gain  (loss)                                                    |       | 293                               |       | 855 |   | (471 | ) |
| Interest income                                                                  |       | 640                               |       | 1,710 |   | 1,747 |   |
| Interest expense                                                                 |       | (1,979                            | )          | (2,250 | ) | (1,773 | ) |
| Income from continuing  operations, before provision for income taxes            |       | 48,111                            |       | 42,228 |   | 29,632 |   |
| Provision for income taxes                                                       |       | (18,350                           | )          | (4,926 | ) | (895 | ) |
| Income from continuing  operations                                               |       | 29,761                            |       | 37,302 |   | 28,737 |   |
| Loss on discontinued  operations, net of income taxes                            |       | (3,849                            | )          | (869 | ) | (1,603 | ) |
| Net income                                                                       |       | $                                 | 25,912     |   | $ | 36,433 |   | $ | 27,134 |   |
|                                                                             |       |                              |       |   |   |   |   |
| Dividends per common share                                                       |       | $                                 | 0.10       |   | $ | 0.05 |   | $ | — |   |
| **Earnings (loss) per  share:**                                                  |       |                              |       |   |   |   |   |
| Basic:                                                                           |       |                              |       |   |   |   |   |
| Income from continuing  operations                                               |       | $                                 | 0.93       |   | $ | 1.42 |   | $ | 1.23 |   |
| Loss on discontinued  operations                                                 |       | $                                 | (0.12      | ) | $ | (0.03 | ) | $ | (0.07 | ) |
| Net income                                                                       |       | $                                 | 0.81       |   | $ | 1.39 |   | $ | 1.16 |   |
| Diluted:                                                                         |       |                              |       |   |   |   |   |
| Income from continuing  operations                                               |       | $                                 | 0.86       |   | $ | 1.32 |   | $ | 1.23 |   |
| Loss on discontinued  operations                                                 |       | $                                 | (0.11      | ) | $ | (0.03 | ) | $ | (0.07 | ) |
| Net income                                                                       |       | $                                 | 0.75       |   | $ | 1.29 |   | $ | 1.16 |   |
| **Weighted average common  shares outstanding:**                                 |       |                              |       |   |   |   |   |
| Basic                                                                            |       | 31,937                            |       | 26,258 |   | 23,458 |   |
| Diluted                                                                          |       | 34,418                            |       | 28,156 |   | 23,458 |   |
| **Pro forma  net income data—Unaudited 2008 and 2007:**                     |       |                              |       |   |   |   |   |
| Income from continuing  operations, before provision for income tax, as reported |       |                              |       | $ | 42,228 |   | $ | 29,632 |   |
| Pro forma provision for  income tax                                              |       |                              |       | (16,797 | ) | (11,794 | ) |
| Pro forma income from  continuing operations                                     |       |                              |       | $ | 25,431 |   | $ | 17,838 |   |
| Pro forma loss on  discontinued operations                                       |       |                              |       | (592 | ) | (993 | ) |
| Pro forma net income                                                             |       |                              |       | $ | 24,839 |   | $ | 16,845 |   |
| Pro forma earnings per  share                                                    |       |                              |       |   |   |   |   |
| Basic — income from  continuing operations                                  |       |                              |       | $ | 0.97 |   | $ | 0.76 |   |
| Basic — loss on discontinued  operations                                    |       |                              |       | $ | (0.02 | ) | $ | (0.04 | ) |
| Basic — net income                                                          |       |                              |       | $ | 0.95 |   | $ | 0.72 |   |
| Diluted — income from  continuing operations                                |       |                              |       | $ | 0.90 |   | $ | 0.76 |   |
| Diluted — loss on  discontinued operations                                  |       |                              |       | $ | (0.02 | ) | $ | (0.04 | ) |
| Diluted — net income                                                        |       |                              |       | $ | 0.88 |   | $ | 0.72 |   |

 

See accompanying notes.

 

F-6

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Table ofContents

 

**PRIMORIS SERVICES CORPORATION**

 

**CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(In Thousands, Except Share Amounts)**

 
| ** **                                                                                                          | ** ** | **Common Stock** | ** ** | **Preferred Stock** | ** ** | **Additional  Paid-in** | ** ** | **Retained** | ** ** | **Accum. Other  Comprehensive** | ** ** | **Total  Stockholders’** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|-----------------------|------------|--------------------------|------------|-------------------------|------------|--------------|------------|--------------------------------------|------------|-------------------------------|------------|
| ** **                                                                                                          | ** ** | **Shares**            | ** ** | **Amount**               | ** ** | **Shares**              | ** ** | **Amount**   | ** ** | **Capital**                          | ** ** | **Earnings**                  | ** ** | **Income** | ** ** | **Equity** | ** ** |
| **Balance, December 31, 2006**                                                                                 |       | 4,320                 |       | $                        | —     |                    | —     |         | $          | —                               |       | $                             | 803        |   | $ | 41,301 |   | $ | 103 |   | $ | 42,207 |   |
| Retroactive  effect if shares issued in reverse merger dated July 31, 2008                                     |       | 23,323,680            |       | 3                        |       | —                  |       | —       |       | (3                                   | )          | —                        |       | — |   | — |   |
| Net  income                                                                                                         |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | 27,134                        |       | — |   | 27,134 |   |
| Issuance  of common stock                                                                                           |       | 810,000               |       | —                   |       | —                  |       | —       |       | 1,569                                |       | —                        |       | — |   | 1,569 |   |
| Repurchase  of common stock                                                                                         |       | (550,800              | )          | —                   |       | —                  |       | —       |       | (1,065                               | )          | —                        |       | — |   | (1,065 | ) |
| Distributions  to stockholders                                                                                      |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | (22,922                       | )          | — |   | (22,922 | ) |
| **Balance, December 31, 2007**                                                                                 |       | 23,587,200            |       | $                        | 3          |                    | —     |         | $          | —                               |       | $                             | 1,304      |   | $ | 45,513 |   | 103 |   | $ | 46,923 |   |
| Net  income                                                                                                         |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | 36,433                        |       | — |   | 36,433 |   |
| Stock  issued to foreign managers                                                                                   |       | 507,600               |       | —                   |       | —                  |       | —       |       | 4,050                                |       | —                        |       | — |   | 4,050 |   |
| Outstanding  shares of Rhapsody Acquisition Corp. at the time of reverse merger  dated July 31, 2008 |       | 6,300,000             |       | —                   |       | —                  |       | —       |       | 34,473                               |       | —                        |       | — |   | 34,473 |   |
| Repurchase  of warrants                                                                                             |       |                  |       |                     |       |                    |       |         |       | (1,700                               | )          |                          |       |   |   | (1,700 | ) |
| Repurchase  of common stock                                                                                         |       | (417,461              | )          | —                   |       | —                  |       | —       |       | (3,331                               | )          | —                        |       | — |   | (3,331 | ) |
| Dividends                                                                                                           |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | (1,499                        | )          | — |   | (1,499 | ) |
| Distributions  to Former Primoris stockholders                                                                      |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | (59,919                       | )          | — |   | (59,919 | ) |
| **Balance, December 31, 2008**                                                                                 |       | 29,977,339            |       | $                        | 3          |                    | —     |         | $          | —                               |       | $                             | 34,796     |   | $ | 20,528 |   | $ | 103 |   | $ | 55,430 |   |
| Net  income                                                                                                         |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | 25,912                        |       | — |   | 25,912 |   |
| Issuance  of common shares to Former Primoris owners                                                                |       | 2,500,025             |       | —                   |       | —                  |       | —       |       | —                               |       | —                        |       | — |   | — |   |
| Stock  issued for the purchase of Cravens Services, Inc                                                             |       | 139,082               |       | —                   |       | —                  |       | —       |       | 1,000                                |       | —                        |       | — |   | 1,000 |   |
| Repurchase  of warrants                                                                                             |       | —                |       |                     |       |                    |       |         |       | (94                                  | )          |                          |       |   |   | (94 | ) |
| Dividends  — common                                                                                            |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | (3,254                        | )          | — |   | (3,254 | ) |
| Dividends  — preferred                                                                                         |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | (204                          | )          | — |   | (204 | ) |
| Foreign  currency hedge effect                                                                                      |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | —                        |       | 227 |   | 227 |   |
| Preferred  stock issued for purchase of James Construction Group                                                    |       | —                |       | —                   |       | 81,852.78               |       | —       |       | 64,500                               |       | —                        |       | — |   | 64,500 |   |
| Warrant  exercises                                                                                                  |       | 88,457                |       | —                   |       | —                  |       | —       |       | 442                                  |       | —                        |       | — |   | 442 |   |
| **Balance, December 31, 2009**                                                                                 |       | 32,704,903            |       | $                        | 3          |                    | 81,852.78  |         | $          | —                               |       | $                             | 100,644    |   | $ | 42,982 |   | $ | 330 |   | $ | 143,959 |   |

 

See accompanying notes.

 

F-7

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Table of Contents

 

**PRIMORIS SERVICES CORPORATION**

**CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In Thousands)**

 
| ** **                                                                                   | ** ** | **Year Ended  December 31,** | ** ** |
|----------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                   | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Cash flows from operating  activities:                                                       |       |                              |       |   |   |   |   |
| Net income                                                                                   |       | $                                 | 25,912     |   | $ | 36,433 |   | $ | 27,134 |   |
| Adjustments to reconcile  net income to net cash provided by (used in) operating activities: |       |                              |       |   |   |   |   |
| Depreciation and  amortization of intangible assets                                          |       | 8,663                             |       | 6,338 |   | 4,733 |   |
| Gain on sale of property  and equipment                                                      |       | (3,217                            | )          | (576 | ) | (258 | ) |
| Merger related stock  expense                                                                |       | 390                               |       | 4,050 |   | — |   |
| Loss (income) from  non-consolidated investments                                             |       | (8,753                            | )          | (6,065 | ) | 1,359 |   |
| Distributions received from  joint venture                                                   |       | 3,400                             |       | 6,120 |   | 2,880 |   |
| Net deferred tax (assets)  liabilities                                                       |       | 1,179                             |       | (4,166 | ) | — |   |
| Loss on discontinued  operations                                                             |       | 3,849                             |       | 869 |   | 1,603 |   |
| Changes in assets and  liabilities:                                                          |       |                              |       |   |   |   |   |
| Restricted cash                                                                              |       | 1,711                             |       | 1,428 |   | (2,792 | ) |
| Accounts receivable                                                                          |       | 15,793                            |       | 21,846 |   | (7,624 | ) |
| Costs and estimated  earnings in excess of billings                                          |       | 9,420                             |       | (8,845 | ) | 3,101 |   |
| Inventory, prepaid expenses  and other current assets                                        |       | (3,785                            | )          | 454 |   | (587 | ) |
| Other assets                                                                                 |       | 366                               |       | (387 | ) | (1,521 | ) |
| Accounts payable                                                                             |       | (7,045                            | )          | (13,876 | ) | 13,250 |   |
| Billings in excess of costs  and estimated earnings                                          |       | (15,089                           | )          | 17,173 |   | 26,389 |   |
| Accrued expenses and other  current liabilities                                              |       | (4,712                            | )          | 7,469 |   | 3,819 |   |
| Other long-term liabilities                                                                  |       | —                            |       | (1,286 | ) | 340 |   |
| Net cash provided by  operating activities                                                   |       | 28,082                            |       | 66,979 |   | 71,826 |   |
| Cash flows from investing  activities:                                                       |       |                              |       |   |   |   |   |
| Purchase of property and  equipment                                                          |       | (9,314                            | )          | (10,132 | ) | (2,185 | ) |
| Proceeds from sale of  property and equipment                                                |       | 4,282                             |       | 808 |   | 310 |   |
| Purchase of short term  investments                                                          |       | (15,022                           | )          | (15,036 | ) | — |   |
| Cash paid for acquisition  of subsidiaries                                                   |       | (9,082                            | )          | — |   | (414 | ) |
| Cash acquired with  acquisition of subsidiary                                                |       | 34,548                            |       | — |   | — |   |
| Net cash provided (used in)  investing activities                                            |       | 5,412                             |       | (24,360 | ) | (2,289 | ) |
| Cash flows from financing  activities:                                                       |       |                              |       |   |   |   |   |
| Proceeds from short-term  borrowings                                                         |       | —                            |       | — |   | 1,221 |   |
| Proceeds from issuance of  long-term debt                                                    |       | 17,330                            |       | 6,820 |   | — |   |
| Repayment of capital leases                                                                  |       | (2,539                            | )          | (1,849 | ) |   |   |
| Repayment of long-term debt                                                                  |       | (21,506                           | )          | (4,704 | ) | (3,342 | ) |
| Repurchase of common stock                                                                   |       | —                            |       | (3,331 | ) | (1,065 | ) |
| Proceeds from issuance of  common stock                                                      |       | 442                               |       | 34,472 |   | 1,569 |   |
| Repurchase of warrants                                                                       |       | (94                               | )          | (1,700 | ) | — |   |
| Dividends                                                                                    |       | (3,185                            | )          | (749 | ) | — |   |
| Cash distributions to  former Primoris stockholders                                          |       | (4,947                            | )          | (61,088 | ) | (16,807 | ) |
| Net cash used in financing  activities                                                       |       | (14,499                           | )          | (32,129 | ) | (18,424 | ) |
| Cash flows from  discontinued operations:                                                    |       |                              |       |   |   |   |   |
| Operating activities                                                                         |       | (2,157                            | )          | (723 | ) | (1,350 | ) |
| Investing activities                                                                         |       | 318                               |       | 453 |   | — |   |
| Financing activities                                                                         |       | —                            |       | — |   | — |   |
| Net cash used in  discontinued operations                                                    |       | (1,839                            | )          | (270 | ) | (1,350 | ) |
| Net change in cash and cash  equivalents                                                     |       | 17,156                            |       | 10,220 |   | 49,763 |   |
| Cash and cash equivalents  at beginning of year                                              |       | 72,848                            |       | 62,628 |   | 12,865 |   |
| Cash and cash equivalents  at end of the year                                                |       | $                                 | 90,004     |   | $ | 72,848 |   | $ | 62,628 |   |

 

See accompanying notes.

 

F-8

----

Tableof Contents

 

**SUPPLEMENTAL DISCLOSURES OF CASHFLOW INFORMATION**

 
| ** **                                                                                        | ** ** | **Year Ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                                                        | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| Cash paid during the year  for:                                                                   |       |                              |       |   |   |   |   |
| Interest                                                                                          |       | $                                 | 1,979      |   | $ | 2,250 |   | $ | 1,773 |   |
|                                                                                              |       |                              |       |   |   |   |   |
| Income taxes                                                                                      |       | $                                 | 20,126     |   | $ | 6,118 |   | $ | 1,798 |   |
|                                                                                              |       |                              |       |   |   |   |   |
| Components of cash paid for  acquisition:                                                         |       |                              |       |   |   |   |   |
| Fair value of assets  acquired, including cash of $34,548 acquired with acquisition of subsidiary |       | $                                 | 243,432    |   | — |   | — |   |
| Series A preferred  stock issued for acquisition                                             |       | (64,500                           | )          | — |   | — |   |
| Common stock issued for  acquisition                                                              |       | (1,000                            | )          | — |   | — |   |
| Contingent liability                                                                              |       | (10,028                           | )          | — |   | — |   |
| Note payable issued in  acquisition                                                               |       | (53,500                           | )          | — |   | — |   |
| Liabilities assumed                                                                               |       | (105,322                          | )          | — |   | — |   |
| Cash paid for acquisitions                                                                        |       | $                                 | 9,082      |   | — |   | — |   |

 

**SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ANDFINANCING ACTIVITIES**

** **
| ** **                                                          | ** ** | **Year Ended  December 31,** | ** ** |
|---------------------------------------------------------------------|------------|-----------------------------------|------------|
| ** **                                                          | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
|                                                                |       |                              |       |   |   |   |   |
| Obligations incurred for  the acquisition of property and equipment |       | $                                 | 4,723      |   | $ | 7,076 |   | $ | 6,570 |   |
|                                                                |       |                              |       |   |   |   |   |
| Accrued dividends                                                   |       | $                                 | 1,021      |   | $ | 749 |   | $ | — |   |
|                                                                |       |                              |       |   |   |   |   |
| Accrued distributions to  stockholders (1)                          |       | $                                 | —     |   | $ | 4,947 |   | $ | 6,115 |   |

 

----

(1)  For the years 2008and 2007, represents distributions to Former Primoris stockholders of earningsprior to the July 31, 2008 merger.

 

See accompanying notes.

 

F-9

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Table of Contents

 

**PRIMORIS SERVICES CORPORATION**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**Dollars inthousands, except per share amounts**

**Note 1—Nature of Business**

 

***Organization and operations*****—**Primoris Services Corporation and its wholly-ownedsubsidiaries ARB, Inc. (“ARB”), ARB Structures, Inc., Onquest, Inc.,Born Heaters Canada, ULC, Cardinal Contractors, Inc., GMLCoatings, 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, replaceand repair natural gas, petroleum, telecommunications and water pipelinesystems. The Company’s industrial, civil and engineering operations constructand provide maintenance services to industrial facilities including powerplants, petrochemical facilities, and other processing plants, and constructmulti-level parking structures. The Company is incorporated in the State ofDelaware and has its corporate headquarters in Lake Forest, California.

 

OnDecember 18, 2009, the Company completed the acquisition of JamesConstruction Group, LLC, a Florida limited liability company (“JCG”).  JCG is one of the largest general contractorsbased in the Gulf Coast states, and is engaged in highway, industrial andenvironmental construction, primarily in Louisiana, Texas and Florida.  JCG is the successor company to T. L. Jamesand Company, Inc., a well-known Louisiana company that has been inbusiness for over 80 years. Headquartered in Baton Rouge, Louisiana, JCG serves government andprivate clients in a broad geographical region.

 

On February 19, 2008,Primoris Corporation (the “Former Primoris”), a privately held company, enteredinto an Agreement and Plan of Merger (“Merger Agreement”) with RhapsodyAcquisition Corp. (“Rhapsody”), a publicly held company trading on the OTCBulletin Board under the symbols “RPSD”, “RPSDW” and “RPSDU” for its commonstock, warrants to purchase common stock (“Warrants”) and Units (each unitconsisting of one share of common stock and one Warrant), respectively.Rhapsody was founded as a “blank check” company on April 24, 2006, toeffect a merger, capital stock exchange, asset acquisition or other similarbusiness combination with an operating business no later than October 3,2008. On July 31, 2008, with the approval of the stockholders of each ofFormer Primoris and Rhapsody, the merger was completed. While Rhapsody was thesurviving legal entity, Former Primoris was deemed the acquiring entity foraccounting purposes (See Note 5, “*CompletedMerger*”). As part of the merger, Rhapsody changed its name to “PrimorisServices Corporation”. The Company’s common stock, Warrants and Units now tradeon the NASDAQ Global Market under the symbols “PRIM”, “PRIMW” and “PRIMU”,respectively.

 

Unlessspecifically noted otherwise, as used throughout these Consolidated FinancialStatements, “Primoris”, or the “Company” or “we,” “our,” “us” or “its” refersto the business, operations and financial results of Former Primoris prior to,and Primoris Services Corporation and its wholly-owned subsidiaries subsequentto, the closing of the merger between Rhapsody and Former Primoris, as thecontext requires. “Rhapsody” refers to the operations or financial results ofRhapsody prior to the closing of the merger transaction.

 

***Seasonality*****—**Primoris’results of operations can be subject to seasonal variations. Weather,particularly rain, can impact Primoris’ ability to work off backlog. Inaddition, demand for new projects is generally lower during the early part ofthe year due to reduced construction activity based on weather concerns. Sincethe majority of the Company’s work is in California, these seasonal impacts arenot as dramatic for the Company as may be experienced by companies in someother states or countries. However, as a result, there is a possibility thatthe Company may experience higher revenues and earnings in the third and fourthquarters of the year as compared to the first two quarters. Additionally,because of the cyclical nature of its business, the financial results for anyperiod may fluctuate depending on whether and when the Company is awardedprojects. The Company’s clients’ budget cycles can have an impact on the timingof these awards. Accordingly, the Company’s financial condition and operatingresults may vary from quarter-to-quarter and may not be indicative of itsfinancial condition or operating results for any other quarter or for an entireyear.

 

**Note 2—Summary of Significant Accounting Policies**

 

***Basis of presentation*****—**Theaccompanying Consolidated Financial Statements were prepared in accordance withaccounting principles generally accepted in the United States of America (“GAAP”)and the financial statement rules and regulations of the Securities andExchange Commission.

 

Reclassifications have beenmade to prior year and quarter financial statement presentation to conform tothe current year presentation.

 

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***Principles of consolidation*****—**The accompanyingConsolidated Financial Statements include the accounts of the Company and itswholly-owned subsidiaries. All intercompany balances and transactions have beeneliminated in consolidation.

 

***Use of Estimates*****—**The preparationof the Company’s Consolidated Financial Statements in conformity with GAAPrequires management to make estimates and assumptions that affect the reportedamounts of assets and liabilities and the disclosure of contingent assets andliabilities as of the date of the consolidated financial statements, and thereported amounts of revenues and expenses during the reporting periods. Actualresults could materially differ from those estimates. Significant estimatesused in preparing these consolidated financial statements include estimated coststo complete contracts, which have a direct effect on gross profit.

 

***Operating cycle*****—**Assets andliabilities relating to long-term construction contracts are included incurrent assets and current liabilities in the accompanying consolidated balancesheets, since they are expected to be realized or liquidated in the normalcourse of contract completion, although completion may require more than oneyear.

 

***Cash and cash equivalents*****—**The Companyconsiders all highly liquid investments with an original maturity whenpurchased three months or less to be cash equivalents.

 

***Short term investments*****—**The Companyclassifies as short term investments all securities or other assets acquiredwhich have ready marketability, with terms over three months, are intended tobe liquidated, if necessary, within the current operating cycle, and havereadily determinable fair values. Short term investments are classified asavailable for sale and are recorded at fair value using the specificidentification method. Currently, the Company has invested primarily inshort-term dollar denominated bank deposits and other 90 to 120 daycertificates of deposits (“CDs”) through the CDARS (Certificate of DepositAccount Registry Service) process to provide FDIC backing of the CDs.

 

***Inventory*****—**Inventoryconsists of uninstalled contract materials and expendable constructionequipment that will be used in construction projects and is valued at the lowerof cost, using first-in, first-out method, or market.

 

***Goodwill and other intangible assets*****—**The Company accounts for goodwill and other indefinite-lived intangibleassets in accordance with ASC Topic 350 “*Intangibles*”.Under ASC Topic 350, goodwill and certain indefinite-lived intangible assetsare not amortized but are subject to an annual impairment test during thefourth quarter of each year, and between annual tests if indicators ofpotential impairment exist. As of December 31, 2009 and 2008, managementdetermined there was not an impairment of goodwill.

 

***Income tax*****—**Prior to theeffective date of the merger, Former Primoris was an S-Corporation underSubchapter S of the Internal Revenue Code for federal tax purposes and similarcodes for state tax purposes. Therefore, Former Primoris was generally notdirectly subject to federal income taxes at the corporate level and was subjectto minimal tax in certain states, with its income or loss included in the taxreturns of its stockholders. Upon completion of the July 2008 merger, thecombined entity became subject to federal and state corporate income taxes. Inforeign jurisdictions, income taxes are provided at the local company level.Eligible foreign tax credits were passed through to the stockholders. Prior tothe merger, substantially all of the provision for income tax for FormerPrimoris relates to California state franchise tax and Canadian taxes.  For the years subsequent to the merger,deferred income taxes consisted of $5,630 in current deferred tax assets and$2,643 in non-current deferred tax liabilities for the year ended December 31,2009 and $5,591 in current deferred tax assets and $1,425 in non-currentdeferred tax liabilities for the year ended December 31, 2008.

 

Current income tax expenseis the amount of income taxes expected to be payable for the current year. Adeferred income tax liability or asset is established for the expected futuretax consequences resulting from the differences in financial reporting and taxbases of assets and liabilities. A valuation allowance is provided if it ismore likely than not that some or all of the deferred tax assets will not berealized. In addition to valuation allowances, the Company provides foruncertain tax positions when such tax positions do not meet the recognitionthresholds or measurement standards as set forth in ASC Topic 740 regarding accountingfor uncertainty in income taxes. Amounts for uncertain tax positions areadjusted in periods when new information becomes available or when positionsare effectively settled. The Company recognizes accrued interest and penaltiesrelated to uncertain tax positions as a component of income tax expense.

 

***Comprehensive income*****—**The Companyadopted ASC Topic 220 “*Comprehensive Income*”(formerly refered to as SFAS No. 130, “*ReportingComprehensive Income”)*, which specifies the computation,presentation and disclosure requirements for comprehensive income (loss).During the reported periods herein, such amounts were not significant.

 

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***General matters*****—**The Company hassignificant working capital invested in assets that may have a liquidationperiod extending beyond one year. The Company has claims receivable andretention due from various customers and others that are currently in dispute,the realization of which is subject to binding arbitration, final negotiationor litigation. Although management believes that it will be successful incollecting these amounts, the amounts ultimately collected upon final resolutionof these matters may materially differ from the carrying value currentlypresented in the accompanying consolidated balance sheet.

 

***Foreign operations*****—**Through itssubsidiary, the Company maintains foreign operations in Canada. At December 31,2009, the Company had operations in Canada with assets aggregatingapproximately $5,698, compared to $12,514 as of December 31, 2008. TheCompany discontinued its operations in Chile in 2005 and Ecuador during thefourth quarter 2009 (See Note 11 “*DiscontinuedOperations”*).  The Companyalso had an equity investment in a company in Mexico, which was sold during2009 (See Note 10 — *“Equity Method Investments”*).

 

***Functional currencies and foreign currency translation*****—**Through its subsidiaries, the Company maintains foreign operations inCanada and previously had operations in Chile and Ecuador. The United Statesdollar is the functional currency in Canada, as substantially all monetarytransactions are made in that currency, and other significant economic factsand circumstances currently support that position. As these factors may changein the future, the Company periodically assesses its position with respect tothe functional currency of foreign subsidiaries. Included in other income areforeign exchange gain of $293 in 2009 and a gain of $855 in 2008.

 

***Equity method accounting*****—**Partially ownedequity affiliates and investments in joint venture projects are accounted forunder the equity method of accounting. Equity method investments are recordedat cost and are adjusted periodically to recognize the Company’s proportionateshare of the affiliate’s income or loss, additional contributions made anddividends and capital distributions received. In the event any of the partiallyowned equity affiliates were to incur a loss and the Company’s cumulativeproportionate share of the loss exceeded the carrying amount of the equitymethod investment, application of the equity method would be suspended and theCompany’s proportionate share of further losses would not be recognized untilthe Company committed to provide further financial support to the affiliate.The Company would resume application of the equity method once the affiliatebecomes profitable and the Company’s proportionate share of the affiliate’searnings equals the Company’s cumulative proportionate share of losses thatwere not recognized during the period the application of the equity method wassuspended.

 

***Cash concentration*****—**The Companyplaces its cash in U.S. Treasury bonds, in CDs and with several other financialinstitutions. As of December 31, 2009, the Company maintains cash balancesof approximately $40 million in excess of federally insured limits.Management believes that this risk is not significant.

 

***Collective bargaining agreements*****—**A significantportion of the Company’s labor force is subject to collective bargainingagreements. Upon renegotiation of such agreements, the Company could be exposedto increases in hourly costs and work stoppages.

 

***Worker’s compensation insurance*****—**The Companyself-insures worker’s compensation claims to a certain level. The Companymaintained a self-insurance reserve totaling approximately $9,500 and $5,500 atDecember 31, 2009 and 2008, respectively. The amount is included in “*accrued expenses and other current liabilities*”on the accompanying consolidated balance sheets. Actual payments that may bemade in the future could materially differ from such reserve.

 

***Fair value of financial instruments*****—**The consolidated financial statements include financial instruments forwhich the fair market value may differ from amounts reflected on a historicalbasis. Financial instruments of the Company consist of cash, accountsreceivable, short-term investments, accounts payable and certain accruedliabilities. The carrying value of the Company’s notes payable approximatesfair value based on comparison with current prevailing market rates for loansof similar risks and maturities. The Company’s other financial instrumentsgenerally approximate fair market value based on the short-term nature of theseinstruments.

 

***Accounts receivable*****—**Contractreceivables are primarily concentrated with public and private companies andgovernmental agencies located throughout the United States and Canada. Creditterms for payment of products and services are extended to customers in thenormal course of business and no interest is charged. The Company requires nocollateral from its customers, but follows the practice of filing statutoryliens or stop notices on all construction projects when collection problems areanticipated. The Company uses the allowance method of accounting for lossesfrom uncollectible accounts. Under this method an allowance is provided basedupon historical experience and management’s evaluation of outstanding contractreceivables at the end of each year. Receivables are written off in the perioddeemed uncollectible. The allowance for doubtful accounts at December 31,2009 and 2008 was $200 and $200, respectively.

 

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***Fixed-price contracts*****—**Historically,substantial portions of the Company’s revenues have been generated principallyunder fixed-price contracts. Fixed-price contracts carry certain inherentrisks, including underestimation of costs, problems with new technologies andeconomic and other changes that may occur over the contract period. The Companyrecognizes revenues using the percentage-of-completion method for fixed-pricecontracts, which may result in uneven and irregular results. Unforeseen eventsand circumstances can alter the estimate of the costs and potential profitassociated with a particular contract. To the extent that original costestimates are modified, estimated costs to complete increase, deliveryschedules are delayed, or progress under a contract is otherwise impeded, cashflow, revenue recognition and profitability from a particular contract may beadversely affected.

 

***Revenue recognition*****—**A number offactors relating to the business of the Company affect the recognition ofcontract revenue. The Company typically structures contracts as unit-price,time and material, fixed-price or cost plus fixed fee. Revenue is recognized onthe percentage-of-completion method for all of the types of contracts describedin the paragraph above. Under the percentage-of-completion method, estimatedcontract income and resulting revenue is generally accrued based on costsincurred to date as a percentage of total estimated costs. Total estimatedcosts, and thus contract income, are impacted by changes in productivity,scheduling, and the unit cost of labor, subcontracts, materials and equipment.Additionally, external factors such as weather, client needs, client delays inproviding permits and approvals, labor availability, governmental regulationand politics may affect the progress of a project’s completion and thus thetiming of revenue recognition. If a current estimate of total contract costindicates a loss on a contract, the projected loss is recognized in full whendetermined.

 

The Company includes the provision for estimated losses onuncompleted contracts in accrued expenses. For the year ended December 31,2008, the provision for estimated losses on uncompleted contracts was $700. For2009, there was a net decrease of $368 in the provision or recovery forestimated losses for a total provision of $332. Changes in job performance, jobconditions, estimated profitability, including those arising from final contractsettlements, may result in revisions to costs and income. These revisions arerecognized in the period in which the revisions are determined. Claims areincluded in revenues when realization is probable and amounts can be reliablydetermined. Revenues in excess of contract costs incurred on claims arerecognized only when the amounts have been paid.

 

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

 

The Company considersunapproved change orders to be contract variations on which Primoris hascustomer approval for scope change but not for price changes associated withsuch scope change. Costs associated with unapproved change orders are includedin the estimated cost to complete the contracts and are expensed as incurred.The Company recognizes revenue equal to costs incurred on unapproved changeorders when realization of price approval is probable and the estimated amountis equal to or greater than its costs related to the unapproved change order.Revenue recognized on unapproved change orders is included in “costs andestimated earnings in excess of billings” on the consolidated balance sheets.Unapproved change orders involve the use of estimates, and it is reasonablypossible that revisions to the estimated costs and recoverable amounts may berequired in future reporting periods to reflect changes in estimates or finalagreements with customers.

 

The Company considers claimsto be amounts Primoris seeks or will seek to collect from customers or othersfor customer-caused changes in contract specifications or design, or othercustomer-related causes of unanticipated additional contract costs on whichthere is no agreement with customers on both scope and price changes. Revenuefrom claims is recognized when agreement is reached with customers as to thevalue of the claims, which in some instances may not occur until aftercompletion of work under the contract. Costs associated with claims areincluded in the estimated costs to complete the contracts and are expensed whenincurred.

 

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

 

In accordance withapplicable terms of construction contracts, certain retainage provisions arewithheld by customers until completion and acceptance of the contracts. Finalpayments of the majority of such amounts are expected to be receivable in thefollowing operating cycle.

 

***Significant revision in contract estimate*****—**As previously discussed, revenue recognition is based on thepercentage-of-completion method for the types of contracts we enter into. Underthis method, the costs incurred to date as a percentage of total estimatedcosts are used to calculate the revenue to be recognized. Total estimatedcosts, and thus contract income, are impacted by many factors.

 

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For projects that are inprocess in the prior year, but are either completed or continue to be inprocess during the current year, there can be a difference in revenues andprofits related to the prior year, had current year estimates of costs tocomplete been known in the prior year.

 

During the year ended December 31,2009, certain contracts had revisions in estimates from those projected in2008. If the revised estimates as of December 2009 had been applied in theprior year, the gross margin earned on these contracts would have resulted inan increase of approximately $7,900 in 2008. Similarly, the revised estimatesfor the year ended December 31, 2008, would have resulted in an increaseof approximately $5,900 in the year 2007 and a decrease of the same amount in2008. In addition, the revised estimates for the year ended December 31,2007 would have resulted in a decrease of approximately $2,600 in 2006 and anincrease of the same amount in 2007.

 

***Property and equipment*****—**Property andequipment are recorded at cost and are depreciated using the straight-linemethod over the estimated useful lives of the related assets, usually rangingfrom three to thirty years. Maintenance and repairs are charged to expense asincurred. Significant renewals and betterments are capitalized. At the time ofretirement or other disposition of property and equipment, the cost andaccumulated depreciation are removed from the accounts and any resulting gainor loss is reflected in operations.

 

The Company assesses therecoverability of property and equipment by determining whether thedepreciation of property and equipment over its remaining life can be recoveredthrough projected undiscounted future cash flows. The amount of property andequipment impairment if any, is measured based on fair value and is charged tooperations in the period in which property and equipment impairment isdetermined by management. As of December 31, 2009 and 2008, the Company’smanagement has not identified any material impairment of its property andequipment.

 

***Taxes collected from customers*****—**Taxes collectedfrom the Company’s customers are and have been recorded on a net basis.

 

***Share-based payments and stock-based compensation*****—**In July 2008, the Company adopted the Primoris ServicesCorporation 2008 Long-term Incentive Equity Plan (“2008 Equity Plan”). As of December 31,2009, there were 1,520,000 shares of common stock reserved to provide for thegrant and exercise of all future stock option issuances, stock appreciationrights (“SARS”) and grants of restricted shares under the 2008 EquityPlan.  There have been no grants ofshare-based payments under the 2008 Equity Plan.

 

Under guidance of ASC Topic718 “*Compensation — Stock Compensation*”(formerly referred to as SFAS No. 123, “*Share-BasedPayments (revised 2004))*”, stock-based compensation cost is measuredat the date of grant, based on the calculated fair value of the stock-basedaward, and is recognized as expense over the employee’s requisite serviceperiod (generally the vesting period of the award).

 

Share-based payments topersons or entities other than employees (such as vendors providing goods orservices to Primoris) are measured at fair value. Under the guidelines set byASC Topic 718, the amount of expense or the value of the asset acquired throughthe issuance of equity instruments is fixed as of the measurement date. Ingeneral, the expense would be recognized over the period the service wasreceived.

 

***Derivative instruments and hedging activities*****—**From time to time the Company utilizes foreign currency hedgeagreements to manage foreign currency exchange exposures, which is accountedfor in accordance with ASC Topic 815 “*Derivatives and Hedging*”.

 

As of December 31,2009, Primoris had five derivative financial instruments for the purpose ofhedging future currency exchange in Canadian dollars. The contracts enablePrimoris to purchase Canadian dollars before certain dates in 2010 at certainexchange rates. These contracts expire in January, February, April and June 2010.The related Canadian dollars purchased are two contracts for $1,500 CAD eachand one purchase and one sales contract for $2,000 CAD, and one contract for$500 CAD. The related gain or loss on these contracts is not significant at December 31,2009. We intend to continue to hedge foreign currency risks in those situationswhere we believe such transactions are prudent.

 

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***Recently Issued Accounting Pronouncements***

 

*FASBCodification*

 

In July 2009, theFASB issued Financial Accounting Standards No. 168 “The Hierarchy ofGenerally Accepted Accounting Principles”, (“SFAS 168”) which established theFASB Accounting Standards Codification (“ASC”) as the sole source ofauthoritative generally accepted accounting principles.  Pursuant to theprovisions of SFAS 168, now codified in ASC Topic 105 “*Generally Accepted Accounting Principles*”,the Company has updated references to GAAP in its financial statements.  Theadoption of ASC 105 did not impact the Company’s financial position or resultsof operations.

 

*Fair Value Measures*

 

In September 2006, theFASB issued authoritative standards, ASC Topic 820, “*Fair ValueMeasurements and Disclosures*” for fair value measurements anddisclosures, which defines fair value, establishes a framework for measuringfair value and expands disclosures related to assets and liabilities measuredat fair value.  In February 2008,the FASB delayed the effective date of these standards to fiscal yearsbeginning after November 15, 2008 for all nonfinancial assets andnonfinancial liabilities that are recognized or disclosed at fair value in thefinancial statements on a nonrecurring basis. We adopted all provisions of these standards as of January 1, 2008,except for the guidance applicable to non-recurring nonfinancial assets andnonfinancial liabilities.  As of January 1,2009, we adopted the remaining provisions of these standards and there was nomaterial impact on our consolidated financial position, results of operationsand cash flows.  See Note 3 — “*Fair Value Measurements*” for further information.

 

In August 2009, the FASB issued AccountingStandards Update No. 2009-05, “*FairValue Measurements and Disclosures (ASC Topic 820), Measuring Liabilities atFair Value*”.  This update provides clarification that incircumstances in which a quoted price in an active market for the identicalliability is not available, a reporting entity is required to measure fairvalue using one or more of the following techniques:  1) a valuationtechnique using quoted prices and;  2) a valuation technique consistentwith ASC Topic 820 “*Measuring Liabilities atFair Value*”, such as a present value technique or a technique basedon the amount the reporting entity would (a) pay to transfer the identicalliability or would (b) receive to enter into the identicalliability.  This update applies to all entities that measure liabilitiesat fair value within the scope of ASC Topic 820 and is effective for financialstatements issued for the period ended September 30, 2009.  Weadopted this update during the third quarter ended September 30, 2009, andadoption did not result in a material impact on our financial statements.

 

*Consolidation of VariableInterest Entities*

 

In June 2009, theFASB 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 anentity that is insufficiently capitalized or is not controlled through voting(or similar rights). These rules are based on an entity’s purpose anddesign and the company’s ability to direct the entity’s activities that mostsignificantly impact the entity’s economic performance.  SFAS 167 requiresadditional disclosures about the reporting company’s involvement withvariable-interest entities and any significant changes in risk exposure due tothat involvement as well as its affect on the company’s financialstatements.  The accounting standard will be effective January 1,2010.  The Company is currently evaluating the impact on the Company’sfinancial statements.

 

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*BusinessCombinations*

 

Effective January 1,2009, the Company adopted the FASB’s updated guidance related to businesscombinations.  We account for businesscombination using the acquisition method of accounting.  The acquisition method requires an acquirerto recognize the assets acquired, the liabilities assumed, and anynon-controlling interest in the acquiree at the acquisition dated, to bemeasured at their fair values as of that date. The provisions of the acquisition method related to income taxadjustments apply to all business combinations regardless of consummationdate.  As a result of implementing theacquisition method, acquisition costs of $1.25 million, which included legal,accounting, tax consulting and due diligence costs, were expensed during 2009,while under the prior accounting standards such costs would have beencapitalized.  Therefore, the adoption ofthe updated guidance related to business combinations has had and likely willcontinue to have a material impact on the Company’s future consolidatedstatements.

 

**Note 3—Fair Value Measurements**

 

ASC Topic 820, “*Fair Value Measurements and Disclosures*”defines fair value, establishes a framework for measuring fair value in GAAPand requires certain disclosures about fair value measurements.  ASC Topic820 addresses fair value GAAP for financial assets and financial liabilitiesthat are re-measured and reported at fair value at each reporting period andfor non-financial assets and liabilities that are re-measured and reported atfair value on a recurring basis, which included goodwill and other intangibleassets for purposes of impairment assessments.

 

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

 

The following tablepresents, for each of the fair value hierarchy levels identified under ASCTopic 820, the Company’s financial assets that are required to be measured atfair value at December 31, 2009 and December 31, 2008:

 
| ** **                               | ** ** | ** **                              | ** ** | **Fair  Value Measurements at Reporting Date**                              | ** ** |
|------------------------------------------|------------|-----------------------------------------|------------|-----------------------------------------------------------------------------|------------|
| ** **                               | ** ** | **Amount  Recorded  on Balance  Sheet** | ** ** | **Quoted  Prices  in Active Markets  for Identical Assets  (Level 1)** | ** ** | **Significant  Other  Observable  Inputs  (Level 2)** | ** ** | **Significant  Unobservable  Inputs  (Level 3)** | ** ** |
| **Assets as of December 31, 2009:** |       |                                    |       |                                                                        |       |   |   |   |   |
| Cash  and cash equivalents               |       | $                                       | 90,004     |                                                                        | $          | 90,004 |   | — |   | — |   |
| Short-term  investments                  |       | $                                       | 30,058     |                                                                        | $          | 30,058 |   | — |   | — |   |
| Other  assets — hedge contracts     |       | $                                       | 266        |                                                                        | —     |   | $ | 266 |   | — |   |
| **Assets as of December 31, 2008:** |       |                                    |       |                                                                        |       |   |   |   |   |
| Cash  and cash equivalents               |       | $                                       | 72,848     |                                                                        | $          | 72,848 |   | — |   | — |   |
| Short-term  investments                  |       | $                                       | 15,036     |                                                                        | $          | 15,036 |   | — |   | — |   |
|                                          |            |                                         |            |                                                                             |            |  |  |  |  |  |  |  |

 

In addition to the assetslisted in the table, other financial instruments of the Company consist ofaccounts receivable, accounts payable and certain accrued liabilities. The carrying value of the Company’s long-term debt approximates fair valuebased on comparison with current prevailing market rates for loans of similarrisks and maturities. The Company’s other financial instruments generallyapproximate fair market value based on the short-term nature of theseinstruments.

 

**Note 4—BusinessCombinations**

 

***James Construction Group, LLC***

 

OnDecember 18, 2009, the Company acquired 100% of the equity interest inJames Construction Group, LLC, a Florida limited liability company (“JCG”),following which JCG became a wholly owned subsidiary.  JCG is one of the largest general contractorsbased in the Gulf Coast states, and is engaged in highway, industrial andenvironmental construction, primarily in Louisiana, Texas and Florida.  JCG is the successor company to T. L. Jamesand Company, Inc., a well-known Louisiana company that has been inbusiness for over 80 years. Headquartered in Baton Rouge, Louisiana, JCG serves government andprivate clients in a broad geographical region that includes the entire GulfCoast region of the Unites States.

 

JCG’sheavy civil division provides services in heavy civil construction projects,including highway and bridge construction, concrete paving, levee construction,airport runway and taxiway construction and marine facility construction. JCG’sinfrastructure and maintenance division provides large earthwork and sitedevelopment, landfill construction, site remediation and mining supportservices.  JCG’s industrial division,with a client base comprised primarily of private industrial companies,provides all phases of civil and structural construction, mechanical equipmenterection, process pipe installation and boiler, furnace and heater installationand repair.

 

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JCG’sresults of operations and estimated fair value of assets acquired andliabilities assumed were included in the Company’s consolidated financialstatements beginning December 18, 2009. The revenue and operating results contributed by JCG during the period December 18,2009 to December 31, 2009 were not material.  Acquisition costs related to the acquisitionof JCG of $1.25 million were expensed as incurred in the Consolidated Statementof Operations in the year ended December 31, 2009.

 

*AcquisitionConsideration*

 

Underthe terms of the purchase agreement, total consideration of $135.0 millionconsisted of the following:

 

*Cash.*  On the closing date, the Company paid thesellers $7.0 million in cash.

 

*PreferredStock.*  The Company issued the sellers Series ANon-Voting Contingent Convertible Preferred Stock (“Preferred Stock”) equal to$64.5 million.  The number of shares, inaccordance with the purchase agreement, was determined as $64.5 million dividedby the average closing price of our common stock, as reported on NASDAQ, forthe 20 business days prior to the closing dated, divided by 100.  We issued 81,852.78 shares of Preferred Stockto the sellers based on an average closing price of $7.88 per share, whichapproximates the fair value of the stock consideration. Subject to the approvalof our stockholders, the Preferred Stock will convert into an aggregate of8,185,278 shares of common stock.

 

*PromissoryNote.*  On the closing date, theCompany executed an unsecured Promissory Note in favor of the sellers with aprinciple amount of $53.5 million. The Promissory Note is subordinated toamounts owed on the line of credit and our bonding agencies. The PromissoryNote is due and payable on December 15, 2014 and bears interest atdiffering rates until maturity, averaging 6.95% over the life of the note. Forthe first 9 months of the term of the note, the Promissory Note bears interestat an annual rate equal to 5%. For months 10 through 18, the note will bearinterest 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%. Managementbelieves the face amount of the unsecured, subordinated 6.95% note approximatesfair value at the date of the acquisition. Payments of principal and interest willbe payable in cash on an amortizing basis over 60 monthly payments.

 

ThePromissory Note may be prepaid in whole or in part at any time.  If wecomplete an equity financing while the Promissory Note is outstanding, we haveagreed to use the first $10 million of the net proceeds of any such equityfinancing, plus 75% of the net proceeds in excess of $10 million, to prepay aportion or all of the Promissory Note.  In addition, we have agreed to use33% of any cash proceeds raised in connection with incurrence of anyindebtedness (other than under a bank line of credit or to finance operatingexpenses, equipment and capital expenditures), to prepay a portion or all ofthe Promissory Note.  While any amountabove $10 million is outstanding under the Promissory Note, we have agreed tonot take certain actions without the prior written consent of the PromissoryNote holders, including, among others, purchase, acquire, redeem or retire anyshares of our common stock.

 

*Preferred Stock Placed inEscrow. *Of theoriginally issued shares of Preferred Stock, 11,897.20 shares were placed inescrow for a period of three years to provide a source of funding to satisfyour rights to indemnification (“Escrow Shares”).  The Purchase Agreement provides for us andour related parties to have full recourse against these Escrow Shares forlosses or damages arising out of inaccuracies in JCG’s or the sellers’representations, JCG’s or the sellers’ breach of their pre-closing covenantsand certain other matters, once the aggregate amount of damages exceeds aspecified dollar amount.  The EscrowShares may be released to the sellers according to specific formulas on thefollowing two dates, provided there are Escrow Shares remaining in escrow oneach such date:

* *

·                  within fivedays after we receive our audited financial statements for the fiscal yearending December 31, 2010, but in no event later than April 15, 2011;and

·                  December 18,2012.

 

*Earnout Consideration. *In addition, if JCG’s incomebefore interest, taxes, depreciation and amortization (“EBITDA”), as defined inthe Purchase Agreement, for the fiscal year ending December 31, 2010 isequal to or greater than $35 million, we will issue a number of shares ofcommon stock equal to $10 million, divided by the average closing price of ourcommon stock, as reported on NASDAQ, for the 20 business days prior to December 31,2010.  Under generally acceptedaccounting principles, we are required to estimate the fair value of the $10.0million contingent consideration.  Thefair value of the contingent consideration was estimated to be $8.19 million asof December 31, 2009 and is included on the Company’s balance sheet as aliability.

 

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*TotalPurchase Price.*  The totalestimated fair value of the purchase price was $133.19 million.

 

*Preliminary Purchase Price Allocation*

 

The JCG acquisition is accounted for under the acquisition method ofaccounting.Accordingly, the JCG tangible and intangible assets and liabilities aremeasured at estimated fair value at the closing date of the Acquisition.

 

Wehave requested the assistance of third-parties to determine the fair value ofthe tangible and intangible assets acquired. Because of the short period oftime from the date of acquisition, the final determination of the fair value ofthe tangible and intangible assets acquired has not been completed. Thepreliminary allocation of the $133.19 million purchase price based on the fairvalue of the acquired assets, less liabilities assumed, as of December 18,2009, the closing date of the acquisition, is as follows:

 
| Cash                                     |   | $       | 34,548  |   |
|------------------------------------------|--------|---------|---------|--------|
| Accounts  receivable                     |   | 29,543  |    |
| Cost  and earnings in excess of billings |   | 659     |    |
| Inventory                                |   | 18,868  |    |
| Prepaid  expenses                        |   | 1,765   |    |
| Property,  plant and equipment           |   | 61,554  |    |
| Other  assets                            |   | 452     |    |
| Goodwill                                 |   | 56,095  |    |
| Intangible  assets                       |   | 31,650  |    |
| Accounts  payable                        |   | (15,619 | )       |
| Billing  in excess of costs and earnings |   | (57,757 | )       |
| Accrued  expenses                        |   | (14,648 | )       |
| Note  payable                            |   | (1,966  | )       |
| Capital  lease liabilities               |   | (11,954 | )       |
| Total                                    |   | $       | 133,190 |   |

 

*IdentifiableTangible Assets.*  Significant identifiable tangible assetsinclude accounts receivable with a fair value of $29.5 million and inventory of$18.9 million. We engaged a third party valuation specialist to assistmanagement in estimating the fair value of fixed assets, primarily constructionequipment, of $61.6 million, on the date of the acquisition. The valuation wasbased on comparable market values for similar equipment of similar conditionand age.

 

*IdentifiableIntangible Assets.*  To determine the estimated fair value ofintangible assets acquired, we engaged a third party valuation specialist toassist management. The valuation is preliminary and subject to change.  The fair value measurements of the intangibleassets were based primarily on significant unobservable inputs and thusrepresent a Level 3 measurement as defined in Note 3 — “*Fair ValueMeasurements*”. Based on the preliminary assessment, the acquiredintangible asset categories, fair value and average amortization periods,generally on a straight-line basis, are as follows:

 
| ** **              | ** ** | **Amortization** | ** ** | ** ** | ** ** | **Fair**  | ** ** |
|-------------------------|------------|------------------|------------|------------|------------|-----------|------------|
| ** **              | ** ** | **Period**       | ** ** | ** ** | ** ** | **Value** | ** ** |
| Tradename               |       |             | 10 years   |       |       |      | $          | 15,350 |   |
| Non-compete  agreements |       |             | 5 years    |       |       |      | 5,200      |   |
| Customer  relationships |       |             | 10 years   |       |       |      | 6,400      |   |
| Backlog                 |       |             | 2.25 years |       |       |      | 4,700      |   |
|                    |       |             |       |       | Total      |      | $          | 31,650 |   |

 

The fair value of thetradename was determined based on the “relief from royalty” method, an approachunder which fair value is estimated to be the present value of royalties savedbecause we own the intangible asset and therefore do not have to pay a royaltyfor its use.  A royalty rate was selectedbased on consideration of several factors, including external research of thirdparty trade name licensing agreements and their royalty rate levels, andmanagement estimates.  The useful lifewas based on management’s expectation for continuing value of the tradename inthe future..

 

The fair value for thenon-compete agreements was valued based on a discounted “income approach” model(based on the weighted average cost of capital, or “WACC” including estimatedfinancial results with and without the non-compete agreements in place.  The agreements were analyzed base on thepotential impact competition from certain individuals could have on thefinancial results of the Company, assuming the agreements were not inplace.  An estimate of the probabilityassociated with the likelihood of competition was then applied and the resultswere compared to a similar model assuming the agreements were in place.

 

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The customerrelationships and backlog were valued utilizing the “excess earnings method” ofthe income approach.  Estimated cash flowassociated with existing customers and projects was based on historical andmarket participant data, discounted, utilizing the WACC. Such discounted cashflows were net of fair market returns on the various tangible and intangibleassets that are necessary to realize the potential cash flows.

 

*Goodwill.* Goodwill largely consists of expected benefits from the geographicexpansion and presence of JCG in the southern United States, addition of heavycivil construction capabilities, the opportunity to extend our infrastructureoperations and other advantages of scale. Goodwill also includes the assembled workforce of the JCG business, whichdoes not qualify for separate recognition as an intangible asset.

 

The goodwill associatedwith the JCG acquisition is deductible for income tax purposes over a fifteenyear period.

 

*Supplemental Unaudited Pro FormaInformation*

 

The following pro formainformation presents the results of operations as if the JCG acquisition hadoccurred at the beginning of the respective reporting periods. The supplementalpro forma information has been adjusted to include:

 

·                  the pro forma impact of amortization of intangible assets anddepreciation of property, plant and equipment, based on the purchase priceallocation;

·                  the pro forma impact of interest expense on the promissory note;

·                  the pro forma tax effect of both the income before income taxes for JCGand the JCG pro forma adjustments, calculated using the statutory corporate taxrate of 39.8% for the periods presented. Note that JCG elected federal taxation in accordance with Subchapter Sof the Internal Revenue Code (“IRC”), whereby no federal income tax liabilityis generally recorded on JCG’s books; and

·                  the pro forma tax effect for the Company’s 2008 income from continuingoperations and net income are also calculated using the corporate tax rate of39.8% to reflect the Company being taxed as a Subchapter C corporation of theIRC for the entire year.

 

The pro forma results are presented for illustrative purposes only andare not necessarily indicative of or intended to represent the results thatwould have been achieved had the transaction been consummated as of the datesindicated or that may be achieved in the future.  The pro forma results do not reflect anyoperating efficiencies and associated cost savings that the Company may, or maynot achieve with respect to the combined companies.

 
| ** **                                                           | ** ** | **2009**        | ** ** | **2008**        | ** ** |
|----------------------------------------------------------------------|------------|-----------------|------------|-----------------|------------|
| ** **                                                           | ** ** | **(unaudited)** | ** ** | **(unaudited)** | ** ** |
| Revenues                                                             |       | $               | 827,612    |            | $          | 1,008,467 |   |
| Income from continuing operations, before provision for income taxes |       | $               | 62,033     |            | $          | 64,546 |   |
| Income from continuing operations                                    |       | $               | 38,136     |            | $          | 38,866 |   |
| Net income                                                           |       | $               | 34,287     |            | $          | 38,274 |   |
|                                                                 |       |            |       |            |       |
| Weighted average common shares outstanding:                          |       |            |       |            |       |
| Basic — (1)                                                     |       | 38,933          |       | 33,254          |       |
| Diluted — (1)                                                   |       | 42,308          |       | 36,341          |       |
|                                                                 |       |            |       |            |       |
| Earnings per share:                                                  |       |            |       |            |       |
| Basic — income from continuing operations                       |       | $               | 0.98       |            | $          | 1.17 | (2) |
| Basic — net income                                              |       | $               | 0.88       |            | $          | 1.15 | (2) |
| Diluted — income from continuing operations                     |       | $               | 0.90       |            | $          | 1.07 | (2) |
| Diluted — net income                                            |       | $               | 0.81       |            | $          | 1.05 | (2) |

 

----

(1)                                 The adjustment to earnings per share reflects the conversion of thePreferred Stock as if such shares were converted into common stock, at aconversion rate of 100 common shares per share, in order to reflect theadditional dilution.  Because it is theintent of the Company to convert the Preferred Stock, and is agreed to in avoting agreement signed at the time of the purchase, the Preferred Stock sharesare included in basic shares outstanding as if they were converted to commonstock.

 

Theadjustment to earnings per share excludes the potential impact of the EarnoutShares that may be issued contingent upon meeting a certain financial target atthe end of 2010.  Pro forma basic sharesoutstanding included 81,852.78 shares of Preferred Stock less 11,897.18 EscrowShares, totaling 69,955.60 shares of Preferred Stock, which when converted tocommon stock, represent 6,995,560 pro forma shares of common stock.  Shares included in pro forma diluted sharesoutstanding represent the 81,852.78 shares of Preferred Stock, which whenconverted to common stock represent 8,185,278 pro forma shares of common stock.

 

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(2)                                 For the first seven months during the year ended December 31, 2008,the Company had elected to be taxed for federal tax purposes in accordance withSubchapter S of the Internal Revenue Code. For an S-Corporation, no federal income tax liability is generallyrecorded on the corporation’s books.  Forthe remaining five months, the Company was taxed as a C-Corporation.  For the 2008 pro forma statements above, theCompany provision for income taxes represents pro forma taxes as if theearnings were taxed the entire year at the corporate statutory rate of 39.8%

 

***Cravens Partners, Ltd.***

 

In October 2009, the Company acquired certainassets and assumed certain liabilities of Cravens Partners, Ltd. (“CravensPartners”), a Texas-based provider of civil and utility infrastructureconstruction services. Following the completion of the acquisition, the Companycreated a wholly owned subsidiary named Cravens Services, Inc. Theservices of the new acquisition include excavation, underground utilities,drainage channels, facility upgrades, detention ponds and telecommunicationsinfrastructure projects.

 

Underthe terms of the purchase agreement, the estimated fair value of the purchaseconsideration was $4.9 million.  Theconsideration included cash of $2.1 million, 139,082 shares of the Company’scommon stock, with a fair value of approximately $1.0 million and additionalconsideration with an estimated fair value of approximately $1.8 million,payable in Company common stock, contingent upon achieving certain financialgoals for the 3-year period 2009 to 2011.

 

Theidentifiable tangible and intangible assets and goodwill were recorded at theirestimated fair values as of the date of the purchase.

 

**Note 5—CompletedMerger**

 

Rhapsody was founded as a “blankcheck” company on April 24, 2006, to effect a merger, capital stockexchange, asset acquisition or other similar business combination with anoperating business no later than October 3, 2008. As discussed inNote 1, “*Nature of Business*”above, on July 31, 2008 Rhapsody’s merger with Former Primoris wascompleted. In the merger, Rhapsody was the surviving legal entity; however, themerger was accounted for as a reverse acquisition and recapitalization. Underthis method of accounting, Rhapsody was treated as the “acquired” company forfinancial reporting purposes. This determination was primarily based on theFormer Primoris comprising the ongoing operations and management of thecombined company. In accordance with guidance applicable to thesecircumstances, the merger was considered to be a capital transaction insubstance. Accordingly, for accounting purposes, the merger was treated as theequivalent of Former Primoris issuing stock for the net assets of Rhapsody,accompanied by a recapitalization. The net assets of Rhapsody are stated athistorical cost, with no goodwill or other intangible assets recorded.Operations prior to the merger are for those of Former Primoris.

 

The Former Primorisstockholders and two foreign managers of Former Primoris (collectively, the “FormerPrimoris Holders”), pursuant to certain termination agreements, and in exchangefor all of their shares of common stock of Former Primoris that wereoutstanding immediately prior to the merger, received in the aggregate24,094,800 shares of the Company’s common stock. To secure the indemnity rightsof Rhapsody under the Merger Agreement, 1,807,110 of the 24,094,800 shares ofthe Company’s common stock issued to the Former Primoris Holders at the time ofthe merger were placed into escrow and are governed by the terms of an EscrowAgreement. In July 2009, 1,445,688 of these shares of common stock werereleased from escrow, with 361,422 shares remaining until July 2011.

 

The Merger Agreement alsoprovided that the Former Primoris Holders and two foreign managers wouldreceive up to an additional 5,000,000 shares of the Company’s common stock,contingent upon the combined company attaining certain defined performancetargets in 2008 and 2009.

 

In connection with themerger, certain Rhapsody stockholders elected to convert their Rhapsody sharesinto cash as permitted by Rhapsody’s certificate of incorporation. Holders of417,461 shares of Rhapsody’s common stock elected to exercise their conversionrights with respect to their shares. Each of these holders received $7.98 pershare, or an aggregate of $3,331 from the funds that had been placed inRhapsody’s trust by Rhapsody.

 

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As a result of the closingof the merger, the Former Primoris Holders owned approximately 80.4% of theoutstanding shares of the Company’s common stock at the closing of the merger,and the remaining Rhapsody stockholders owned the remaining approximately 19.6%of the Company’s outstanding shares of common stock.

 

At the closing of themerger, the President and Chief Executive Officer of the Company and eightother executives of the Company entered into employment agreements with eitherthe Company or one of its subsidiaries.

 

Pursuant to the MergerAgreement, Former Primoris distributed approximately $48,947 to itsstockholders as a distribution of prior earnings of Former Primoris and forpayment of their individual income tax liabilities. As a result of the merger,approximately $39,660 of cash and investments held in trust for Rhapsody wasreleased and became part of the assets of the Company upon consummation of themerger. No other assets were contributed by Rhapsody to the post-merger entity.Expenses paid by the Company in connection with the merger amounted to $5,234.

 

**Note 6—Restricted Cash**

 

Restricted cash consists ofcontract retention payments placed by customers into escrow cash accounts witha bank. Investments for these amounts are limited to highly graded U.S. andmunicipal government debt obligations, investment grade commercial paper andCDs, which limits credit risk on these balances. Balances in these escrow cashaccounts are released to the Company by the customers as the projects arecompleted in accordance with the terms specified in the contracts.

 

**Note 7—Accounts Receivable**

 

The following is a summaryof accounts receivable at December 31:

 
| ** **                                                                             | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Contracts receivable, net  of allowance for doubtful accounts of $200 for both periods |       | $        | 82,254     |     | $          | 73,226 |   |
| Retention                                                                              |       | 25,907   |       | 15,804   |       |
|                                                                                   |       | 108,161  |       | 89,030   |       |
| Due from affiliates                                                                    |       | —   |       | 17       |       |
| Other accounts receivable                                                              |       | 331      |       | 1,575    |       |
|                                                                                   |       | $        | 108,492    |     | $          | 90,622 |   |

 

Amounts “due from affiliates”primarily relate to amounts due from related parties (See Note 10 “*Equity Method Investments*” andNote 21 “*Related Party Transactions*”)for the performance of construction contracts. Contract revenues earned fromrelated parties were approximately $23,436, $22,127 and $12,993 for the yearsended December 31, 2009, 2008 and 2007, respectively. At December 31,2009 and 2008, amounts due from a joint venture, “Otay Mesa Power Partners”totaling $0 and $1,340, respectively, are included in contracts receivable (SeeNote 10 “*Equity Method Investments*”).

 

**Note 8—Costs and Estimated Earnings onUncompleted Contracts**

 

Costs and estimated earningson uncompleted contracts consist of the following at December 31:

 
| ** **                                             | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|--------------------------------------------------------|------------|------------|------------|------------|------------|
| Costs incurred on  uncompleted contracts               |       | $          | 2,036,251  |       | $          | 1,254,663 |   |
| Provision for estimated  loss on uncompleted contracts |       | 332        |       | 700        |       |
| Gross profit recognized                                |       | 201,254    |       | 95,399     |       |
|                                                   |       | 2,237,837  |       | 1,350,762  |       |
| Less: billings to date                                 |       | (2,340,494 | )          | (1,402,162 | )          |
|                                                   |       | $          | (102,657   | )          | $          | (51,400 | ) |

 

This net amount is includedin the accompanying consolidated balance sheet at December 31 under thefollowing captions:

 
| ** **                                          | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------|------------|----------|------------|----------|------------|
| Costs and estimated  earnings in excess of billings |       | $        | 11,378     |     | $          | 19,793 |   |
| Billings in excess of cost  and estimated earnings  |       | (114,035 | )          | (71,193  | )          |
|                                                |       | $        | (102,657   | )        | $          | (51,400 | ) |

 

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**Note 9—Property and Equipment**

 

The following is a summaryof property and equipment at December 31:

 
| ** **                                       | ** ** | **2009** | ** ** | **2008** | ** ** | **Useful Life**             | ** ** |
|--------------------------------------------------|------------|----------|------------|----------|------------|-----------------------------|------------|
| Land and buildings                               |       | $        | 5,433      |     | $          | —                      |       | 30 years |   |
| Leasehold improvements                           |       | 3,460    |       | 988      |       | Lease life                  |       |
| Office equipment                                 |       | 632      |       | 529      |       | 3 - 5 years  |       |
| Construction equipment                           |       | 104,337  |       | 42,305   |       | 3 - 7 years  |       |
| Transportation equipment                         |       | 10,538   |       | 9,344    |       | 3 - 18 years |       |
|                                             |       | 124,400  |       | 53,166   |       |                        |       |
| Less: accumulated  depreciation and amortization |       | (31,832  | )          | (28,346  | )          |                        |       |
| Net property and equipment                       |       | $        | 92,568     |     | $          | 24,820                      |       |   |   |

 

The 2009 balances aboveinclude $61.6 million of property and equipment from the JCG acquisition in December 2009.

 

**Note 10—EquityMethod Investments**

 

During 2007, the Companyestablished a joint venture, Otay Mesa Power Partners (“OMPP”), for the solepurpose of constructing a power plant near San Diego, California. The Companyhas a 40% interest in the project and accounts for its investment in OMPP usingthe equity method. ARB, the Company’s wholly-owned subsidiary, acts as one ofOMPP’s primary subcontractors. ARB has contracts with OMPP totaling $49,197 asof December 31, 2009, which are nearing completion. ARB recognized $16,566in related revenues in 2009 and $21,172 in 2008. These revenues are included inthe contract revenues earned from related parties as stated in Note 7 “*Accounts Receivable*”.

 

The following is a summaryof the financial position and results of operations as of and for the yearsended December 31:

 
| ** **                                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|------------------------------------------------|------------|----------|------------|----------|------------|
| ***Otay Mesa Power Partners***                 |       |     |       |     |       |
| Balance sheet data:                            |       |     |       |     |       |
| Assets                                         |       | $        | 9,176      |     | $          | 48,775 |   |
| Liabilities                                    |       | 1,493    |       | 50,540   |       |
| Net assets                                     |       | $        | 7,683      |     | $          | (1,765 | ) |
| Company’s equity  investment in affiliate |       | $        | 4,610      |     | $          | (706 | ) |
| Earnings data:                                 |       |     |       |     |       |
| Revenue                                        |       | $        | 100,982    |     | $          | 109,890 |   |
| Gross profit                                   |       | 17,944   |       | 14,837   |       |
| Earnings before taxes                          |       | $        | 17,949     |     | $          | 15,162 |   |
| Company’s equity in  earnings             |       | $        | 8,716      |     | $          | 6,065 |   |

 

OMPP distributed $8,500during the twelve months ended December 31, 2009, of which, the Company’sshare was $3,400, and during the twelve months ended December 31, 2008,OMPP distributed $15,300, of which, the Company’s share was $6,120.  The joint venture agreement states thatdistributions made prior to the completion of the contract are consideredadvances on account of the related partner’s share as determined at thecompletion of the underlying contract. The deficit in equity investment shownin the table above for 2008 is due to the excess distributions paid to theCompany and such distribution has been included in accrued expenses on theCompany’s consolidated balance sheet as of December 31, 2008.

 

The Company had a 49%interest in ARB Arendal, SRL de CV (“ARB Arendal”), which engaged inconstruction activities in Mexico. In prior years, the investment was accountedfor under the equity method.  However,because of the uncertainty on the outcome of negotiations with a major customerin Mexico, the Company determined there was an other than temporary impairmentof its investment in and advances to ARB Arendal.  The Company wrote down the investment to zeroas of December 31, 2007 and wrote off advances of $1,036 made during theyear ended December 31, 2009 and has not recognized any earnings duringthe year. On December 22, 2009, the Company sold its 49% interest in ARBArendal and recognized an immaterial gain. As part of the sale, the $1,036 advance was repaid in the fourth quarter2009.

 

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**Note 11—DiscontinuedOperations**

 

During December of 2009,the Company determined to discontinue all operations in Ecuador and a plan wasput in place to sell the stock ownership of the Ecuador company.  As a result, the results of operations andcash flows for these operations are reflected as discontinued operations forall periods presented.  Previously, theEcuador operations were included in the Company’s Construction Servicessegment.

 

The following tablesummarizes the results of the discontinued operations of Ecuador during thethree years ended December 31:

 
| ** **                                    | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ***Ecuador Business Unit***                   |       |     |       |     |       |     |       |
|                                          |       |     |       |     |       |     |       |
| Revenues                                      |       | $        | 18,247     |     | $          | 11,250   |       | $ | 5,042 |   |
| Cost of revenue                               |       | 23,457   |       | 11,249   |       | 5,758    |       |
| Gross (loss) profit                           |       | (5,210   | )          | 1        |       | (716     | )          |
| Selling, general and  administrative expenses |       | 895      |       | 978      |       | 937      |       |
| Operating loss                                |       | (6,105   | )          | (977     | )          | (1,653   | )          |
| Interest income                               |       | 7        |       | 9        |       | 3        |       |
| Loss before provision for  taxes              |       | (6,098   | )          | $        | (968       | )        | $          | (1,650 | ) |
| Income tax benefit                            |       | 2,249    |       | 99       |       | 47       |       |
| Loss — discontinued  operations          |       | $        | (3,849     | )        | $          | (869     | )          | $ | (1,603 | ) |

 

Current assets of $5,304 andcurrent liabilities of $6,511, resulting in a net liability of $1,207, remainon the balance sheet as of December 31, 2009 for the discontinued Ecuadoroperations.

 

In February 2010, theCompany entered into an agreement for the sale of the Ecuador business.  The Company agreed to pay $1.0 million ofremaining liabilities of the business, and the buyer is to pay to the Company acombination of $400 in Primoris stock owned by the buyer, a $300 note payable,plus an indemnification to the Company of certain potential liabilities. Thesale was completed in March 2010. The sale had no material impact to theCompany.

 

**Note 12—Intangible Assets**

** **

At December 31, 2009and 2008, intangible assets totaled $32,695 and $52, respectively, net ofamortization.  The following tablesummarizes theintangible asset categories, average amortization periods which are generallyon a straight-line basis, and the fair value, as follows:

 
| ** **             | ** ** | ** ** | **Amortization**    | ** ** | ** ** | ** ** | **Fair**  | ** ** |
|------------------------|------------|------------|---------------------|------------|------------|------------|-----------|------------|
| ** **             | ** ** | ** ** | **Period**          | ** ** | ** ** | ** ** | **Value** | ** ** |
| Tradename              |       |       | 5 to 10 years       |       |       |       | $         | 15,785     |   |
| Non-compete agreements |       |       | 5 years             |       |       |       | $         | 5,403      |   |
| Customer relationships |       |       | 5 to 10 years       |       |       |       | $         | 6,793      |   |
| Backlog                |       |       | 0.75 to 2.25  years |       |       |       | $         | 4,714      |   |
|                   |       |       |                |       | Total      |       | $         | 32,695     |   |

 

Amortization expense onintangible assets was $342, $36 and $132 for the years ended December 31,2009, 2008 and 2007, respectively. Estimated amortization expense for intangible assets as of December 31,2009 is as follows:

 
| **For the Years Ending  December 31,** | ** ** | **Estimated  Intangible  Amortization  Expense** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------|------------|
| 2010                                        |       | $                                                | 5,678      |   |
| 2011                                        |       | 5,544                                            |       |
| 2012                                        |       | 3,873                                            |       |
| 2013                                        |       | 3,455                                            |       |
| 2014                                        |       | 3,360                                            |       |
| Thereafter                                  |       | 10,785                                           |       |
|                                        |       | $                                                | 32,695     |   |

 

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**Note 13—Accounts Payable and Accrued Liabilities**

 

At December 31, 2009 and2008, accounts payable includes retentions of approximately $12,616 and $7,741,respectively, due to subcontractors, which have been retained pending contractcompletion and customer acceptance of jobs.

 

The following is a summaryof accrued expenses and other current liabilities at December 31:

 
| ** **                                               | ** ** | **2009** | ** ** | **2008** | ** ** |
|----------------------------------------------------------|------------|----------|------------|----------|------------|
| Payroll and related  employee benefits                   |       | $        | 18,321     |     | $          | 6,664 |   |
| Insurance, including  self-insurance reserves            |       | 11,245   |       | 9,939    |       |
| OMPP liability  (Note 10)                           |       | —   |       | 706      |       |
| Provision for estimated  losses on uncompleted contracts |       | 332      |       | 700      |       |
| Corporate income taxes and  other taxes                  |       | 640      |       | 2,807    |       |
| Accrued leases and rents                                 |       | 262      |       | 917      |       |
| Accrued overhead cost                                    |       | 1,065    |       | 1,521    |       |
| Other                                                    |       | 3,127    |       | 1,917    |       |
|                                                     |       | $        | 34,992     |     | $          | 25,171 |   |

 

**Note 14—Capital Leases**

 

The Company leases vehiclesand certain equipment under capital leases. The economic substance of theleases is that the Company is financing the acquisition of vehicles andequipment through leases and accordingly, they are recorded in the Company’sassets and liabilities. Included in depreciation expense is amortization ofvehicles and equipment held under capital leases, amortized over their usefullives on a straight-line basis.  Prior tothe December 18, 2009 acquisition of JCG, there were no vehicles orequipment under capital leases.  As partof the December 18, 2009 JCG acquisition, vehicles and equipment with acost of $15,303 were acquired and the related capital lease obligations wereassumed. At December 31, 2009, the net book value of assets under capitalleases was $15,238.

 

The following is a scheduleby year of the future minimum lease payments required under capital leasestogether with their present value as of December 31:

 
| 2010                                                |   | $      | 4,839  |   |
|-----------------------------------------------------|--------|--------|--------|--------|
| 2011                                                |   | 2,848  |   |
| 2012                                                |   | 2,449  |   |
| 2013                                                |   | 1,904  |   |
| Thereafter                                          |   | 1,407  |   |
| Total minimum lease payments                        |   | $      | 13,447 |   |
| Amounts representing  interest                      |   | (1,493 | )      |
| Net present value of  minimum lease payments        |   | 11,954 |   |
| Less: current portion of  capital lease obligations |   | (4,220 | )      |
| Long-term capital lease  obligations                |   | $      | 7,734  |   |

 

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**Note 15—Credit Arrangements**

 

Credit facilities andlong-term debt consist of the following at December 31:

 
| ** **                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| Construction equipment  note payable to a commercial equipment finance company, with an interest rate  of 6.51% per annum. Principal and interest payments were due in the amount of  $350 per month. This note was paid in 2009. The note was secured by certain  construction equipment of the Company                                                                                                                                                                                                                    |       | $        | —     |     | $          | 22,058 |   |
| Construction equipment  notes payable to a commercial equipment financing company, with interest  rates of 5.30%. Monthly principal and interest payments aggregating $85 are  due on the notes until their respective maturity dates on  December 2012. The notes are secured by certain construction equipment  of the Company                                                                                                                                                                                  |       | 2,390    |       | 3,262    |       |
| Commercial note payable to  a bank with an interest rate of 6.49%. Principal and interest payments were  due in the amount of $20 per month. The note was paid in 2009. The note was  secured by certain construction and automotive equipment of the Company                                                                                                                                                                                                                                                          |       | —   |       | 299      |       |
| Note payable to bank for  $3,800, entered into on October 17, 2008, with a bank to finance an  airplane purchased for business use. The note is secured by the airplane and  all related parts and equipment and calls for 59 monthly principal and  interest payments of $43, followed by one payment of $2,145. The note accrues  interest at a rate of 5.6% annually and allows for prepayment with certain  prepayment penalties, but after 36 months the loan can be paid in  full without penalty |       | 3,443    |       | 3,751    |       |
| Construction equipment  note payable to a commercial equipment finance company, with an interest rate  of 5.54%. Monthly principal and interest payment of $69 is due on the note  until it’s maturity date of April 01, 2013. The note is secured by  certain construction equipment of the Company                                                                                                                                                                                                              |       | 3,814    |       | —   |       |
| Commercial note payable to  a bank with an interest rate of 5.10%. Monthly principal and interest payment  is due in the amount of $32, with the final payment due September 15,  2014. The note is secured by certain construction and automotive equipment of  the Company                                                                                                                                                                                                                                           |       | 1,625    |       | —   |       |
| Commercial notes payable  to a bank with interest rates from 4.04% to 5.89%. Monthly principal and  interest payments are due in the amount of $443, with the final payment due  December 28, 2014. The notes are secured by certain construction and  automotive equipment of the Company                                                                                                                                                                                                                             |       | 21,578   |       | 2,933    |       |
| Total long-term debt                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |       | 32,850   |       | 32,303   |       |
| Less: current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |       | (6,482   | )          | (5,679   | )          |
| Long-term debt, net of  current portion                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     |       | $        | 26,368     |     | $          | 26,624 |   |

 

Scheduled maturities oflong-term debt are as follows:

 
| ** ** | ** ** | **Year Ending  December 31,** | ** ** |
|------------|------------|------------------------------------|------------|
| 2010       |       | $                                  | 6,482      |   |
| 2011       |       | 6,831                              |       |
| 2012       |       | 6,681                              |       |
| 2013       |       | 9,486                              |       |
| 2014       |       | 3,370                              |       |
| Thereafter |       | —                             |       |
|       |       | $                                  | 32,850     |   |

 

***Credit facilities*****—**In March 2007, we entered into arevolving line of credit agreement payable to Bank of America, N.A. (successorby merger to LaSalle Bank National Association) with an interest rate of primeor at LIBOR plus an applicable margin. The revolving line was secured bysubstantially all of our assets. Under the line of credit agreement, we wereable to borrow up to $30.0 million, and all amounts borrowed under the line ofcredit were to be due March 31, 2010. On October 28, 2009, we paid orcash collateralized all amounts due and owing under the line of credit andterminated the line of credit agreement.

 

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On October 28, 2009,we entered into a Loan and Security Agreement (the “Agreement”) with ThePrivateBank andTrust Company (the “Lender”) for a revolving line of credit in thetotal aggregate amount of $35.0 million. Under the Agreement, the Lenderprovides two revolving loans to us:

 

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

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

 

The Lender has agreed toissue for our account letters of credit of up to $15.0 million, under RevolvingLoan A.  The principal amount of each of Revolving Loan A and RevolvingLoan B will bear interest at either: (i) LIBOR plus an applicable marginas specified in the Agreement, or (ii) the prime rate announced by theLender plus an applicable margin as specified in the Agreement. The principalamount of any loan bearing interest at LIBOR plus an applicable margin may notbe prepaid in whole or in part at any time. However, if any such loan isprepaid, we will be subject to certain prepayment penalties. There is noprepayment penalty for any loan bearing interest at the prime rate announced bythe Lender plus an applicable margin.

 

All loans made by theLender under the Agreement are secured by certain of our assets, including,among others, our cash, inventory, goods, equipment (excluding equipmentsubject to certain permitted liens) and accounts receivable. The Agreement alsocontains various restrictive covenants, including, among others, restrictionson investments, capital expenditures, minimum tangible net worth and debtservice coverage requirements.  Certain of our subsidiaries have executedjoint and several guaranties in favor of the Lender for all amounts under theAgreement.

 

In January 2008, theCompany entered into a credit facility (as amended) for purposes of issuingcommercial letters of credit in Canada, for an amount up to 10 million inCanadian dollars. The credit facility with a Canadian bank is for a term of5 years, and provides for an annual fee of 1% for any issued andoutstanding commercial letters of credit. Letters of credit can be denominatedin either Canadian or U.S. dollars. As of December 31, 2009 and 2008,total commercial letters of credit outstanding under this credit facilitytotaled $5,284 and $4,981, respectively.

 

The term loan and line ofcredit facilities contain various restrictive covenants, including, among otherthings, restrictions on investments, capital expenditures, minimum workingcapital and tangible net worth requirements. The Company was in compliance withits restrictive covenants as of December 31, 2009.

 

***Subordinated Promissory Note — JCG acquisition****.*  As further described in Note 4 — “*Business Combinations*”, the Company executed an unsecuredPromissory Note on December 18, 2009 in favor of the sellers of JCG with aprinciple amount of $53.5 million.  ThePromissory Note is due and payable on December 15, 2014 and bears interestat differing rates until maturity.  Forthe first 9 months of the term of the note, the Promissory Note bears interestat an annual rate equal to 5%.  Formonths 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 bepayable in cash on an amortizing basis over 60 monthly payments.  The Promissory Note is subordinated toamounts owed to our line of credit and bonding agencies.

 

ThePromissory Note may be prepaid in whole or in part at any time, and partialprepayment is required in the event the Company completes certain equityfinancing or obtains proceeds under certain new indebtedness. While any amountabove $10 million is outstanding under the Promissory Note, we have agreed tonot take certain actions without the prior written consent of the PromissoryNote holders, including, among others, purchase, acquire, redeem or retire anyshares of our common stock.

** **

**Note 16—Commitments andContingencies**

 

The Company leases certainproperty and equipment under non-cancelable operating leases which expire atvarious dates through 2019. The leases require the Company to pay all taxes,insurance, maintenance, and utilities.

 

Certain of these leases arewith entities related through common ownership by stockholders, officers, anddirectors of the Company. The leases are classified as operating leases inaccordance with ASC Topic 840 — “*Leases*”.

 

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The future minimum leasepayments required under non-cancelable operating leases are as follows:

 
| **For the Years Ending  December 31,** | ** ** | **Real  Property** | ** ** | **Real  Property  (Related  Party)** | ** ** | **Equipment** | ** ** | **Total  Commitments** | ** ** |
|---------------------------------------------|------------|--------------------|------------|--------------------------------------|------------|---------------|------------|------------------------|------------|
| 2010                                        |       | $                  | 1,811      |                                 | $          | 1,049         |       | $                      | 4,906      |   | $ | 7,766 |   |
| 2011                                        |       | 1,484              |       | 871                                  |       | 3,620         |       | 5,975                  |       |
| 2012                                        |       | 1,355              |       | 889                                  |       | 1,061         |       | 3,305                  |       |
| 2013                                        |       | 566                |       | 907                                  |       | 27            |       | 1,500                  |       |
| 2014                                        |       | —             |       | 861                                  |       | —        |       | 861                    |       |
| Thereafter                                  |       | —             |       | 2,259                                |       | —        |       | 2,259                  |       |
|                                        |       | $                  | 5,216      |                                 | $          | 6,836         |       | $                      | 9,614      |   | $ | 21,666 |   |

 

Total lease expense duringthe years ended December 31, 2009, 2008 and 2007 amounted to approximately$6,267, $7,349 and $7,506, respectively, including amounts paid to relatedparties of $1,116, $1,034 and $990, respectively.

 

***Letters of credit*****—**As of December 31,2009 and 2008 the Company had total letters of credit outstanding ofapproximately $11,989 and $5,658, respectively.

 

***Litigation*****—**The Company issubject to claims and legal proceedings arising out of its business. Managementbelieves that the Company has meritorious defenses to the claims. Althoughmanagement is unable to ascertain the ultimate outcome of such matters, afterreview and consultation with counsel and taking into consideration relevantinsurance coverage and related deductibles, management believes that theoutcome of these matters will not have a materially adverse effect on theconsolidated financial position of the Company.

*** ***

***Bonding*****—**As of December 31,2009, 2008 and 2007, the Company had bid and completion bonds issued andoutstanding totaling approximately $773,762, $353,008 and $427,500,respectively.

** **

**Note 17—Reportable Operating Segments**

 

The Company operates in tworeportable segments: Construction Services and Engineering. The accountingpolicies of the segments are the same as those described in the Note 2—“*Summary of Significant Accounting Policies”.*The Company evaluates performance based on gross profit before allocations ofselling, general and administrative expenses, other income and expense itemsand income taxes. The Company accounts for intersegment sales and transfers asif the sales or transfers were to third parties, that is, at current marketprices. The Company’s segments are as follows:

** **

**ConstructionServices**

 

The Construction Services groupspecializes in a range of services that include designing, building/installing,replacing, repairing/rehabilitating and providing management services forconstruction related projects. Our services include:

 

·                  Providinginstallation of underground pipeline, cable and conduits for entities in thepetroleum, petrochemical and water industries;

 

·                  Providinginstallation and maintenance of industrial facilities for entities in thepetroleum, petrochemical and water industries; and

 

·                  Providinginstallation of complex commercial and industrial cast-in-place structures.

** **

**Engineering**

 

The Engineering groupspecializes in designing, supplying, and installing high-performance furnaces,heaters, burner management systems, and related combustion and processtechnologies for clients in the oil refining, petrochemical, and powergeneration industries. It furnishes turnkey project management with technicalexpertise and the ability to deliver custom engineering solutions worldwide.

 

In the following tables, allintersegment revenues and gross profit have been eliminated.

 

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The following table setsforth the Company’s revenue by segment for the years ended December 31,2009, 2008 and 2007:

 
| ** **            | ** ** | **Year Ended  December 31,** | ** ** |
|-----------------------|------------|-----------------------------------|------------|
| ** **            | ** ** | **2009**                          | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Business Segment**  | ** ** | **Revenue**                       | ** ** | **% of  Revenue** | ** ** | **Revenue** | ** ** | **% of  Revenue** | ** ** | **Revenue** | ** ** | **% of  Revenue** | ** ** |
| Construction Services |       | $                                 | 409,237    |   | 87.6 | % | $ | 504,880 |   | 84.5 | % | $ | 465,324 |   | 85.8 | % |
| Engineering           |       | 57,773                            |       | 12.4 | % | 92,942 |   | 15.5 | % | 77,300 |   | 14.2 | % |
| Total                 |       | $                                 | 467,010    |   | 100.0 | % | $ | 597,822 |   | 100.0 | % | $ | 542,624 |   | 100.0 | % |

 

Thefollowing table sets forth the Company’s gross profit by segment for the yearsended December 31, 2009, 2008 and 2007:

 
| ** **            | ** ** | **Year Ended December 31,** | ** ** |
|-----------------------|------------|----------------------------------|------------|
| ** **            | ** ** | **2009**                         | ** ** | **2008** | ** ** | **2007** | ** ** |
| **Business Segment**  | ** ** | **Gross Profit**                 | ** ** | **% of  Revenue** | ** ** | **Gross Profit** | ** ** | **% of  Revenue** | ** ** | **Gross Profit** | ** ** | **% of  Revenue** | ** ** |
| Construction Services |       | $                                | 69,471     |   | 17.0 | % | $ | 64,964 |   | 12.9 | % | $ | 52,309 |   | 11.2 | % |
| Engineering           |       | 6,104                            |       | 10.6 | % | 5,478 |   | 5.9 | % | 7,759 |   | 10.0 | % |
| Total                 |       | $                                | 75,575     |   | 16.2 | % | $ | 70,442 |   | 11.8 | % | $ | 60,068 |   | 11.1 | % |

 

Third-party revenues andtotal assets as presented below are based on the geographic region in which thecontracting subsidiary is located and not the location of the client or jobsite:

 
|              |       | **External  Revenues  Year Ended December 31,** |       | **Total  Assets  At December 31,** |       |
|-------------------|------------|------------------------------------------------------|------------|-----------------------------------------|------------|
|              |       | **2009**                                             |       | **2008**                                |       | **2007** |   | **2009** | ** ** | **2008** |   |
| **Country**       | ** ** | **Revenue**                                          | ** ** | **% of  Revenue**                  | ** ** | **Revenue** | ** ** | **% of  Revenue** | ** ** | **Revenue** | ** ** | **% of  Revenue** |   |   |   |   |   |
| United States     |       | $                                                    | 445,979    |                                    | 95.5       | % | $ | 577,090 |   | 96.5 | % | $ | 521,663 |   | 96.1 | % | $ | 465,025 |   | $ | 231,432 |   |
| Non-United States |       | 21,031                                               |       | 4.5                                     | %          | 20,732 |   | 3.5 | % | 20,961 |   | 3.9 | % | 11,002 |   | 20,780 |   |
| Total             |       | $                                                    | 467,010    |                                    | 100.0      | % | $ | 597,822 |   | 100.0 | % | $ | 542,624 |   | 100.0 | % | $ | 476,027 |   | $ | 252,212 |   |

 

**Note 18—CustomerConcentrations**

 

The Company operates inmultiple industry segments encompassing the construction of commercial,industrial, and public works infrastructure assets throughout the UnitedStates, and in foreign countries, including Canada, Mexico, and others.

 

During the years ended December 31,2009, 2008 and 2007, the Company earned 35.3%, 28.8% and 22.0%, respectively,of its revenue from the following customers:

 
| **Description of  Customer’s** |   | **2009**   |    | **2008**       |   | **2007**   |   |
|------------------------------------------|--------|------------|---------|----------------|--------|------------|--------|
| **Business**                             |   | **Amount** |    | **Percentage** |   | **Amount** |   | **Percentage** |   | **Amount** |   | **Percentage** |   |
| Private gas and  electric utility        |   | $          | 55,372  |           | 11.9   | %          | *      |   | N/A |   | * |   | N/A |   |
| Public gas and electric  utility         |   | 67,071     |    | 14.4           | %      | $          | 45,184 |   | 7.6 | % | $ | 32,668 |   | 6.0 | % |
| Public gas utility                       |   | 42,354     |    | 9.1            | %      | *          |   | N/A |   | 30,826 |   | 5.7 | % |
| Engineering contractor                   |   | *          |    | N/A            |   | 58,983     |   | 9.9 | % | — |   | — |   |
| Engineering contractor                   |   | *          |    | N/A            |   | 67,640     |   | 11.3 | % | 55,783 |   | 10.3 | % |
|                                     |   | $          | 164,797 |           | 35.3   | %          | $      | 171,807 |   | 28.8 | % | $ | 119,277 |   | 22.0 | % |

 

----

(*)                                 Indicates acustomer with less than 5% of revenues during such period.

 

For the year ended December 31,2009, approximately 58.8% of total revenues were generated from ten customersof the Company. At December 31, 2009, approximately 8.4% of the Company’saccounts receivable were due from one customer. For the year ended December 31,2009, the Company earned approximately 11.9% of its total revenues from thiscustomer.

 

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**Note 19—Retirement Plans**

*** ***

***Union Plans*****—**The Companycontributes to multi-employer benefit plans for its union employees at ratesdetermined by the various collective bargaining agreements. Eligibility andallocations of contributions and benefits are determined by the trustees andadministered by the multi-employer benefit plans. The Company contributed $9,925,$12,700 and $8,700, under these plans for the years ended December 31,2009, 2008 and 2007, respectively. These costs are charged directly to therelated construction contracts in process.

 

Under U.S. legislationregarding such pension plans, a company is required to continue funding itsproportionate share of a plan’s unfunded vested benefits in the event ofwithdrawal (as defined by the legislation) from a plan or plan termination. Asthe Company participates in a number of these pension plans, the potentialobligation may be significant. The information required to determine the totalamount of this contingent obligation, as well as the total amount of accumulatedbenefits and net assets of such plans, is not readily available. Any adjustmentfor withdrawal liability will be recorded when it is probable that a liabilityexists and can be reasonably estimated, in accordance with GAAP. The Companyhas no plans to withdraw from any of these agreements.

*** ***

***401(k) Plan*****—**The Companyprovides a 401(k) plan for its employees not covered by collectivebargaining agreements. Under the plan, employees are allowed to contribute upto 100% of their compensation, up to the Internal Revenue Service (“IRS”)prescribed annual limit. The Company makes employer match contributions of 100%of the first 3% and 50% of the next 2% of employee contributions. The Companymay, at the discretion of its Board of Directors, make an additional profitshare contribution to the 401(k) plan. The Company’s contribution to thisplan for the years ended December 31, 2009, 2008 and 2007 aggregated inamounts equal to $825, $790 and $769, respectively.

*** ***

***Born Heaters Canada, ULC RRSP-DPSP Plan*****—**Beginning in January 1, 2008, the Company provides a RRSP-DPSPplan (Registered Retirement Saving Plan—Deferred Profit Sharing Plan) for itsemployees of Born Heaters Canada, ULC, not covered by collectivebargaining agreements. There are two components to the plan. The RRSP portionwill be contributed by the employee, whereas the Company portion is paid in theDPSP. Under this plan, the company makes employer match contributions of 100%of the first 3% and 50% of the next 2% of employee contributions. Vesting inthe DPSP portion is one year of employment. The Company’s contribution to theDPSP during the year ended December 31, 2009 and 2008 was $ 83 and $62,respectively.

 

The Company has nopost-retirement benefits other than those discussed above.

** **

**Note 20—Deferred Compensation Agreements**

*** ***

***Put/Call Agreement*****—**Prior to theclosing of the merger as discussed in Note 5—“*Completed Merger”*, Former Primoris had a Put/Call Agreementwith a foreign manager. The Put/Call Agreement was accounted for as a liabilityunder ASC Topic 480 “*Distinguishing LiabilitiesFrom Equity*”, where the amount is presented as a liability andchanges in fair value are recorded as expense. During the years ended December 31,2009, 2008 and 2007, the Company recognized (income)/expenses of approximately$0, $(195) and $235, respectively. In conjunction with the Merger Agreement theforeign manager and the Company entered into a termination agreement, whichterminated the Put/Call Agreement. Under the termination agreement, the Companypaid the foreign manager $826 in 2008. As of December 31, 2009, there wereno liabilities remaining related to the Put/Call Agreement.

*** ***

***Phantom Stock Agreement*****—**Prior to theclosing of the merger, Former Primoris had a Phantom Stock Agreement with aforeign manager. During the years ended December 31, 2009, 2008 and 2007,the Company recognized deferred compensation expense of approximately $0, $30and $105, respectively. In conjunction with the Merger Agreement the foreignmanager and the Company entered into a termination agreement, which terminatedthe Phantom Stock Agreement (See Note 5 “*CompletedMerger*”). Under the termination agreement, the Company paid theforeign manager an amount equal to $294 in 2008. As of December 31, 2009,there were no liabilities remaining related to the Phantom Stock Agreement.

*** ***

***JCG Stakeholder Incentive Plan***

 

On December 18, 2009,JCG was acquired by the Company.  JCG hasa deferred compensation plan for its key management employees.  The plan provides for annual vesting over afive-year period. Once vested, the deferred compensation amount is paid inequal monthly installments over a 36-month period.  The amount of compensation to be deferredunder the plan is calculated each year. Total deferred compensation liability as of December 31, 2009 was$1,278.

 

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**Note 21—Related Party Transactions**

 

Primoris has entered intovarious transactions with Stockdale Investment Group, Inc. (“SIGI”). Themajority stockholder, Chief Executive Officer, President and Chairman of theBoard of Directors of Primoris, Brian Pratt, also holds a majority interest inSIGI. In addition, the following two officers and directors of Primoris alsoserve as officers and directors of SIGI: Brian Pratt (SIGI chairman anddirector) and John M. Perisich (SIGI secretary).

 

Primoris leases propertiesfrom SIGI located in Bakersfield, Pittsburg and San Dimas, California, as wellas a property in Pasadena, Texas. During the years ended December 31,2009, 2008 and 2007, the Company paid $834, $747 and $555, respectively, inlease payments to SIGI for the use of these properties.

 

Primoris leased certainconstruction equipment from SIGI. During the years ended December 31, 2008and 2007, the Company paid $0 and $307, respectively, in lease payments and$175 and $0, respectively, in rental payments to SIGI for the use of thisequipment. The Company purchased the equipment from SIGI in July 2008 fora purchase price of $1,135. The purchase price was determined using a fairmarket value appraisal.

 

The Company leased anairplane from SIGI for business use. During the years ended December 31,2009, 2008 and 2007, the Company paid $70, $239 and $241, respectively, inlease payments to SIGI for the use of the airplane. This lease commenced on May 1,2004 and was terminated on March 31 2009, when SIGI sold the airplane.

 

Primoris leases a propertyfrom Roger Newnham, a shareholder of the Company’s common stock and a managerat the subsidiary Born Heaters Canada. The property is located in Calgary,Canada. During the years ended December 31, 2009, 2008 and 2007 Primorispaid $282, $289 and $279, respectively, in lease payments to Mr. Newnhamfor the use of this property. The three-year lease for the Calgary propertycommenced in October 2005 and was renewed and extended until September 2010.

** **

**Note 22—Income Taxes**

 

The components of the incometax provision from continuing operations are as shown in the following table.Information for the prior years while an S-Corporation are not shown as theyare not material:

 
| ** **                     | ** ** | **2009** | ** ** | **2008** | ** ** |
|--------------------------------|------------|----------|------------|----------|------------|
| Current provision  (benefit)   |       |     |       |     |       |
| Federal                        |       | $        | 12,967     |     | $          | 5,828 |   |
| State                          |       | 3,105    |       | 2,068    |       |
| Canada                         |       | 1,230    |       | 995      |       |
|                           |       | $        | 17,302     |     | $          | 8,891 |   |
| Deferred provision  (benefit)  |       |     |       |     |       |
| Federal                        |       | 516      |       | (3,340   | )          |
| State and local                |       | 84       |       | (899     | )          |
| Canada                         |       | (46      | )          | 175      |       |
|                           |       | 554      |       | (4,064   | )          |
| Change in valuation  allowance |       | 494      |       | —   |       |
| Total                          |       | $        | 18,350     |     | $          | 4,827 |   |

 

A reconciliation of incometax expense from continuing operations to the amount of income tax expense thatwould result by applying the U.S. federal statutory income tax rate topre-tax income from continuing operations is as follows:

 
| ** **                                                                              | ** ** | **2009** | ** ** | **2008** | ** ** |
|-----------------------------------------------------------------------------------------|------------|----------|------------|----------|------------|
| U.S. federal  statutory income tax rate                                                 |       | 35.00    | %          | 35.00    | %          |
| State taxes, net of  federal income tax impact                                          |       | 4.34     | %          | 3.10     | %          |
| Tax effect of earnings not  subject to federal income tax due to S-Corporation election |       | —   |       | (20.21   | )%         |
| Federal and state tax  effect of S to C-Corporation conversion                          |       | —   |       | (7.35    | )%         |
| Foreign tax credit                                                                      |       | (2.59    | )%         | (1.81    | )%         |
| Canadian income tax                                                                     |       | 2.59     | %          | 2.82     | %          |
| Domestic production  activities deduction                                               |       | (1.67    | )%         | (1.03    | )%         |
| Other items                                                                             |       | 0.47     | %          | 1.17     | %          |
| Effective tax rate from  continuing operations                                          |       | 38.14    | %          | 11.68    | %          |

 

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Deferred income taxes arerecognized for temporary differences between the financial reporting basis ofthe assets and liabilities and their respective tax basis and operating losses,capital losses and tax credit carry-forwards based on enacted tax ratesexpected to be in effect when such amounts are realized or settled. However,deferred tax assets are recognized only to the extent that it is more likelythan not that they will be realized based on consideration of availableevidence, including future reversals of existing taxable temporary differences,future projected taxable income and tax planning strategies.

 

During 2009, the Companyrealized a capital loss related to an abandoned investment.  A valuation allowance of $494,000 has beenprovided against the Company’s deferred tax for its capital loss carryforwardas the Company believes that it is more likely than not that this capital losswill not be realized.  The Company’sdetermination that it will not fully realize this deferred tax asset was basedupon the Company’s future unlikelihood of generating sufficient capitalgains.  No valuation allowance has beenprovided to the Company’s remaining deferred tax assets as the Company believesit is more likely than not that these deferred tax assets will be realized.

 

Thetax effect of temporary differences that give rise to deferred income taxes forthe year ended December 31, 2009 are as follows:

 
| ** **                      | ** ** | **2009** | ** ** | **2008** | ** ** |
|---------------------------------|------------|----------|------------|----------|------------|
| Deferred tax assets:            |       |     |       |     |       |
| Accrued workers  compensation   |       | $        | 2,275      |     | $          | 2,064 |   |
| Insurance reserves              |       | 760      |       | 1,671    |       |
| Other accrued liabilities       |       | 2,211    |       | 1,751    |       |
| State income taxes              |       | 697      |       | 279      |       |
| Capital loss carryforward       |       | 494      |       | —   |       |
| Foreign tax credit              |       | 52       |       | —   |       |
| Valuation allowance             |       | (494     | )          | —   |       |
| Total deferred tax assets       |       | 5,995    |       | 5,765    |       |
| Deferred tax liabilities:       |       |     |       |     |       |
| Depreciation and  amortization  |       | (2,692   | )          | (1,349   | )          |
| Prepaid expenses                |       | (316     | )          | (250     | )          |
| Total deferred tax  liabilities |       | (3,008   | )          | (1,599   | )          |
| Total                           |       | $        | 2,987      |     | $          | 4,166 |   |

 

The Company recognizesinterest and penalties related to uncertain tax positions, if any, in incometax expense.

 

As of December 31, 2009and 2008, there are no unrecognized tax benefits and the Company does notanticipate that there will be a material change in the balance of theunrecognized tax benefits within the next 12 months.

 

The tax years 2006 through2008 remain open to IRS examination.  Thetax years 2005 through 2008 remain open to examination by the other majortaxing jurisdictions to which the Company is subject.

** **

**Note 23—Earnings Per Share**

 

The table below presents thecomputation of basic and diluted earnings per share for the years ended December 31,2009, 2008 and 2007:

 
| ** **                                                                | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| **Numerator:**                                                            |       |     |       |     |       |     |       |
| Income from continuing  operations                                        |       | $        | 29,761     |     | $          | 37,302   |       | $ | 28,737 |   |
| Net income                                                                |       | $        | 25,912     |     | $          | 36,433   |       | $ | 27,134 |   |
| Pro forma income from  continuing operations—unaudited(1)            |       |     |       | $        | 25,431     |     | $          | 17,838 |   |
| Pro forma net  income—unaudited(1)                                   |       |     |       | $        | 24,839     |     | $          | 16,845 |   |
|                                                                      |       |     |       |     |       |     |       |
| **Denominator  (shares in thousands):**                                   |       |     |       |     |       |     |       |
| Weighted average shares  for computation of basic earnings per share      |       | 31,937   |       | 26,258   |       | 23,458   |       |
| Dilutive effect of  warrants and units (2)                                |       | 961      |       | 856      |       | —   |       |
| Dilutive effect of  contingently issuable shares (3)                      |       | 1,225    |       | 1,042    |       | —   |       |
| Dilutive effect of JCG  convertible preferred shares (4)                  |       | 295      |       | —   |       | —   |       |
| Weighted average shares  for computation of diluted earnings per share    |       | 34,418   |       | 28,156   |       | 23,458   |       |
|                                                                      |       |     |       |     |       |     |       |
| Basic:                                                                    |       |     |       |     |       |     |       |
| Income from continuing  operations per share                              |       | $        | 0.93       |     | $          | 1.42     |       | $ | 1.23 |   |
| Earnings per share                                                        |       | $        | 0.81       |     | $          | 1.39     |       | $ | 1.16 |   |
| Pro forma income from  continuing operations per share—unaudited (1) |       |     |       | $        | 0.97       |     | $          | 0.76 |   |
| Pro forma earnings per  share—unaudited (1)                          |       |     |       | $        | 0.95       |     | $          | 0.72 |   |
| Diluted:                                                                  |       |     |       |     |       |     |       |
| Income from continuing  operations per share                              |       | $        | 0.86       |     | $          | 1.32     |       | $ | 1.23 |   |
| Earnings per share                                                        |       | $        | 0.75       |     | $          | 1.29     |       | $ | 1.16 |   |
| Pro form income from  continuing operations per share—unaudited (1)  |       |     |       | $        | 0.90       |     | $          | 0.76 |   |
| Pro forma earnings per  share—unaudited (1)                          |       |     |       | $        | 0.88       |     | $          | 0.72 |   |

 

----

(1)          Pro forma 2008 and 2007income from continuing operations and net income and their related per shareamounts reflect an adjustment for income tax at the applicable statutoryblended federal and state income tax rate (39.8%) as if we had been taxed inaccordance with Subchapter C of the Internal Revenue Code since the beginningof each respective period.

 

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Table of Contents

 

(2)          Represents the dilutiveeffect of 4,617,499 common stock warrants with a strike price of $5.00 pershare and the effect of the Units available under the Unit Purchase Option (“UPO”)at a purchase price of $8.80 per Unit. The UPO provides for the purchase of450,000 Units. Each Unit consists of one share of common stock plus one warrantto purchase a share of common stock at a strike price of $5.00 per share.

 

(3)          Represents the dilutiveeffect of 2,500,025 shares of Company stock that were issued to the FormerPrimoris stockholders on March 17, 2009. These shares were to be issued contingent upon attaining certain definedperformance targets in 2008.  The 2008targets were met in September 2008 and were included as part of thediluted shares outstanding.  Subsequentto the shares being issued on March 17, 2009, the shares were included aspart of the basic weighted average shares outstanding.  The additional 2,499,975 shares of stock werecontingent on meeting the 2009 target. The target was met during the fourth quarter 2009, and are included aspart of the diluted shares outstanding. The shares are expected to be issued inMarch 2010.  Additionally, as partof the acquisition of Cravens, approximately 74,906 shares were contingent onmeeting a defined performance target in 2009. The target was met in the fourth quarter 2009, and the shares areincluded as part of the diluted shares outstanding.

 

(4)          On December 18, 2009,we completed the acquisition of JCG and paid initial consideration thatincluded a combination of cash, notes payable and 81,852.78 shares of our Series ANon-Voting Contingent Convertible Preferred Stock (“Preferred Stock”). Subjectto the approval of our stockholders, the Preferred Stock will convert into anaggregate of 8,185,278 shares of common stock. The Preferred Stock is includedin the diluted shares outstanding as if they were converted to 8,185,278 sharesof common stock.

 

Inaddition, if JCG’s income before interest, taxes, depreciation and amortization(“EBITDA”), as defined in the Purchase Agreement, for the fiscal year ending December 31,2010 is equal to or greater than $35 million, we will issue a number of sharesof common stock equal to $10 million, divided by the average closing price ofour common stock, as reported on NASDAQ, for the 20 business days prior to December 31,2010.  Because this contingency has notyet been achieved, these shares have not been included in the calculation fordiluted shares outstanding.

** **

**Note 24—Stockholders’ Equity**

*** ***

***Common Stock***

 

The Company is authorized toissue 90,000,000 shares of $0.0001 par value common stock, of which 32,704,903and 29,977,339 shares were issued and outstanding as of December 31, 2009and 2008, respectively.

 

As of December 31,2009, there were 1,520,000 shares of common stock reserved for issuance uponexercise of all future stock option grants, SARS and grants of restrictedshares under the 2008 Equity Plan. As of December 31, 2009, therewere no stock options, SARS or restricted shares of stock issued or outstandingfor shares of common stock.

 

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***Preferred Stock***

 

The Company is authorized toissue 1,000,000 shares of $0.0001 par value preferred stock.  As part of consideration for the acquisitionof JCG, the Company issued 81,852.78 shares of Preferred Stock.  As further discussed in Note 4 — “*Business Combinations*”, subject to the approval of ourstockholders, the Preferred Stock will convert into an aggregate of 8,185,278shares of common stock.  As of December 31,2009, the 81,852.78 shares of Preferred Stock were the only shares outstanding.

*** ***

***Completion of Merger***

 

At the time of the July 31,2008 closing of the merger, the Former Primoris Holders owned approximately80.4% of the outstanding shares of the Company’s common stock at the closing ofthe merger, and the remaining Rhapsody stockholders owned the remainingapproximately 19.6% of the Company’s outstanding shares of common stock (SeeNote 5—“*Completed Merger”*).

 

The Former Primoris Holders,pursuant to certain termination agreements, and in exchange for all of theirshares of common stock of Former Primoris that were outstanding immediatelyprior to the July 31, 2008 merger, received in the aggregate 24,094,800shares of the Company’s common stock. To secure the indemnity rights ofRhapsody under the Merger Agreement, 1,807,110 of the 24,094,800 shares of theCompany’s common stock issued to the Former Primoris Holders at the time of themerger were placed into escrow and are governed by the terms of an EscrowAgreement.  In accordance with the MergerAgreement, on July 31, 2009, 1,445,688 shares of Common Stock werereleased from escrow, with 361,422 shares to remain in escrow under the termsof the Merger Agreement until July 31, 2011.

*** ***

***Contingent shares ofcommon stock*****—** The Merger Agreement alsoprovided that the Former Primoris Holders would receive up to an additional5,000,000 shares of the Company’s common stock, contingent upon the combinedcompany attaining certain financial targets in 2008 and 2009. The Companyachieved the specified financial milestone for 2008 and 2,500,025 shares ofCompany stock were issued to Former Primoris stockholders in March 2009.  As of December 31, 2009, the Companyachieved the specified financial milestone for 2009, and 2,499,975 shares ofCompany stock will be issued to Former Primoris stockholders in March 2010.

*** ***

***Merger related issuance of stock and stock expense —*****In connection with the Merger Agreement,Rhapsody, the Former Primoris and two foreign managers of Former Primorisentered into termination agreements related to the fulfillment of obligationsunder a Put/Call Agreement and a Phantom Stock Agreement (collectively the “DeferredCompensation Agreements”) discussed in Note 20, *“Deferred Compensation Agreements”.* Upon consummation of themerger (See Note 5 “*Completed Merger*”),the termination agreements cancelled the obligations of the parties under theDeferred Compensation Agreements and called for the issuance to the foreignmanagers of an aggregate of 507,600 shares of the Company’s common stock andfor the cash payment of the amounts already accrued under the DeferredCompensation Agreements.

 

As a result of the issuanceof these shares and in accordance with ASC Topic 718 “*Compensation-StockCompensation*”, the Company recognized a charge of $3,675 of non-cashexpenses related to the termination of the Deferred Compensation Agreementsduring 2008. The same amounts were recorded as an increase to additional paid-incapital and, therefore, had no effect on the Company’s net asset value. Theissuance of the shares was directly related to the consummation of the merger,therefore the entire value of the shares was taken as a charge to earnings atthe time of issuance, which was the July 31, 2008 closing of the merger.

 

As discussed above, as of December 31,2008, the Company achieved a specified financial milestone for 2008 and2,500,025 shares of Company stock were issued to Former Primoris stockholdersin March 2009, which included 52,668 shares issued to the two foreignmanagers. As a result, the Company recognized a $375 charge in 2008 forthe earn-out shares the two foreign managers received. The Company alsoachieved the specified financial milestone for 2009, and the two foreignmanagers will receive 52,668 additional shares in March 2010.  Similarly, the Company recognized a $390charge in 2009 for these additional shares being issued.

** **

**Note 25—Warrants For Purchase of Stock**

 

*Warrants and Warrant under the Unit Purchase Option*

 

As of December 31,2009, the Company has outstanding 4,617,499 redeemable Warrants, each of whichentitles the holder to purchase one share of common stock at a price of $5.00per share and is exercisable at any time on or prior to October 2, 2010,unless earlier redeemed by the Company (the “Warrants”).

 

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The number of Warrantsoutstanding at December 31, 2009 is net of the Warrants that werepurchased for cash in two transactions.

 

The first transaction wasfacilitated through a “modified Dutch auction” tender offer in 2008. The tenderoffer commenced on November 26, 2008 and was completed on December 24,2008. The Company purchased 1,416,908 Warrants at a price of $1.20 per Warrantat the completion of the tender offer, for a total cost to the Company ofapproximately $1.7 million, excluding fees and expenses related to thetender offer. The Warrants accepted for purchase represented approximately22.5% of the 6,311,364 redeemable Warrants outstanding as of November 25,2008.

 

On March 27, 2009, we announced thesecond transaction, where we entered into a Rule 10b5-1 trading plan withCJS Securities, Inc. to facilitate the repurchase of up to $1 million ofour Warrants.  From and including March 27,2009 through May 15, 2009, CJS Securities completed the purchase of theWarrants subject to the limitations set forth in the plan. A total of 188,500Warrants were purchased under this plan. The Warrants purchased representedapproximately 3.9% of the 4,894,456 redeemable Warrants outstanding as of March 26,2009.

 

The following summarizes thechanges in the number of Warrants outstanding as of December 31, 2009:

 
| ** **                                                                  | ** ** | **Warrants  Outstanding** | ** ** |
|-----------------------------------------------------------------------------|------------|---------------------------|------------|
| Warrants outstanding at  date of Merger, July 31, 2008                 |       | 6,311,364                 |       |
| Less:                                                                       |       |                      |       |
| Warrants purchased in  tender offer November — December 2008 |       | (1,416,908                | )          |
| Warrants purchased in  March — May 2009 trading plan         |       | (188,500                  | )          |
| Warrants exercised during  2009                                             |       | (88,457                   | )          |
| Total Warrants outstanding  at December 31, 2009                       |       | 4,617,499                 |       |

 

In addition to the Warrants,as of December 31, 2009, the Company has 450,000 Unit Purchase Options (“UPO”)outstanding. Each UPO includes the right to purchase a Unit at $8.80 per share,and such Unit is comprised of one share of common stock and one Warrant.

 

The UPO expires on October 2,2011. The Warrants expire on October 2, 2010, including the Warrants thatare included as a part of the UPO. The Company may call the Warrants forredemption if the reported closing price of the common stock equals or exceeds$11.50 per share for 20 consecutive trading days. Each Warrant includesanti-dilution protections, unless common stock is issued by the Company at a pricebelow the exercise price. Additionally, the ability to exercise the Warrants issubject to registration of the common stock issuable upon the exercise of theWarrant.

** **

**Note 26—Selected Quarterly Financial Information(Unaudited)**

 

Selected unaudited quarterlyconsolidated financial information is presented in the tables below:

 
| ** **                                | ** ** | **Year Ended  December 31, 2009** | ** ** |
|-------------------------------------------|------------|----------------------------------------|------------|
| **(In thousands, except per share data)** | ** ** | **1****st****Quarter**                 | ** ** | **2****nd****Quarter** | ** ** | **3****rd****Quarter** | ** ** | **4****th****Quarter** | ** ** |
| Revenues                                  |       | $                                      | 123,550    |   | $ | 119,610 |   | $ | 106,611 |   | $ | 117,239 |   |
| Gross profit                              |       | 14,506                                 |       | 20,743 |   | 20,154 |   | 20,172 |   |
| Income from continuing  operations        |       | 5,620                                  |       | 8,621 |   | 8,726 |   | 6,794 |   |
| Income (loss) on  discontinued operations |       | 20                                     |       | (41 | ) | (779 | ) | (3,049 | ) |
| Net income                                |       | 5,640                                  |       | 8,580 |   | 7,947 |   | 3,745 |   |
|                                      |       |                                   |       |   |   |   |   |   |   |
| **Earnings per share:**                   |       |                                   |       |   |   |   |   |   |   |
| Basic:                                    |       |                                   |       |   |   |   |   |   |   |
| Income from continuing  operations        |       | $                                      | 0.19       |   | $ | 0.27 |   | $ | 0.27 |   | $ | 0.21 |   |
| Net income                                |       | $                                      | 0.19       |   | $ | 0.26 |   | $ | 0.24 |   | $ | 0.11 |   |
|                                      |       |                                   |       |   |   |   |   |   |   |
| Diluted:                                  |       |                                   |       |   |   |   |   |   |   |
| Income from continuing  operations        |       | $                                      | 0.17       |   | $ | 0.26 |   | $ | 0.26 |   | $ | 0.18 |   |
| Net income                                |       | $                                      | 0.17       |   | $ | 0.26 |   | $ | 0.23 |   | $ | 0.10 |   |
|                                      |       |                                   |       |   |   |   |   |   |   |
| Weighted average shares  outstanding      |       |                                   |       |   |   |   |   |   |   |
| Basic                                     |       | 30,116                                 |       | 32,477 |   | 32,477 |   | 32,644 |   |
| Diluted                                   |       | 32,477                                 |       | 32,835 |   | 34,048 |   | 38,113 |   |

 

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| ** **                                            | ** ** | **Year Ended  December 31, 2008** | ** ** |
|-------------------------------------------------------|------------|----------------------------------------|------------|
| **(In thousands, except per share data)**             | ** ** | **1****st****Quarter**                 | ** ** | **2****nd****Quarter** | ** ** | **3****rd****Quarter** | ** ** | **4****th****Quarter** | ** ** |
| Revenues                                              |       | $                                      | 169,266    |   | $ | 142,368 |   | $ | 143,990 |   | $ | 142,198 |   |
| Gross profit                                          |       | 16,586                                 |       | 14,766 |   | 20,828 |   | 18,262 |   |
| Income from continuing  operations                    |       | 10,423                                 |       | 9,127 |   | 9,936 |   | 7,816 |   |
| Income (loss) on  discontinued operations             |       | (641                                   | )          | (358 | ) | 150 |   | (20 | ) |
| Net income                                            |       | 9,782                                  |       | 8,769 |   | 10,086 |   | 7,796 |   |
|                                                  |       |                                   |       |   |   |   |   |   |   |
| Pro forma adjusted income  from continuing operations |       | 6,447                                  |       | 5,682 |   | 7,013 |   | 6,289 |   |
| Pro forma adjusted net  income                        |       | 6,006                                  |       | 5,435 |   | 7,116 |   | 6,282 |   |
|                                                  |       |                                   |       |   |   |   |   |   |   |
| **Earnings per share:**                               |       |                                   |       |   |   |   |   |   |   |
| Basic:                                                |       |                                   |       |   |   |   |   |   |   |
| Income from continuing  operations                    |       | $                                      | 0.44       |   | $ | 0.39 |   | $ | 0.36 |   | $ | 0.26 |   |
| Net income                                            |       | $                                      | 0.42       |   | $ | 0.37 |   | $ | 0.36 |   | $ | 0.26 |   |
| Pro forma income from  continuing operations          |       | $                                      | 0.27       |   | $ | 0.24 |   | $ | 0.25 |   | $ | 0.21 |   |
| Pro forma net income                                  |       | $                                      | 0.25       |   | $ | 0.23 |   | $ | 0.26 |   | $ | 0.21 |   |
|                                                  |       |                                   |       |   |   |   |   |   |   |
| Diluted:                                              |       |                                   |       |   |   |   |   |   |   |
| Income from continuing  operations                    |       | $                                      | 0.44       |   | $ | 0.39 |   | $ | 0.32 |   | $ | 0.23 |   |
| Net income                                            |       | $                                      | 0.42       |   | $ | 0.37 |   | $ | 0.32 |   | $ | 0.23 |   |
| Pro forma income from  continuing operations          |       | $                                      | 0.27       |   | $ | 0.24 |   | $ | 0.23 |   | $ | 0.19 |   |
| Pro forma net income                                  |       | $                                      | 0.25       |   | $ | 0.23 |   | $ | 0.23 |   | $ | 0.19 |   |
|                                                  |       |                                   |       |   |   |   |   |   |   |
| Weighted average shares  outstanding                  |       |                                   |       |   |   |   |   |   |   |
| Basic                                                 |       | 23,587                                 |       | 23,587 |   | 27,824 |   | 29,977 |   |
| Diluted                                               |       | 23,587                                 |       | 23,587 |   | 31,063 |   | 33,344 |   |

 

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**EXHIBIT INDEX**

 
| **Exhibit No.** | ** ** | **Description**                                                                                                                                                                                                                                                                                                                                                  |
|----------------------|------------|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.1     |       | Agreement and  Plan of Merger, dated February 19, 2008, by and among Rhapsody  Acquisition Corp., Primoris Corporation and certain stockholders of Primoris  Corporation (1)                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.2     |       | First Amendment to Agreement  and Plan of Merger, dated May 15, 2008, by and among Rhapsody Acquisition Corp., Primoris  Corporation and certain stockholders of Primoris Corporation (2)                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.3     |       | Membership  Interest Purchase Agreement, dated November 18, 2009, by and among  Primoris Services Corporation, James Construction Group, LLC, each of the  limited liability company members of James Construction Group, LLC and the  representative of the limited liability company members of James Construction  Group, LLC (3)                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.4     |       | First Amendment  to the Membership Interest Purchase Agreement, dated December 18, 2009,  by and among Primoris Services Corporation, James Construction Group, LLC,  each of the limited liability company members of James Construction Group, LLC  and the representative of the limited liability company members of James  Construction Group, LLC (4) |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 2.5     |       | Second Amendment to  Membership Interest Purchase Agreement, dated January 14, 2010, by and  among Primoris Services Corporation, James Construction Group, LLC and the  representative of the limited liability company members of James Construction  Group, LLC (5)                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 3.1     |       | Fourth Amended and Restated  Certificate of Incorporation of Primoris Services Corporation (6)                                                                                                                                                                                                                                                                   |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 3.2     |       | Amended and Restated Bylaws of  Primoris Services Corporation (7)                                                                                                                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 3.3     |       | Certificate of  Designations, Powers, Preferences and Rights of the Series A Non-Voting  Contingent Convertible Preferred Stock of Primoris Services Corporation,  dated December 14, 2009 (8)                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.1     |       | Specimen Unit Certificate (9)                                                                                                                                                                                                                                                                                                                                    |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.2     |       | Specimen Common Stock  Certificate (9)                                                                                                                                                                                                                                                                                                                           |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.3     |       | Specimen Warrant Certificate  (10)                                                                                                                                                                                                                                                                                                                               |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.4     |       | Form of  Unit Purchase Option (11)                                                                                                                                                                                                                                                                                                                          |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 4.5     |       | Form of  Warrant Agreement between Continental Stock Transfer & Trust Company  and Primoris Services Corporation (10)                                                                                                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.1    |       | Escrow Agreement  among Rhapsody Acquisition Corp., Brian Pratt, as Representative, and  Continental Stock Transfer & Trust Company, as Escrow Agent (1)                                                                                                                                                                                                |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.2    |       | Form of  Lock-Up Agreement by and among Rhapsody Acquisition Corp. and the former  stockholders and foreign managers of Primoris Corporation (12)                                                                                                                                                                                                      |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.3    |       | Form of  Stock Escrow Agreement between Rhapsody Acquisition Corp., Continental Stock  Transfer & Trust Company and certain stockholders of Rhapsody  Acquisition Corp. (9)                                                                                                                                                                        |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.4    |       | Form of  Registration Rights Agreement among Rhapsody Acquisition Corp. and certain  stockholders of Rhapsody Acquisition Corp. (9)                                                                                                                                                                                                                         |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.5    |       | Form of  Subscription Agreement among Rhapsody Acquisition Corp., Graubard Miller and  each of Eric S. Rosenfeld, Leonard B. Schlemm, Jon Bauer,  Colin D. Watson and Gotham Capital V (9)                                                                                                                                              |
|                 |       |                                                                                                                                                                                                                                                                                                                                                             |
| Exhibit 10.6    |       | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Eric S. Rosenfeld (9)                                                                                                                                                                                                                 |

 

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Table of Contents

 
| Exhibit 10.7  |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Arnaud Ajdler (9)                                                                                                                                                   |
|--------------------|--------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.8  |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Leonard B. Schlemm (9)                                                                                                                                              |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.9  |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Jon Bauer (9)                                                                                                                                                       |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.10 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Colin D. Watson (9)                                                                                                                                                 |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.11 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and David Sgro (9)                                                                                                                                                      |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.12 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Greg Monahan (9)                                                                                                                                                    |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.13 |   | Letter  Agreement, dated May 30, 2006, by and among Rhapsody Acquisition Corp.,  EarlyBirdCapital, Inc. and Joel Greenblatt (9)                                                                                                                                                 |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.14 |   | Employment  Agreement, dated February 19, 2008, by and among Primoris Services  Corporation and Brian Pratt (#)(7)                                                                                                                                                                   |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.15 |   | Employment  Agreement, dated February 18, 2008, by and among Primoris Services  Corporation and John P. Schauerman (#)(7)                                                                                                                                                            |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.16 |   | Employment  Agreement, dated February 18, 2008, by and among Primoris Services  Corporation and John M. Perisich (#)(7)                                                                                                                                                              |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.17 |   | Employment  Agreement, dated February 18, 2008, by and among Primoris Services  Corporation and Alfons Theeuwes (#)(7)                                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.18 |   | Employment  Agreement, dated February 6, 2009, by and among Primoris Services  Corporation and Peter J. Moerbeek (#)(13)                                                                                                                                                             |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.19 |   | Employment  Agreement, dated November 18, 2009, by and among James Construction  Group, LLC and Michael D. Killgore (#)(4)                                                                                                                                                           |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.20 |   | 2008 Long-Term  Equity Incentive Plan (#)(14)                                                                                                                                                                                                                                             |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.21 |   | Voting  Agreement, dated July 31, 2008, by and among the Primoris Services  Corporation, Eric S. Rosenfeld, Brian Pratt, John P. Schauerman,  the Scott E. Summers and Sherry L. Summers Family Trust Dated  August 21, 2001, and Timothy R. Healy (7) |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.22 |   | Purchase Trading Plan  Agreement, dated March 26, 2009, by and among Primoris Services Corporation  and CJS Securities, Inc. (15)                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.23 |   | General  Agreement of Indemnity, dated in 2004, by and among Primoris Corporation,  ARB, Inc., ARB Structures, Inc., Cardinal Contractors,  Onquest, Inc. and Liberty Mutual Insurance Company (7)                                                                    |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.24 |   | Loan and  Security Agreement, dated March 22, 2007, by and among Primoris  Corporation and LaSalle Bank National Association (7)                                                                                                                                                     |
|               |   |                                                                                                                                                                                                                                                                                      |
| Exhibit 10.25 |   | First Amendment  to Loan and Security Agreement, dated in 2007, by and among Primoris  Corporation and LaSalle Bank National Association (7)                                                                                                                                              |

 

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Table of Contents

 
| Exhibit 10.26 |   | Second Amendment  to Loan and Security Agreement, dated July 11, 2008, by and among  Primoris Corporation and LaSalle Bank National Association (7)                                                                                                                                                                                                                    |
|--------------------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.27 |   | Loan and Security  Agreement, dated October 28, 2009, by and between Primoris Services  Corporation and The PrivateBank and Trust Company (16)                                                                                                                                                                                                                         |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.28 |   | Promissory Note  and Aircraft Security Agreement and related documents thereto, dated  October 17, 2008, by and between Stellaris LLC and  U.S. Bancorp Equipment Finance, Inc. (17)                                                                                                                                                                    |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.29 |   | Escrow  Agreement, dated December 15, 2009, by and among Primoris Services  Corporation, the representative of the limited liability company members of  James Construction Group, LLC and Continental Stock Transfer & Trust  Company, as escrow agent (4)                                                                                                   |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.30 |   | Voting  Agreement, dated December 18, 2009, by and among certain Primoris stockholders  who represent, in the aggregate, in excess of 50% of the issued and  outstanding shares of common stock of Primoris Services Corporation, James  Construction Group, LLC and the representative of the limited liability  company members of James Construction Group, LLC (4) |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.31 |   | Promissory Note,  dated December 18, 2009, executed by Primoris Services Corporation in  favor of the limited liability company members of James Construction Group, LLC  (4)                                                                                                                                                                                          |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.32 |   | Subordination  Agreement, dated December 18, 2009, by and among The PrivateBank and  Trust Company and the limited liability company members of James Construction  Group, LLC (4)                                                                                                                                                                                     |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.33 |   | Subordination  Agreement, dated December 18, 2009, by and among Liberty Mutual Insurance  Company and the limited liability company members of James Construction  Group, LLC (4)                                                                                                                                                                                      |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.34 |   | Subordination  Agreement, dated December 18, 2009, by and among CNA Surety Corporation  and the limited liability company members of James Construction Group, LLC (4)                                                                                                                                                                                                 |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.35 |   | Promissory Note,  dated December 18, 2009, executed by James Construction Group, LLC in  favor of the limited liability company members of James Construction Group, LLC  (4)                                                                                                                                                                                          |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 10.36 |   | Noncompetition  Agreement, dated December 18, 2009, by and among Primoris Services  Corporation and Michael D. Killgore (4)                                                                                                                                                                                                                                            |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 14.1  |   | Code of Ethics (*)                                                                                                                                                                                                                                                                                                                                                          |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 21.1  |   | Subsidiaries and  equity investments of Primoris Services Corporation (17)                                                                                                                                                                                                                                                                                                  |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 23.1  |   | Consent of Moss  Adams, LLP (*)                                                                                                                                                                                                                                                                                                                                             |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 31.1  |   | Certification of chief  executive officer pursuant to Section 302 of the Sarbanes-Oxley Act of  2002 (*)                                                                                                                                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 31.2  |   | Certification of chief  financial officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (*)                                                                                                                                                                                                                                                                |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 32.1  |   | Certification of chief  executive officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (*)                                                                                                                                                                                                                                                               |
|               |   |                                                                                                                                                                                                                                                                                                                                                                        |
| Exhibit 32.2  |   | Certification of chief  financial officer pursuant to Section 906 of the Sarbanes-Oxley Act of  2002 (*)                                                                                                                                                                                                                                                               |

 

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| (#) |   | Management contract or compensatory plan, contract or arrangement.                                                                                                                          |
|-----|--------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (*) |   | Filed herewith.                                                                                                                                                                             |
| (1) |   | Filed as an exhibit to our Current Report on Form 8-K, as filed  with the SEC on February 20, 2008, and which is incorporated herein by  reference.                               |
| (2) |   | Filed as an exhibit to our Registration Statement on Form S-4  (File No. 333-150343), as filed with the SEC on July 1, 2008, and  which is incorporated herein by reference. |
| (3) |   | Filed as an exhibit to our Current Report on  Form 8-K, as filed with the SEC on November 23, 2009, and which is  incorporated herein by reference.                               |

 

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Table of Contents

 
| (4)  |   | Filed as an exhibit to  our Current Report on Form 8-K, as filed with the SEC on December 23,  2009, and which is incorporated herein by reference.                                                            |
|------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| (5)  |   | Filed as an exhibit to  our Current Report on Form 8-K/A (Amendment No. 1), as filed with  the SEC on January 22, 2010, and which is incorporated herein by  reference.                                   |
| (6)  |   | Filed as an exhibit to  our Quarterly Report on Form 10-Q, as filed with the SEC on  August 12, 2009, and which is incorporated herein by reference.                                                           |
| (7)  |   | Filed as an exhibit to  our Current Report on Form 8-K, as filed with the SEC on August 6,  2008, and which is incorporated herein by reference.                                                               |
| (8)  |   | Filed as exhibit to our  Current Report on Form 8-K, as filed with the SEC on December 17,  2009, and which is incorporated herein by reference.                                                               |
| (9)  |   | Filed as an exhibit to  our Registration Statement on Form S-1 (File No. 333-134694), as  filed with the SEC on June 2, 2006, and which is incorporated herein by  reference.                             |
| (10) |   | Filed as an exhibit to  our Registration Statement on Form S-1/A (Amendment No. 2) (File  No. 333-134694), as filed with the SEC on August 28, 2006, and  which is incorporated herein by reference. |
| (11) |   | Filed as an exhibit to  our Registration Statement on Form S-1/A (Amendment No. 1) (File  No. 333-134694), as filed with the SEC on July 14, 2006, and which  is incorporated herein by reference.   |
| (12) |   | Filed as an exhibit to  our Registration Statement on Form S-4 (File No. 333-150343), as  filed with the SEC on April 21, 2008, and which is incorporated herein  by reference.                           |
| (13) |   | Filed as an exhibit to  our Current Report on Form 8-K, as filed with the SEC on  February 12, 2009, and which is incorporated herein by reference.                                                            |
| (14) |   | Attached as an annex to  our Registration Statement on Form S-4/A (Amendment No. 4) (File  No. 333-150343), as filed with the SEC on July 9, 2008, and which  is incorporated herein by reference.   |
| (15) |   | Filed as an exhibit to  our Current Report on Form 8-K, as filed with the SEC on March 31,  2009, and which is incorporated herein by reference.                                                               |
| (16) |   | Filed as an exhibit to  our Current Report on Form 8-K, as filed with the SEC on  November 4, 2009, and which is incorporated herein by reference.                                                             |
| (17) |   | Filed as an exhibit to  our Annual Report on Form 10-K, as filed with the SEC on March 24,  2009, and which is incorporated herein by reference.                                                               |

 

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