Table ofContents

 

 

 

**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

**(Mark One)**

** **

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

** **

**For thequarterly period ended March 31, 2010**

** **

**OR**

** **

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

** **

**For thetransition period from                         to                         .**

 

**Commission file number 0001-34145**

 

**PrimorisServices Corporation**

(Exact name of registrant asspecified in its charter)

 

| **Delaware**(State or Other Jurisdiction of  Incorporation or Organization)                     | ** ** | **20-4743916**(I.R.S. Employer  Identification No.) |
|-------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------|
| ** **                                                                                      | ** ** | ** **                                          |
| **26000 Commercentre  Drive, Lake Forest,  California**(Address of Principal Executive Offices) | ** ** | **92630**(Zip Code)                                 |

 

Registrant’s telephonenumber, including area code: **(949) 598-9242**

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section 13or 15(d) of the Securities Exchange Act of 1934 during the preceding12 months (or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filing requirementsfor the past 90 days.  Yes x No o

 

Indicate by check markwhether the registrant has submitted electronically and posted on its corporateWeb site, if any, every Interactive Data File required to be submitted andposted pursuant to Rule 405 of Regulation S-T (Section 232.405of this chapter) during the preceding 12 months (or for such shorterperiod that the registrant was required to submit and post such files).  Yes o No o

 

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

 

| Large accelerated  filer o              |   | Accelerated filer x          |
|----------------------------------------------|--------|-----------------------------------|
|                                         |   |                              |
| Non-accelerated  filer o                |   | Smaller reporting  company o |
| Do not check if a smaller reporting company. |   |                              |

 

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

 

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

 

 

** **

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Table of Contents

 

**PRIMORIS SERVICES CORPORATION**

**INDEX**

 
| ** **                                                                                                                      | **Page No.** |
|---------------------------------------------------------------------------------------------------------------------------------|-------------------|
| ** **                                                                                                                      | ** **        |
| **Part I.  Financial Information**                                                                                         |              |
| ** **                                                                                                                      |              |
| Item 1.  Financial Statements:                                                                                             |              |
|                                                                                                                            |              |
| —Condensed  Consolidated Balance Sheets as of March 31, 2010 and December 31,  2009                              | 3                 |
|                                                                                                                            |              |
| —Condensed  Consolidated Statements of Income for the three months ended March 31,  2010 and March 31, 2009 | 4                 |
|                                                                                                                            |              |
| —Condensed  Consolidated Statements of Stockholders’ Equity                                                           | 5                 |
|                                                                                                                            |              |
| —Condensed Consolidated Statements of Cash Flows for  the three months ended March 31, 2010 and March 31, 2009   | 6                 |
|                                                                                                                            |              |
| —Notes to Condensed Consolidated Financial Statements                                                                      | 8                 |
|                                                                                                                            |              |
| Item 2. Management’s Discussion and Analysis of  Financial Condition and Results of Operations                        | 20                |
|                                                                                                                            |              |
| Item 3. Quantitative and Qualitative Disclosures  About Market Risk                                                        | 31                |
|                                                                                                                            |              |
| Item 4. Controls and Procedures                                                                                            | 31                |
|                                                                                                                            |              |
| **Part II.  Other Information**                                                                                            |              |
| ** **                                                                                                                      |              |
| Item 1. Legal Proceedings                                                                                                  | 31                |
|                                                                                                                            |              |
| Item 1A. Risk Factors                                                                                                      | 32                |
|                                                                                                                            |              |
| Item 2. Unregistered Sales of Equity Securities  and Use of Proceeds                                                       | 32                |
|                                                                                                                            |              |
| Item 3. Defaults Upon Senior Securities                                                                                    | 32                |
|                                                                                                                            |              |
| Item 4. (Removed and Reserved)                                                                                             | 32                |
|                                                                                                                            |              |
| Item 5. Other Information                                                                                                  | 32                |
|                                                                                                                            |              |
| Item 6. Exhibits                                                                                                           | 32                |
|                                                                                                                            |              |
| Signatures                                                                                                                      | 33                |

 

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**PART I.  FINANCIALINFORMATION**

 

**ITEM 1.  FINANCIALSTATEMENTS**

 

**PRIMORIS SERVICES CORPORATION**

 

**CONDENSED CONSOLIDATED BALANCE SHEETS**

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

 
| ** **                                                                                                                                                             | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                                                             | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| **ASSETS**                                                                                                                                                             |       |                     |       |                        |       |
| Current assets:                                                                                                                                                        |       |                     |       |                        |       |
| Cash and cash equivalents                                                                                                                                              |       | $                        | 83,289     |                        | $          | 90,004 |   |
| Short term investments                                                                                                                                                 |       | 29,000                   |       | 30,058                      |       |
| Restricted cash                                                                                                                                                        |       | 6,931                    |       | 6,845                       |       |
| Accounts receivable, net                                                                                                                                               |       | 117,610                  |       | 108,492                     |       |
| Costs and estimated  earnings in excess of billings                                                                                                                    |       | 16,187                   |       | 11,378                      |       |
| Inventory                                                                                                                                                              |       | 24,683                   |       | 22,275                      |       |
| Deferred tax assets                                                                                                                                                    |       | 5,630                    |       | 5,630                       |       |
| Prepaid expenses and other  current assets                                                                                                                             |       | 10,029                   |       | 5,501                       |       |
| Current assets from  discontinued operations                                                                                                                           |       | —                   |       | 5,304                       |       |
| Total current assets                                                                                                                                                   |       | 293,359                  |       | 285,487                     |       |
| Property and equipment, net                                                                                                                                            |       | 90,653                   |       | 92,568                      |       |
| Investment in  non-consolidated entities                                                                                                                               |       | 2,174                    |       | 5,599                       |       |
| Intangible assets, net                                                                                                                                                 |       | 31,314                   |       | 32,695                      |       |
| Goodwill                                                                                                                                                               |       | 59,678                   |       | 59,678                      |       |
| Total assets                                                                                                                                                           |       | $                        | 477,178    |                        | $          | 476,027 |   |
| **LIABILITIES AND STOCKHOLDERS’ EQUITY**                                                                                                                          |       |                     |       |                        |       |
| Current liabilities:                                                                                                                                                   |       |                     |       |                        |       |
| Accounts payable                                                                                                                                                       |       | $                        | 65,888     |                        | $          | 62,568 |   |
| Billings in excess of costs  and estimated earnings                                                                                                                    |       | 113,397                  |       | 114,035                     |       |
| Accrued expenses and other  current liabilities                                                                                                                        |       | 35,716                   |       | 34,992                      |       |
| Distributions and dividends  payable                                                                                                                                   |       | 1,102                    |       | 2,987                       |       |
| Current portion of capital leases                                                                                                                                      |       | 3,859                    |       | 4,220                       |       |
| Current portion of  long-term debt                                                                                                                                     |       | 6,568                    |       | 6,482                       |       |
| Current portion of  subordinated debt                                                                                                                                  |       | 9,165                    |       | 10,397                      |       |
| Current liabilities of  discontinued operations                                                                                                                        |       | 333                      |       | 6,511                       |       |
| Total current liabilities                                                                                                                                              |       | 236,028                  |       | 242,192                     |       |
| Long-term debt, net of  current portion                                                                                                                                |       | 24,694                   |       | 26,368                      |       |
| Long-term capital leases,  net of current portion                                                                                                                      |       | 7,130                    |       | 7,734                       |       |
| Long-term subordinated  debt, net of current portion                                                                                                                   |       | 41,863                   |       | 43,853                      |       |
| Deferred tax liabilities                                                                                                                                               |       | 2,643                    |       | 2,643                       |       |
| Other long-term liabilities                                                                                                                                            |       | 11,350                   |       | 9,278                       |       |
| Total liabilities                                                                                                                                                      |       | 323,708                  |       | 332,068                     |       |
| Commitments and  contingencies                                                                                                                                         |       |                     |       |                        |       |
| Stockholders’ equity                                                                                                                                              |       |                     |       |                        |       |
| Preferred stock—$.0001 par  value, 1,000,000 shares authorized, 81,852.78 issued and outstanding at  March 31, 2010 and December 31, 2009               |       | —                   |       | —                      |       |
| Common stock—$.0001 par  value, 90,000,000 shares authorized, 35,900,483 and 32,704,903 issued and  outstanding at March 31, 2010 and December 31, 2009 |       | 3                        |       | 3                           |       |
| Additional paid-in capital                                                                                                                                             |       | 104,738                  |       | 100,644                     |       |
| Retained earnings                                                                                                                                                      |       | 48,577                   |       | 42,982                      |       |
| Accumulated other comprehensive  income                                                                                                                                |       | 152                      |       | 330                         |       |
| Total stockholders’ equity                                                                                                                                        |       | 153,470                  |       | 143,959                     |       |
| Total liabilities and  stockholders’ equity                                                                                                                       |       | $                        | 477,178    |                        | $          | 476,027 |   |

 

See Accompanying Notes toCondensed Consolidated Financial Statements

 

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**PRIMORIS SERVICES CORPORATION**

 

**CONDENSED CONSOLIDATED STATEMENTS OF INCOME**

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

 
| ** **                                                            | ** ** | **Three  months ended  March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                                | ** ** | **2009** | ** ** |
| ** **                                                            | ** ** | **(Unaudited)**                         | ** ** |
| Revenues                                                              |       | $                                       | 174,982    |   | $ | 123,550 |   |
| Cost of revenues                                                      |       | 150,509                                 |       | 109,044 |   |
| Gross profit                                                          |       | 24,473                                  |       | 14,506 |   |
| Selling, general and  administrative expenses                         |       | 13,755                                  |       | 7,416 |   |
| Operating income                                                      |       | 10,718                                  |       | 7,090 |   |
| Other income (expense):                                               |       |                                    |       |   |   |
| Income from  non-consolidated entities                                |       | 968                                     |       | 2,167 |   |
| Foreign exchange gain                                                 |       | 92                                      |       | 229 |   |
| Interest income                                                       |       | 180                                     |       | 259 |   |
| Interest expense                                                      |       | (1,307                                  | )          | (526 | ) |
|                                                                  |       |                                    |       |   |   |
| Income from continuing  operations, before provision for income taxes |       | 10,651                                  |       | 9,219 |   |
| Provision for income taxes                                            |       | (3,953                                  | )          | (3,599 | ) |
| Income from continuing  operations                                    |       | 6,698                                   |       | 5,620 |   |
| Income on discontinued  operations, net of income taxes               |       | —                                  |       | 20 |   |
| Net income                                                            |       | $                                       | 6,698      |   | $ | 5,640 |   |
| **Earnings per share:**                                               |       |                                    |       |   |   |
| Basic:                                                                |       |                                    |       |   |   |
| Income from continuing  operations                                    |       | $                                       | 0.20       |   | $ | 0.19 |   |
| Income on discontinued  operations                                    |       | $                                       | —     |   | $ | — |   |
| Net income                                                            |       | $                                       | 0.20       |   | $ | 0.19 |   |
| Diluted:                                                              |       |                                    |       |   |   |
| Income from continuing  operations                                    |       | $                                       | 0.15       |   | $ | 0.17 |   |
| Income on discontinued  operations                                    |       | $                                       | —     |   | $ | — |   |
| Net income                                                            |       | $                                       | 0.15       |   | $ | 0.17 |   |
| **Weighted average common  shares outstanding:**                      |       |                                    |       |   |   |
| Basic                                                                 |       | 33,202                                  |       | 30,116 |   |
| Diluted                                                               |       | 45,544                                  |       | 32,477 |   |

 

See Accompanying Notes toCondensed Consolidated Financial Statements

 

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**PRIMORISSERVICES CORPORATION**

 

**CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY**

**(InThousands, 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, 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 |   |
| Net  income                                                                         |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | 6,698                         |       | — |   | 6,698 |   |
| Issuance  of common shares to Former Primoris owners                                |       | 2,499,975             |       | —                   |       | —                  |       | —       |       | 390                                  |       | —                        |       | — |   | 390 |   |
| Additional  contingent stock issued for the purchase of Cravens Services, Inc. |       | 74,906                |       | —                   |       | —                  |       | —       |       | 600                                  |       | —                        |       | — |   | 600 |   |
| Dividends  — common                                                            |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | (898                          | )          | — |   | (898 | ) |
| Dividends  — preferred                                                         |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | (205                          | )          | — |   | (205 | ) |
| Foreign  currency hedge effect                                                      |       | —                |       | —                   |       | —                  |       | —       |       | —                               |       | —                        |       | (178 | ) | (178 | ) |
| Warrant  exercises                                                                  |       | 620,699               |       | —                   |       | —                  |       | —       |       | 3,104                                |       | —                        |       | — |   | 3,104 |   |
| **Balance, March 31, 2010****(Unaudited)**                                     |       | 35,900,483            |       | $                        | 3          |                    | 81,852.78  |         | $          | —                               |       | $                             | 104,738    |   | $ | 48,577 |   | $ | 152 |   | $ | 153,470 |   |

 

See Accompanying Notes toCondensed Consolidated Financial Statements

 

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**PRIMORIS SERVICES CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS**

**(In Thousands)**

 
| ** **                                                                         | ** ** | **Three  months ended  March 31,** | ** ** |
|------------------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                         | ** ** | **2010**                                | ** ** | **2009** | ** ** |
| ** **                                                                         | ** ** | **(Unaudited)**                         | ** ** |
| Cash flows from operating  activities:                                             |       |                                    |       |   |   |
| Net income                                                                         |       | $                                       | 6,698      |   | $ | 5,640 |   |
| Adjustments to reconcile  net income to net cash provided by operating activities: |       |                                    |       |   |   |
| Depreciation                                                                       |       | 4,172                                   |       | 1,835 |   |
| Amortization of intangible  assets                                                 |       | 1,381                                   |       | 9 |   |
| Gain on sale of property  and equipment                                            |       | (1,139                                  | )          | (1,124 | ) |
| Income from  non-consolidated entities                                             |       | (968                                    | )          | (2,167 | ) |
| Non-consolidated entity  distributions                                             |       | 4,393                                   |       | 3,400 |   |
| Changes in assets and  liabilities:                                                |       |                                    |       |   |   |
| Restricted cash                                                                    |       | (86                                     | )          | 324 |   |
| Accounts receivable                                                                |       | (9,118                                  | )          | 8,701 |   |
| Costs and estimated  earnings in excess of billings                                |       | (4,809                                  | )          | 2,172 |   |
| Inventory, prepaid  expenses and other current assets                              |       | (6,936                                  | )          | 44 |   |
| Other assets                                                                       |       | (178                                    | )          | (1,009 | ) |
| Accounts payable                                                                   |       | 3,320                                   |       | (9,105 | ) |
| Billings in excess of  costs and estimated earnings                                |       | (638                                    | )          | (5,189 | ) |
| Accrued expenses and other  current liabilities                                    |       | 724                                     |       | 3,242 |   |
| Other long-term  liabilities                                                       |       | 2,072                                   |       | — |   |
| Net cash provided by  operating activities                                         |       | (1,112                                  | )          | 6,773 |   |
| Cash flows from investing  activities:                                             |       |                                    |       |   |   |
| Purchase of property and  equipment                                                |       | (2,556                                  | )          | (1,171 | ) |
| Purchase of short term  investments                                                |       | 1,058                                   |       | (10,130 | ) |
| Proceeds from sale of  property and equipment                                      |       | 1,438                                   |       | 1,250 |   |
| Net cash used in investing  activities                                             |       | (60                                     | )          | (10,051 | ) |
| Cash flows from financing  activities:                                             |       |                                    |       |   |   |
| Repayment of long-term  debt                                                       |       | (1,588                                  | )          | (2,495 | ) |
| Repayment of capital  leases                                                       |       | (965                                    | )          | (475 | ) |
| Repayment of subordinated  debt                                                    |       | (3,222                                  | )          | — |   |
| Stock issued for business  acquired                                                |       | 600                                     |       | — |   |
| Stock issued to foreign  managers                                                  |       | 390                                     |       | — |   |
| Proceeds from exercise of  warrants for the issuance of common stock               |       | 3,104                                   |       | — |   |
| Repurchase of warrants                                                             |       | —                                  |       | (82 | ) |
| Dividends                                                                          |       | (1,022                                  | )          | (749 | ) |
| Cash distributions to  selling stockholders                                        |       | (1,966                                  | )          | (4,947 | ) |
| Net cash used in financing  activities                                             |       | (4,669                                  | )          | (8,748 | ) |
| Cash flows from  discontinued operations:                                          |       |                                    |       |   |   |
| Operating activities                                                               |       | (874                                    | )          | (2,710 | ) |
| Net cash used in  discontinued operations                                          |       | (874                                    | )          | (2,710 | ) |
|                                                                               |       |                                    |       |   |   |
| Net change in cash and  cash equivalents                                           |       | (6,715                                  | )          | (14,736 | ) |
| Cash and cash equivalents  at beginning of period                                  |       | 90,004                                  |       | 72,848 |   |
| Cash and cash equivalents  at end of the period                                    |       | $                                       | 83,289     |   | $ | 58,112 |   |

 

See Accompanying Notes toCondensed Consolidated Financial Statements

 

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**PRIMORIS SERVICES CORPORATION**

**CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)**

**(In Thousands)**

 

**SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION**

** **
| ** **                            | ** ** | **Three  months ended  March 31,** | ** ** |
|---------------------------------------|------------|-----------------------------------------|------------|
| ** **                            | ** ** | **2010**                                | ** ** | **2009** | ** ** |
| ** **                            | ** ** | **(Unaudited)**                         | ** ** |
| **Cash paid  during the period for:** |       |                                    |       |   |   |
| Interest                              |       | $                                       | 1,617      |   | $ | 257 |   |
| Income taxes                          |       | $                                       | 516        |   | $ | 3,397 |   |

 

**SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCINGACTIVITIES**

** **
| ** **                                                                 | ** ** | **Three  months ended  March 31,** | ** ** |
|----------------------------------------------------------------------------|------------|-----------------------------------------|------------|
| ** **                                                                 | ** ** | **2010**                                | ** ** | **2009** | ** ** |
| ** **                                                                 | ** ** | **(Unaudited)**                         | ** ** |
| **Non-Cash  Activities**                                                   |       |                                    |       |   |   |
| Obligations incurred for  the acquisition of property and equipment leases |       | $                                       | —     |   | $ | 3,023 |   |
| Accrued dividends                                                          |       | $                                       | 1,102      |   | $ | 812 |   |

 

See Accompanying Notes toCondensed Consolidated Financial Statements

 

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**PRIMORIS SERVICES CORPORATION**

**NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**

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

**(Unaudited)**

 

**Note 1—Business Activity**

 

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

 

On December 18, 2009, the Company acquired JCG.  JCG is one of the largest general 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 both government andprivate clients.

 

In October 2009, the Company also acquired the assets of CravensPartners, Ltd., a Texas-based provider of civil and utility infrastructureconstruction services.  Following theacquisition, the Company created a wholly-owned subsidiary named CravensServices, Inc. (“Cravens”)

 

**Note 2—Basis of Presentation**

 

***Interim Consolidated Financial Statements*****—**The interim condensed consolidated financial statements for thethree-month periods ended March 31, 2010 and 2009 have been prepared inaccordance with Rule 10-01 of Regulation S-X of the SecuritiesExchange Act of 1934, as amended (the “Exchange Act”). As such, certaindisclosures, which would substantially duplicate the disclosures contained inthe Company’s latest audited consolidated financial statements, have beenomitted. This Quarterly Report on Form 10-Q for the quarterly period endedMarch 31, 2010 (the “First Quarter 2010 Report”) should be read in concertwith the Company’s Annual Report on Form 10-K, filed on March 11,2010, which contains the Company’s audited consolidated financial statementsfor the year ended December 31, 2009.

 

The interim financialinformation for the three month-periods ended March 31, 2010 and 2009 isunaudited and has been prepared on the same basis as the audited financialstatements. However, the financial statements contained in this First Quarter2010 Report do not include all of the information and disclosures required byaccounting principles generally accepted in the United States of America (“GAAP”)for audited financial statements. In the opinion of management, the unauditedinformation includes all adjustments (consisting of normal recurring adjustments)necessary for the fair presentation of the interim financial information.

 

***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 fixed-price contracts. Under thepercentage-of-completion method, estimated contract income and resultingrevenue is generally accrued based on costs incurred to date as a percentage oftotal estimated costs. Total estimated costs, and thus contract revenue andincome, are impacted by changes in productivity, scheduling, the unit cost oflabor, subcontracts, materials and equipment and other unforeseen events.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 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*”.

 

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

 

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

 

**Note 3—RecentAccounting Pronouncements**

 

*Fair Value Disclosures*

 

InJanuary 2010, the FASB issued Accounting Standards Update No. 2010-06,“*Improving Disclosures about Fair Value Measurements*”(an update to ASC Topic 820 *“Fair Value Measurementsand Disclosures”*).   ASU2010-06 requires additional disclosures about fair value measurements includingtransfers in and out of Levels 1 and 2 and a higher level of disaggregation forthe different types of financial instruments. For the reconciliation ofLevel 3 fair value measurements, information about purchases, sales, issuancesand settlements should be presented separately. This ASU is effective forannual and interim reporting periods beginning after December 15, 2009 formost of the new disclosures and for periods beginning after December 15,2010 for the new Level 3 disclosures. Comparative disclosures are not requiredin the first year the disclosures are required. The Company adopted this accounting standard update as of January 1,2010, which did not result in a material impact on our financial statements.

 

*Consolidation of Variable Interest Entities*

 

In June 2009, 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 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 financial statements. The accounting standard became effective January 1, 2010.  The Company adopted the amendment as of January 1,2010, which did not result in a material impact on our financial statements.

 

**Note 4—Fair Value Measurements**

 

ASC Topic 820, “*Fair Value Measurements and Disclosures*”,defines fair value, establishes a framework for measuring fair value in 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 intangible assetsfor 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 table presents, using the fair valuehierarchy levels identified under ASC Topic 820, the Company’s financial assetsthat are required to be measured at fair value at March 31, 2010 and December 31,2009:

 
| ** **                               | ** ** | ** **                              | ** ** | **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 March 31, 2010:**   |       |                                    |       |                                                                        |       |   |   |   |   |
| Cash and cash  equivalents               |       | $                                       | 83,289     |                                                                        | $          | 83,289 |   | — |   | — |   |
| Short-term investments                   |       | $                                       | 29,000     |                                                                        | $          | 29,000 |   | — |   | — |   |
| Other  assets — hedge contracts     |       | $                                       | 203        |                                                                        | —     |   | $ | 203 |   | — |   |
| **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 |   | — |   |

 

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In addition to the assetslisted in the table, other financial assets and liabilities of the Companyconsist of accounts receivable, accounts payable and certain accruedliabilities.  These financial assets andliabilities generally approximate fair market value based on their short-termnature.  The carrying value of theCompany’s long-term debt approximates fair value based on comparison withcurrent prevailing market rates for loans of similar risks and maturities.

 

**Note 5—Accounts Receivable**

 

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

 
| ** **                                                                                                                         | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|------------------------------------------------------------------------------------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                                                                                                         | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| Contracts receivable, net  of allowance for doubtful accounts of $200 for March 31, 2010 and  for December 31, 2009 |       | $                        | 95,774     |                        | $          | 82,254 |   |
| Retention                                                                                                                          |       | 20,825                   |       | 25,907                      |       |
|                                                                                                                               |       | 116,599                  |       | 108,161                     |       |
| Due from affiliates                                                                                                                |       | 4                        |       | —                      |       |
| Other accounts receivable                                                                                                          |       | 1,007                    |       | 331                         |       |
|                                                                                                                               |       | $                        | 117,610    |                        | $          | 108,492 |   |

 

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

 

**Note 6—Costs and Estimated Earnings on UncompletedContracts**

 

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

 
| ** **                                             | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|--------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                             | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| Costs incurred on  uncompleted contracts               |       | $                        | 1,560,669  |                        | $          | 2,036,251 |   |
| Provision for estimated  loss on uncompleted contracts |       | 557                      |       | 332                         |       |
| Gross profit recognized                                |       | 136,853                  |       | 201,254                     |       |
|                                                   |       | 1,698,079                |       | 2,237,837                   |       |
| Less: billings to date                                 |       | (1,795,289               | )          | (2,340,494                  | )          |
|                                                   |       | $                        | (97,210    | )                           | $          | (102,657 | ) |

 

Thisnet amount is included in the accompanying condensed consolidated balance sheetunder the following captions:

 
| ** **                                         | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                         | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| Costs and estimated earnings in excess of billings |       | $                        | 16,187     |                        | $          | 11,378 |   |
| Billings in excess of costs and estimated earnings |       | (113,397                 | )          | (114,035                    | )          |
|                                               |       | $                        | (97,210    | )                           | $          | (102,657 | ) |

 

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**Note 7—Equity Method Investments**

 

OMPP

 

During 2007, the Companyestablished a joint venture, OMPP, for the sole purpose of constructing a powerplant near San Diego, California. The Company has a 40% interest in the ventureand accounts for its investment in OMPP using the equity method. ARB acts asone of OMPP’s primary subcontractors. As of March 31, 2010, ARB hascontracts with OMPP totaling $49,019, which are nearing completion.  ARB recognized $12 in revenues in the threemonths ended March 31, 2010 and $5,384 in the three months ended March 31,2009. These revenues are included in the contract revenues earned from relatedparties as stated in Note 5, “*AccountsReceivable*”.

 
| ** **                                   | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| **OMPP—Joint  Venture**                 |       |                     |       |                        |       |
| Balance sheet data                           |       |                     |       |                        |       |
| Assets                                       |       | $                        | 993        |                        | $          | 9,176 |   |
| Liabilities                                  |       | 310                      |       | 1,493                       |       |
| Net assets                                   |       | $                        | 683        |                        | $          | 7,683 |   |
| Company’s equity  investment in venture |       | $                        | 410        |                        | $          | 4,610 |   |

 
| ** **                         | ** ** | **Three  months ended  March 31,** | ** ** |
|------------------------------------|------------|-----------------------------------------|------------|
| ** **                         | ** ** | **2010**                                | ** ** | **2009** | ** ** |
|                               |       | **(Unaudited)**                         |       |
| Earnings data:                     |       |                                    |       |   |   |
| Revenue                            |       | $                                       | —     |   | $ | 43,892 |   |
| Gross profit                       |       | $                                       | —     |   | $ | 11,085 |   |
| Earnings before taxes              |       | $                                       | —     |   | $ | 11,088 |   |
| Company’s equity in  earnings |       | $                                       | —     |   | $ | 2,385 |   |

 

OMPP distributed $7,000 to itsequity holders during the three months ended March 31, 2010, of which theCompany’s share was $4,200.  For thethree months ended March 31, 2009, OMPP distributed $8,500, of which, theCompany’s shares was $3,400. The OMPP agreement states that distributions madeprior to the completion of the contract are considered advances on account ofeach partner’s share as determined at the completion of the underlyingcontract.

 

All Day Electric

 

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

 
| ** **                                   | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| ***All Day Electric***                       |       |                     |       |                        |       |
| Balance sheet data                           |       |                     |       |                        |       |
| Assets                                       |       | $                        | 2,305      |                        | $          | 5,661 |   |
| Liabilities                                  |       | 1,670                    |       | 4,615                       |       |
| Net assets                                   |       | $                        | 635        |                        | $          | 1,046 |   |
| Company’s equity  investment in venture |       | $                        | 311        |                        | $          | 513 |   |

 
| ** **                         | ** ** | **Three  months ended  March 31,** | ** ** |
|------------------------------------|------------|-----------------------------------------|------------|
| ** **                         | ** ** | **2010**                                | ** ** | **2009** | ** ** |
|                               |       | **(Unaudited)**                         |       |
| Earnings data:                     |       |                                    |       |   |   |
| Revenue                            |       | $                                       | 2,903      |   | $ | 971 |   |
| Gross profit                       |       | $                                       | (104       | ) | $ | 128 |   |
| Net income                         |       | $                                       | (411       | ) | $ | (118 | ) |
| Company’s equity in  earnings |       | $                                       | (202       | ) | $ | (218 | ) |

 

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St.— Bernard Levee Partners

 

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

 
| ** **                                   | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                   | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| ***St. —Bernard Levee Partners***       |       |                     |       |                        |       |
| Balance sheet data                           |       |                     |       |                        |       |
| Assets                                       |       | $                        | 34,974     |                        | $          | 3,149 |   |
| Liabilities                                  |       | 29,893                   |       | 1,966                       |       |
| Net assets                                   |       | $                        | 5,081      |                        | $          | 1,183 |   |
| Company’s equity  investment in venture |       | $                        | 1,353      |                        | $          | 378 |   |

 
| ** **                         | ** ** | **Three  months ended  March 31,** | ** ** |
|------------------------------------|------------|-----------------------------------------|------------|
| ** **                         | ** ** | **2010**                                | ** ** | **2009** | ** ** |
| ** **                         | ** ** | **(Unaudited)**                         | ** ** |
| Earnings data:                     |       |                                    |       |   |   |
| Revenue                            |       | $                                       | 42,130     |   | $ | — |   |
| Gross profit                       |       | $                                       | 4,855      |   | $ | — |   |
| Earnings before taxes              |       | $                                       | 4,855      |   | $ | — |   |
| Company’s equity in  earnings |       | $                                       | 1,169      |   | $ | — |   |

 

**Note 8 — Business Combinations**

 

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

 

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

 

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

 

*SupplementalUnaudited Pro Forma Information for the three months ended March 31, 2009*

 

The following pro formainformation for the three months ended March 31, 2009 presents the resultsof operations as if the JCG acquisition had occurred at the beginning of 2009.The supplemental pro forma information has been adjusted to include:

 

·      the pro forma impact of amortization ofintangible assets and depreciation of property, plant and equipment, based onthe purchase price allocation;

 

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

 

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

 

The pro formaresults are presented for illustrative purposes only and are not necessarilyindicative of or intended to represent the results that would have beenachieved had the transaction been completed on January 1, 2009 or that maybe 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.

 

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| ** **                                                            | ** ** | **Three months ended  March 31, 2009** | ** ** |
|-----------------------------------------------------------------------|------------|---------------------------------------------|------------|
| ** **                                                            | ** ** | ** **                                  | ** ** |
| Revenues                                                              |       | $                                           | 217,293    |   |
| Income  from continuing operations, before provision for income taxes |       | $                                           | 13,573     |   |
| Income  from continuing operations                                    |       | $                                           | 8,241      |   |
| Net  income                                                           |       | $                                           | 8,261      |   |
|                                                                  |       |                                        |       |
| Weighted  average common shares outstanding:                          |       |                                        |       |
| Basic  — (1)                                                     |       | 37,112                                      |       |
| Diluted  — (1)                                                   |       | 40,662                                      |       |
|                                                                  |       |                                        |       |
| Earnings  per share:                                                  |       |                                        |       |
| Basic  — income from continuing operations                       |       | $                                           | 0.22       |   |
| Basic  — net income                                              |       | $                                           | 0.20       |   |
| Diluted  — income from continuing operations                     |       | $                                           | 0.22       |   |
| Diluted  — net income                                            |       | $                                           | 0.20       |   |

 

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

 

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

 

**Note 9—Intangible Assets**

 

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

 
| ** **              | ** ** | **Amortization**    | ** ** | ** ** | ** ** | **March 31,** | ** ** | **December 31,** | ** ** |
|-------------------------|------------|---------------------|------------|------------|------------|--------------------|------------|-----------------------|------------|
| ** **              | ** ** | **Period**          | ** ** | ** ** | ** ** | **2010**           | ** ** | **2009**              | ** ** |
| Tradename               |       | 5 to 10 years       |       |       |       | $                  | 15,365     |                  | $          | 15,785 |   |
| Non-compete  agreements |       | 5 years             |       |       |       | $                  | 5,130      |                  | $          | 5,403 |   |
| Customer  relationships |       | 5 to 10 years       |       |       |       | $                  | 6,624      |                  | $          | 6,793 |   |
| Backlog                 |       | 0.75 to 2.25  years |       |       |       | $                  | 4,195      |                  | $          | 4,714 |   |
|                    |       |                |       | Total      |       | $                  | 31,314     |                  | $          | 32,695 |   |

 

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

 
| **For the Years Ending  December 31,** | ** ** | **Estimated  Intangible  Amortization  Expense** | ** ** |
|---------------------------------------------|------------|--------------------------------------------------|------------|
| 2010 (remaining nine months)                |       | $                                                | 4,297      |   |
| 2011                                        |       | 5,544                                            |       |
| 2012                                        |       | 3,873                                            |       |
| 2013                                        |       | 3,455                                            |       |
| 2014                                        |       | 3,360                                            |       |
| Thereafter                                  |       | 10,785                                           |       |
|                                        |       | $                                                | 31,314     |   |

 

**Note 10—Discontinued Operations**

 

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

 

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

 

In February 2010, the Company entered into an agreement for thesale of the Ecuador business.  TheCompany agreed to pay $1.0 million of remaining liabilities of the business,and the buyer delivered to the Company a combination of $400 in Primoris stockowned by the buyer and a $300 note payable. The buyer also agreed to provide an indemnification to the Company forany remaining liabilities. The sale was completed in March 2010 and had nomaterial impact to the Company.

 

**Note 11—Accounts Payable and Accrued Liabilities**

 

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

 

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

 
| ** **                                               | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
|----------------------------------------------------------|------------|--------------------------|------------|-----------------------------|------------|
| ** **                                               | ** ** | **(Unaudited)**          | ** ** | ** **                  | ** ** |
| Payroll and related  employee benefits                   |       | $                        | 18,271     |                        | $          | 18,321 |   |
| Insurance, including  self-insurance reserves            |       | 11,145                   |       | 11,245                      |       |
| Provision for estimated  losses on uncompleted contracts |       | 557                      |       | 332                         |       |
| Corporate income taxes and  other taxes                  |       | 1,756                    |       | 640                         |       |
| Accrued leases and rents                                 |       | 251                      |       | 262                         |       |
| Other                                                    |       | 3,736                    |       | 4,192                       |       |
|                                                     |       | $                        | 35,716     |                        | $          | 34,992 |   |

 

**Note 12—Credit Arrangements**

 

***Credit Agreements****.*  On October 28, 2009, we entered into a Loan andSecurity Agreement (the “Agreement”) with The PrivateBank andTrust Company (the “Lender”) for arevolving line of credit in the total aggregate amount of $35.0 million. Underthe Agreement, the Lender provides 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.

 

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

 

In January 2008, the Company entered into a credit facility (asamended) for purposes of issuing commercial letters of credit in Canada, for anamount up to 10 million in Canadian dollars. The credit facility with aCanadian bank is for a term of 5 years, and provides for an annual fee of1% for any issued and outstanding commercial letters of credit. Letters ofcredit can be denominated in either Canadian or U.S. dollars. As of March 31,2010 and December 31, 2009, total commercial letters of credit outstandingunder this credit facility totaled $4,631 and $5,284, respectively.

 

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

 

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

 

***Subordinated Promissory Note****.*  In connection with the acquisition of JCG,the Company executed an unsecured Promissory Note on December 18, 2009 infavor of the sellers of JCG with an initial principal amount of $53.5 million.The Promissory Note is due and payable on December 15, 2014 and bearsinterest at differing rates until maturity. For the first 9 months of the term of the note, the Promissory Notebears interest at an annual rate equal to 5%. For months 10 through 18, the note will bear interest at an annual rateof 7%.  For the months 19 until thematurity date, the Promissory Note will bear interest at an annual rate of8%.  Payments of principal and interestwill be payable in cash on an amortizing basis over 60 monthly payments.  The Promissory Note is subordinated toamounts owed to our commercial banks for lines of credit and to our bondingagencies.

 

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, receives warrant exercise proceeds or obtains proceeds under certainnew indebtedness. As long as more than $10 million is outstanding under thePromissory Note, we have agreed to not take certain actions without the priorwritten consent of the Promissory Note holders, including, among others,purchase, acquire, redeem or retire any shares of our common stock. As of March 31,2010, a total of $51.0 million was outstanding on the Promissory Note.  In April 2010, the Company made apartial prepayment of the Promissory Note in the amount of $2.3 million afterreceiving warrant exercise proceeds for the issuance of common stock during theprior three months.

 

**Note 13— Other Liabilities**

 

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

 

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

 

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

 

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**Note 14—****Related Party Transactions**

 

Primoris has entered into various transactions with StockdaleInvestment Group, Inc. (“SIGI”). The majority stockholder, Chief ExecutiveOfficer, President and Chairman of the Board of Directors of Primoris, BrianPratt, also holds a majority interest in SIGI. In addition, the following twoofficers and directors of Primoris also serve as officers and directors ofSIGI: Brian Pratt (SIGI chairman and director) and John M. Perisich (SIGIsecretary).

 

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

 

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

 

Primoris leases a property from Roger Newnham, a stockholder of theCompany’s common stock and a manager at the subsidiary Born Heaters Canada. Theproperty is located in Calgary, Canada. During the three months ended March 31,2010 and 2009, Primoris paid $62 and $86, respectively, in lease payments to Mr. 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 15—Income Taxes**

 

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

 

To determine its quarterlyprovision for income taxes, the Company uses an estimated annual effective taxrate, which is based on expected annual income, statutory tax rates and taxplanning opportunities available in the various jurisdictions to which theCompany is subject. Certain significant or unusual items are separatelyrecognized in the quarter in which they occur and can be a source ofvariability in the effective tax rate from quarter to quarter.  The Company recognizes interest and penaltiesrelated to uncertain tax positions, if any, in income tax expense.

 

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

 

The tax years 2006 through2009 remain open to examination by the United States Internal RevenueService.  The tax years 2005 through 2009remain open to examination by the other major taxing jurisdictions to which theCompany is subject.

 

**Note 16—Dividends andEarnings Per Share**

 

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

 

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Thetable below presents the computation of basic and diluted earnings per sharefor the three months ended March 31, 2010 and 2009:

 
| ** **                                                            | ** ** | **Three months ended  March 31,** | ** ** |
|-----------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                            | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** **                                                            | ** ** | **(Unaudited)**                        | ** ** |
| **Numerator:**                                                        |       |                                   |       |   |   |
| Net income                                                            |       | $                                      | 6,698      |   | $ | 5,640 |   |
| **Denominator:**                                                      |       |                                   |       |   |   |
| Weighted average shares for computation of basic earnings per share   |       | 33,202                                 |       | 30,116 |   |
| Dilutive effect of warrants and units                                 |       | 1,751                                  |       | — |   |
| Dilutive effect of contingently issuable shares (1) (2)          |       | 2,406                                  |       | 2,361 |   |
| Dilutive effect of conversion of Preferred Stock (3)                  |       | 8,185                                  |       | — |   |
| Weighted average shares for computation of diluted earnings per share |       | 45,544                                 |       | 32,477 |   |
| Basic earnings per share                                              |       | $                                      | 0.20       |   | $ | 0.19 |   |
| Diluted earnings per share                                            |       | $                                      | 0.15       |   | $ | 0.17 |   |

 

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(1)        On July 31, 2008, theCompany completed the merger (“Merger”) of Rhapsody Acquisition Corp. (theCompany’s former name) and Primoris Corporation, a privately held Nevadacorporation (“Former Primoris”).  The July 2008merger agreement provided that the Former Primoris stockholders would receiveup to an additional 5,000,000 shares of the Company’s common stock, contingentupon the combined company attaining certain financial targets in 2008 and 2009.The Company achieved the specified financial milestones for both 2009 and2008.  As a result, 2,500,025 shares ofcommon stock were issued to Former Primoris stockholders in March 2009 and2,499,975 shares of common stock were issued to Former Primoris stockholders inMarch 2010.

 

(2)        Represents the effect of74,906 shares of common stock that were issued as part of the acquisition ofCravens.  The shares were contingent onmeeting a defined performance target in 2009. The target was met in the fourth quarter 2009.  The shares were issued on March 30, 2010.

 

(3)        Represents the effect of8,185,278 shares of common stock that were approved for issuance at a specialmeeting of the stockholders held on April 12, 2010.  The stockholders approved the issuance ofshares of common stock to the holders of 81,852.78 shares of Preferred Stockand approved the conversion of the Preferred Stock to 8,185,278 shares ofcommon stock.

 

**Note 17—Stockholders’ Equity**

 

***Preferred stoc******k*****—** The Company isauthorized to issue 1,000,000 shares of $0.0001 par value preferred stock.  As part of the consideration for theacquisition of JCG, the Company issued 81,852.78 shares of Preferred Stock toJCG’s former members.  On April 12,2010, at a special meeting of the stockholders, the stockholders approved theconversion of the 81,852.78 shares of Preferred Stock into an aggregate of8,185,278 shares of common stock.

 

***Warrants exercised*****—** As of March 31,2010, there were 3,996,800 warrants outstanding to purchase the Company’scommon stock.  Each warrant entitles theholder to purchase one share of common stock at a price of $5.00 per share andis exercisable at any time on or prior to October 2, 2010, unless earlierredeemed by the Company. During the first quarter 2010, a total of 620,699warrants were exercised.

 

**Note 18—Commitments and Contingencies**

 

***Leases****—*The Companyleases certain property and equipment under non-cancellable operating leaseswhich expire at various dates through 2019. The leases require the Company topay 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”.

 

Total lease expense duringthe three months ended March 31, 2010 and 2009 amounted to approximately$2,539 and $2,008, respectively, including amounts paid to related parties of$283 and $276, respectively.

 

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***Letters of credit****—*At March 31,2010 and December 31, 2009, the Company had letters of credit outstandingof approximately $8,265 and $11,989, respectively.

 

***Litigation—***The Company is subject to claims and legalproceedings arising out of its business. Management believes that the Companyhas meritorious defenses to such claims. Although management is unable toascertain the ultimate outcome of such matters, after review and consultationwith counsel and taking into consideration relevant insurance coverage andrelated deductibles, management believes that the outcome of these matters willnot have a materially adverse effect on the consolidated financial position ofthe Company.

 

***Bonding—***As of March 31, 2010 and December 31,2009, the Company had bid and completion bonds issued and outstanding totalingapproximately $767,324 and $773,762, respectively.

 

**Note 19—Reportable Operating Segments**

 

In prior periods, the Company reported two operating segments:  the Construction Services segment and theEngineering segment. As a result of the acquisition of JCG and to changes inthe management structure, the Company changed the reportable operating segmentseffective on January 1, 2010, by splitting the former ConstructionServices segment into two separate segments. The prior year information for theConstruction Services segment has been reclassified into the new segments. Thethree new segments are East Construction Services, West Construction Servicesand Engineering.

 

The East Construction Services segment incorporates the JCGconstruction business, located primarily in the southeastern UnitedStates.  The segment also includes thebusinesses located in the Gulf Coast region of the United States that wereformerly included in the Construction Services segment, including CardinalContractors, Inc., Cardinal Mechanical and Cravens.

 

The West Construction Services segment includes the constructionservices performed in the western United States, primarily in the state ofCalifornia.  Entities included in WestConstruction Services are ARB, ARB Structures, Inc., andStellaris, LLC.

 

The Engineering segment remains unchanged and includes the results ofOnquest, Inc. and Born Heaters Canada, ULC.

 

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

 

Revenue by segment for thethree months ended March 31, 2010 and 2009 were as follows:

 
| ** **                 | ** ** | **For the  three months ended March 31,** | ** ** |
|----------------------------|------------|------------------------------------------------|------------|
| ** **                 | ** ** | **2010**                                       | ** ** | **2009** | ** ** |
| **Segment**                | ** ** | **Revenue**                                    | ** ** | **% of  Segment  Revenue** | ** ** | **Revenue** | ** ** | **% of  Segment  Revenue** | ** ** |
| ** **                 | ** ** | **(Unaudited)**                                | ** ** |
| East Construction Services |       | $                                              | 104,236    |   | 59.6 | % | $ | 14,739 |   | 11.9 | % |
| West Construction Services |       | 59,887                                         |       | 34.2 | % | 90,044 |   | 72.9 | % |
| Engineering                |       | 10,859                                         |       | 6.2 | % | 18,767 |   | 15.2 | % |
| Total                      |       | $                                              | 174,982    |   | 100.0 | % | $ | 123,550 |   | 100.0 | % |

 

Gross profit by segment forthe three months ended March 31, 2010 and 2009 were as follows:

 
| ** **                 | ** ** | **For the  three months ended March 31,** | ** ** |
|----------------------------|------------|------------------------------------------------|------------|
| ** **                 | ** ** | **2010**                                       | ** ** | **2009** | ** ** |
| **Segment**                | ** ** | **Gross  Profit**                              | ** ** | **% of  Segment  Revenue** | ** ** | **Gross  Profit** | ** ** | **% of  Segment  Revenue** | ** ** |
| ** **                 | ** ** | **(Unaudited)**                                | ** ** |
| East Construction Services |       | $                                              | 9,621      |   | 9.2 | % | $ | 1,710 |   | 11.6 | % |
| West Construction Services |       | 12,211                                         |       | 20.4 | % | 11,087 |   | 12.3 | % |
| Engineering                |       | 2,641                                          |       | 24.3 | % | 1,709 |   | 9.1 | % |
| Total                      |       | $                                              | 24,473     |   | 14.0 | % | $ | 14,506 |   | 11.7 | % |

 

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Revenues as presented beloware based on the geographic region in which the contracting subsidiary islocated and not the location of the client or job site:

 
| ** **        | ** ** | **Revenues**                                   | ** ** | ** **        | ** ** | ** **        | ** ** |
|-------------------|------------|------------------------------------------------|------------|-------------------|------------|-------------------|------------|
| ** **        | ** ** | **For the  three months ended March 31,** | ** ** | ** **        | ** ** | ** **        | ** ** |
| ** **        | ** ** | **2010**                                       | ** ** | **2009**          | ** ** | **Total  Assets** | ** ** |
| **Country:**      | ** ** | **Revenue**                                    | ** ** | **% of  Revenue** | ** ** | **Revenue**       | ** ** | **% of  Revenue** | ** ** | **March 31,  2010** | ** ** | **December 31,  2009** | ** ** |
| ** **        | ** ** | **(Unaudited)**                                | ** ** | **(Unaudited)**   | ** ** | ** **        | ** ** |
| United States     |       | $                                              | 172,044    |              | 98.3       | %                 | $          | 116,010 |   | 93.9 | % | $ | 471,064 |   | $ | 465,025 |   |
| Non-United States |       | 2,938                                          |       | 1.7               |       | 7,540             |       | 6.1 |   | 6,114 |   | 11,002 |   |
| Total             |       | $                                              | 174,982    |              | 100.0      | %                 | $          | 123,550 |   | 100.0 | % | $ | 477,178 |   | $ | 476,027 |   |

 

**Note 20—Subsequent Event**

 

A special meeting of thestockholders was held on April 12, 2010. The stockholders approved the issuance of shares of common stock to theholders of 81,852.78 shares of Preferred Stock and approved the conversion ofthe Preferred Stock into 8,185,278 shares of common stock.   Additionally, the stockholders approved theissuance of up to 6,508,276 shares of common stock, which shares may be issuedas earnout consideration in connection with the December 18, 2009acquisition of JCG.

 

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**PRIMORIS SERVICES CORPORATION**

**MANAGEMENT’S DISCUSSION AND ANALYSIS**

 

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

 

***Forward Looking Statements***

 

*ThisQuarterly Report on Form 10-Q contains forward-looking statements withinthe meaning of 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 Part I, Item 1A “Risk Factors” of our AnnualReport on Form 10-K for the year ended December 31, 2009 and ourother filings with the Securities and Exchange Commission (“SEC”). Also,forward-looking statements represent our management’s beliefs and assumptionsonly as of the date of this Quarterly Report on Form 10-Q. You should readthis Quarterly Report on Form 10-Q, our Annual Report on Form 10-Kfor the year ended December 31, 2009 and our other filings with the SECcompletely and with the understanding that our actual future results may bematerially different from what we expect.*

 

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

 

*Thefollowing discussion and analysis should be read in conjunction with theunaudited financial statements and notes thereto included in Part 1,Item 1 of this Quarterly Report on Form 10-Q.*

 

**Introduction**

 

Primoris ServicesCorporation is a holding company with various subsidiaries that cumulativelyform a diversified construction company providing a wide range ofconstruction and engineering services. These services include fabrication, maintenance, replacement and otherservices to major public utilities, petrochemical companies, energy companies,municipalities and other customers.  Ouractivities are performed primarily in the Southeast and Southwest UnitedStates, more specifically in Louisiana and California, with strategic presencesin Florida, Texas and Canada.

 

We install, replace, repair and rehabilitate natural gas, refinedproduct, water and wastewater pipeline systems, and also construct mechanicalfacilities and other structures, including power plants, petrochemicalfacilities, refineries and parking structures. In addition, we providemaintenance services, including inspection, overhaul and emergency repairservices, to cogeneration plants, refineries and similar mechanical facilities.

 

Through our recent acquisition of James Construction Group, LLC (“JCG”)in December 2009, we provide services in heavy civil constructionprojects, including highway and bridge construction, concrete paving, leveeconstruction, airport runway and taxiway construction and marine facilityconstruction. JCG’s infrastructure and maintenance division provides largeearthwork and site development, landfill construction, site remediation andmining support services. JCG’s industrial division, with a client basecomprised primarily of private industrial companies, provides all phases ofcivil and structural construction, mechanical equipment erection, process pipeinstallation and boiler, furnace and heater installation and repair.

 

Through our subsidiary Onquest, Inc. (“Onquest”), we provideengineering and design services for fired heaters and furnaces primarily usedin refinery applications. Through our subsidiary Cardinal Contractors, Inc.,we construct water and wastewater facilities primarily in Florida.

 

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We make our press releases,our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q,Current Reports on Form 8-K and all other required filings with the SECavailable, free of charge through our Internet Web site, as soon as reasonablypractical after they are electronically filed with, or furnished to, the SEC.Our principal executive offices are located at 26000 Commercentre Drive, LakeForest, California 92630, and our telephone number is (949) 598-9242. OurWeb site address is *www.primoriscorp.com*.The information on our Web site is neither part of nor incorporated byreference into this Quarterly Report on Form 10-Q.

 

We provide services in threesegments, which consist of the East Construction Services segment, the WestConstruction Services segment and the Engineering segment.

 

In prior periods, theCompany reported two operating segments: the Construction Services segment and the Engineering segment. As aresult of the acquisition of JCG and to changes in the management structure,the Company changed the reportable operating segments effective on January 1,2010, by splitting the former Construction Services segment into two separatesegments. The prior year information for the Construction Services segment hasbeen reclassified into the two new segments. The three new segments are EastConstruction Services, West Construction Services and Engineering and areoutlined as follows:

 

The East Construction Services segment incorporates the JCGconstruction services business, located primarily in the southern UnitedStates, specializing in highway, industrial and environmental projects.  The East Construction Services segment alsoconsists of the businesses located in the Gulf Coast region of the UnitedStates that were formerly a part of the Construction Services segment,including Cardinal Contractors, Inc., Cardinal Mechanical and CravensServices, Inc.  The EastConstruction Services segment provides a range of services that include:

 

·                  Heavy civil constructionprojects including highway and bridge construction, paving, levee construction,airport runway and taxiway construction and marine facility construction;

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

·                  General construction andconstruction management of facilities and plants dedicated to water treatment,water reclamation and wastewater treatment and related systems; and

·                  Providing installation andmaintenance of other infrastructure projects.

 

The West Construction Services segment includes construction servicesperformed in the western United States, primarily in the states of Californiaand Nevada.  The entities that areincluded in West Construction Services include ARB, ARB Structures, Inc.,and Stellaris, LLC. The West Construction Services segment provides arange of services that include:

 

·                  Providing installation ofunderground pipeline, cable and conduits for entities primarily in thepetroleum, petrochemical and gas industries and projects with water/wastewaterdistribution requirements;

·                  Providing installation andmaintenance of industrial facilities for entities in the power, petroleum andpetrochemical industries;

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

·                  Providing other earthwork,site development and remediation work.

 

The Engineering segment includes the results of Onquest and BornHeaters Canada, ULC (“Born Heaters”). The Engineering segment provides services that include:

 

·                  Designing, supplying andinstalling high-performance furnaces, heaters, burner management systems andrelated combustion and process technologies for clients in the oil refining,petrochemical and power generation industries; and

·                  Furnishing turn-key projectmanagement with technical expertise and the ability to deliver customengineering solutions worldwide.

 

Thefollowing table provides the historical revenues for the previously reportedquarters for 2009 into the three new operating segments.

 
| ** **                  | ** ** | **Three Months Ended** | ** ** | ** **        | ** ** |
|-----------------------------|------------|------------------------|------------|-------------------|------------|
| ** **                  | ** ** | **March 31,**     | ** ** | **June 30,** | ** ** | **September  30,** | ** ** | **December  31,** | ** ** | **Total** | ** ** |
| **Segment:**                | ** ** | **2009**               | ** ** | **2009**          | ** ** | **2009** | ** ** | **2009** | ** ** | **2009** | ** ** |
| ** **                  |       |                   |       |              |       |   |   |   |   |   |   |
| East  Construction Services |       | $                      | 14,739     |              | $          | 13,459 |   | $ | 13,830 |   | $ | 26,987 |   | $ | 69,015 |   |
| West  Construction Services |       | 90,044                 |       | 92,788            |       | 80,933 |   | 76,456 |   | 340,221 |   |
| Engineering                 |       | 18,767                 |       | 13,363            |       | 11,848 |   | 13,796 |   | 57,774 |   |
|                        |       | $                      | 123,550    |              | $          | 119,610 |   | $ | 106,611 |   | $ | 117,239 |   | $ | 467,010 |   |

 

**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 few years, we havebenefited from demand for more efficient and more environmentally friendlyenergy and power facilities and from the strength of the oil and gas industry.Economic factors outside of our control may affect the number and size ofcontracts awarded to us in any particular period.

 

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Thecurrent macroeconomic issues, including those in the financial markets, willlikely impact our future results. While we currently have adequate backlog andprojects to bid, we are uncertain as to how the current global financial issueswill impact our clients.

 

**Seasonality and cyclicality**

 

Ouroperating results can be subject to seasonal and cyclical variations. Weather,particularly rain, can impact our ability to perform construction work. Ourclients’ budget cycles have an impact on the timing of project awards.Accordingly, our financial condition and operating results may vary fromquarter-to-quarter. Absent the awarding of a large project, the combination ofweather and budget cycles suggest that revenues tend to be lowest in the firstquarter.

 

**Results of operations**

 

Revenues,gross profit, operating income and net income for the three months ended March 31,2010 and 2009 were as follows:

 
| ** **                                     | ** ** | **Three Months Ended March 31,**        | ** ** |
|------------------------------------------------|------------|----------------------------------------------|------------|
| ** **                                     | ** ** | **2010**                                     | ** ** | **2009** | ** ** |
| ** **                                     | ** ** | **(Thousands,  except per  share  amounts)** | ** ** | **% of  Revenue** | ** ** | **(Thousands,  except per  share  amounts)** | ** ** | **% of  Revenue** | ** ** |
| Revenues                                       |       | $                                            | 174,982    |   | 100.0 | % | $ | 123,550 |   | 100.0 | % |
| Gross profit                                   |       | 24,473                                       |       | 14.0 | % | 14,506 |   | 11.7 | % |
| Selling, general and administrative expense    |       | 13,755                                       |       | 7.9 | % | 7,416 |   | 6.0 | % |
| Operating income                               |       | 10,718                                       |       | 6.1 | % | 7,090 |   | 5.7 | % |
| Other income (expense)                         |       | (67                                          | )          | — | % | 2,129 |   | 1.7 | % |
| Income before income taxes                     |       | 10,651                                       |       | 6.1 | % | 9,219 |   | 7.4 | % |
| Income tax provision                           |       | (3,953                                       | )          | (2.3 | )% | (3,599 | ) | (2.9 | )% |
| Net income from continuing operations          |       | $                                            | 6,698      |   | 3.8 | % | $ | 5,620 |   | 4.5 | % |
| Profit from discontinued operations            |       | —                                       |       |   |   | 20 |   |   | % |
| Net income                                     |       | $                                            | 6,698      |   | 3.8 | % | $ | 5,640 |   | 4.5 | % |
| **Earnings per share:**                        |       |                                         |       |   |   |   |   |   |   |
| Basic:                                         |       |                                         |       |   |   |   |   |   |   |
| Income from continuing operations              |       | $                                            | 0.20       |   |   |   | $ | 0.19 |   |   |   |
| Income on discontinued operations              |       | $                                            | —     |   |   |   | $ | — |   |   |   |
| Net Income                                     |       | $                                            | 0.20       |   |   |   | $ | 0.19 |   |   |   |
|                                           |       |                                         |       |   |   |   |   |   |   |
| Diluted:                                       |       |                                         |       |   |   |   |   |   |   |
| Income from continuing operations              |       | $                                            | 0.15       |   |   |   | $ | 0.17 |   |   |   |
| Income on discontinued operations              |       | $                                            | —     |   |   |   | $ | — |   |   |   |
| Net Income                                     |       | $                                            | 0.15       |   |   |   | $ | 0.17 |   |   |   |
|                                           |       |                                         |       |   |   |   |   |   |   |
| **Weighted average common shares outstanding** |       |                                         |       |   |   |   |   |   |   |
| Basic                                          |       | 33,202                                       |       |   |   | 30,116 |   |   |   |
| Diluted                                        |       | 45,544                                       |       |   |   | 32,477 |   |   |   |

 

Revenuefor the three months ended March 31, 2010 (“First Quarter 2010”) was$175.0 million, an increase of $51.4 million, or 41.6%, compared tothe same period in 2009.   The increasein revenues was due primarily to the addition of new businesses in late 2009,which contributed $96.0 million in revenues for the First Quarter 2010.  Excluding the impact of the new businesses, revenuesfor the First Quarter 2010 declined by $44.6 million compared to the sameperiod a year ago.  The decreasedrevenues were across all business lines, but especially in pipeline andindustrial projects, reflecting the slowdown in project awards in 2009.

 

Grossprofit increased by $10.0 million, or 68.7%, for the First Quarter 2010compared to the same period in 2009 due primarily to an $8.7 million profitcontribution of our recent acquisitions in the East Construction Servicessegment and the successful close out of some pipeline and industrial projectscompared to the first quarter of 2009. Gross profit as a percent of revenuesincreased to 14.0% during the First Quarter 2010 from 11.7% in the prior yearquarter.

 

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**Geographic areas financial information**

 

Revenueby geographic area for the three months ended March 31, 2010 and 2009 wasas follows:

 
| ** **         | ** ** | **Three Months Ended March 31,** | ** ** |
|--------------------|------------|------------------------------------------------------|------------|
| ** **         | ** ** | **2010**                                             | ** ** | **2009** | ** ** |
| ** **         | ** ** | **(Thousands)**                                      | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ** **         | ** ** | ** **                                           | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** | ** ** |
| ***Country:***     |       |                                                 |       |   |   |   |   |   |   |
| United States      |       | $                                                    | 172,044    |   | 98.3 | % | $ | 116,010 |   | 93.9 | % |
| Non- United States |       | 2,938                                                |       | 1.7 | % | 7,540 |   | 6.1 | % |
| Total revenues     |       | $                                                    | 174,982    |   | 100.0 | % | $ | 123,550 |   | 100.0 | % |

 

Notethat revenue is attributed to the countries based on our reporting entity thatrecords the transaction.

 

**Segment results**

 

Inprior periods, the Company reported two operating segments:  the Construction Services segment and theEngineering segment. As a result of the acquisition of JCG and to changes inthe management structure, the Company changed the reportable operating segmentseffective on January 1, 2010, by splitting the former ConstructionServices segment into two separate segments. The prior year information for theConstruction Services segment has been reclassified into the two new segments.The three new segments are East Construction Services, West ConstructionServices and Engineering.

 

Thefollowing discussion describes the significant factors contributing to theresults of our three operating segments.

 

*East Construction Services Segment*

 

Revenueand gross profit for the East Construction Services segment for the threemonths ending March 31, 2010 and 2009 were as follows:

 
| ** **                       | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **                       | ** ** | **(Thousands)**                       | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ***East Construction Services*** |       |                                  |       |   |   |   |   |   |   |
| Revenue                          |       | $                                     | 104,236    |   | 59.6 | % | $ | 14,739 |   | 11.9 | % |
| Gross profit                     |       | 9,621                                 |       | 9.2 | % | 1,710 |   | 11.6 | % |
|                                  |            |                                       |            |  |  |  |  |  |  |  |  |

 

Revenuefor the East Construction Services segment increased by $89.5 million, or607.2%, for the First Quarter 2010 compared to the same period in 2009. Thisincrease was due to the addition of $96.0 million in revenues from JCG and, toa lesser extent, Cravens, and was partially reduced by a $6.5 million decreasein revenue primarily from water and wastewater projects.

 

Grossprofit for the East Construction Services increased by $7.9 million for theFirst Quarter 2010 primarily as a result of the $8.6 million gross margincontribution from the JCG acquisition compared to the same period in 2009.  Included in the gross profit amount isintangible amortization expense related to the JCG acquisition of $0.5 million.

 

Grossprofit as a percent of revenues decreased to 9.2% during the First Quarter 2010from 11.6% in the prior year quarter, reflecting the typically lower marginpercentages on JCG’s heavy civil projects during wetter, winter months.

 

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*West Construction Services Segment*

 

Revenueand gross profit for the West Construction Services segment for the threemonths ending March 31, 2010 and 2009 were as follows:

 
| ** **                       | ** ** | **Three Months Ended March 31,** | ** ** |
|----------------------------------|------------|---------------------------------------|------------|
| ** **                       | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **                       | ** ** | **(Thousands)**                       | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ***West Construction Services*** |       |                                  |       |   |   |   |   |   |   |
| Revenue                          |       | $                                     | 59,887     |   | 34.2 | % | $ | 90,044 |   | 72.9 | % |
| Gross profit                     |       | 12,211                                |       | 20.4 | % | 11,087 |   | 12.3 | % |
|                                  |            |                                       |            |  |  |  |  |  |  |  |  |

 

Revenuefor the West Construction Services segment decreased by $30.2 million, or33.5%, for the First Quarter 2010 compared to the same period in 2009.  The revenue decrease was across all parts ofthe segment: our underground business (a 35% reduction), our industrialbusiness (an 18% reduction) and our structures business (a 64% reduction).  In addition, we recognized virtually no thirdparty equipment rental revenue during the First Quarter 2010.  These decreases reflect the reduction inproject rewards in 2009.  As shown in the“Backlog” section below, project awards improved during the First Quarter 2010.

 

WestConstruction Services segment gross profit increased by $1.1 million, or10.1%, for the First Quarter 2010 compared to the same period of 2009.   The increased gross profit as a percent ofrevenues was the result of the impact that smaller, higher margin jobs have onour overall margin percentages in a declining revenue environment. In addition,as discussed in the “Backlog” section below, we recognized a positive impactfrom converting the Richmond Refinery Project from a fixed-priced contract to areimbursable cost plus margin project. Without the positive impact of this project, our West ConstructionServices segment gross profit percentage of revenue would have been at historicallevels.

 

*Engineering Segment*

 

Revenueand gross profit for the Engineering segment for the three months ended March 31,2010 and 2009 were as follows:

 
| ** **        | ** ** | **Three Months Ended March 31,** | ** ** |
|-------------------|------------|---------------------------------------|------------|
| ** **        | ** ** | **2010**                              | ** ** | **2009** | ** ** |
| ** **        | ** ** | **(Thousands)**                       | ** ** | **% of  Revenue** | ** ** | **(Thousands)** | ** ** | **% of  Revenue** | ** ** |
| ***Engineering*** |       |                                  |       |   |   |   |   |   |   |
| Revenue           |       | $                                     | 10,859     |   | 6.2 | % | $ | 18,767 |   | 15.2 | % |
| Gross profit      |       | 2,641                                 |       | 24.3 | % | 1,709 |   | 9.1 | % |
|                   |            |                                       |            |  |  |  |  |  |  |  |  |

 

Revenuedecreased by $7.9 million, or 42.1%, for the First Quarter 2010 comparedto the same period in 2009. The decrease was due primarily to a $4.6 milliondecrease at Born Heaters compared to the prior year from customer acceptance ofan international project and a $3.3 million decrease at Onquest reflectingcompletion of several projects including the Clean Energy project.

 

Engineeringsegment gross profit increased by $0.9 million, or 54.5%, for the FirstQuarter 2010 compared to the same period in 2009.  As a percent of revenues, gross profitincreased from 9.1% as of March 31, 2009 compared to 24.3% of revenues forthe First Quarter 2010.  Customeracceptance of the international project added approximately 4% to the firstquarter’s gross profit percentage.  Inaddition, gross profit percent for the current quarter reflected the impact ofthe completion of the Onquest projects as well as the impact of a $0.7 millionlower overhead expense allocation.  Asengineering activity increases during the remainder of 2010, we expectengineering margins to trend toward historical levels.

 

**Selling, general and administrative expenses**

 

Selling,general and administrative expenses (“SG&A”) increased $6.3 million,or 85.5%, for the First Quarter 2010 compared to the same period in 2009. Ofthe increased amount, $3.9 million was added by the acquisitions of JCG andCravens and $1.1 million was the result of amortizing intangible assets andliabilities created by the acquisitions. While engineering SG&A expensesdecreased compared to the same quarter last year, the reduction in activity inthe segment resulted in a difference in net expenses allocated to cost ofrevenues of $0.7 million.  Audit andconsulting fees increased by $0.4 million, and other SG&A expenses nettedto an increase of $0.2 million.

 

SG&Aas a percentage of revenue increased to 7.8% for the First Quarter 2010, from6.0% for the same period in 2009.  Theincreased percentage for the First Quarter 2010 was due to the increased costsdiscussed above as well as due to the relatively fixed nature of administrativeand management expenses, which did not decrease proportionally with thedecreased revenues.  Excluding the impactof the recent acquisitions, SG&A as a percentage of sales was 11.1% and6.0%, respectively, for the three months ended March 31, 2010 and 2009.

 

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**Other income and expense**

 

Non-operatingincome and expense items for the three months ended March 31, 2010 and2009 were as follows:

 
| ** **                               | ** ** | **Three Months  Ended March 31,** | ** ** |
|------------------------------------------|------------|----------------------------------------|------------|
| ** **                               | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** **                               | ** ** | **(Thousands)**                        | ** ** |
| ***Other income (expense)***             |       |                                   |       |   |   |
| Income from non-consolidated investments |       | $                                      | 968        |   | $ | 2,167 |   |
| Foreign exchange gain (loss)             |       | 92                                     |       | 229 |   |
| Interest income (expense), net           |       | (1,127                                 | )          | (267 | ) |
| Total other income                       |       | $                                      | (67        | ) | $ | 2,129 |   |

 

Forthe First Quarter 2010, we recognized income of $1.2 million from the St.—BernardLevee Partners joint venture, a construction project near New Orleans,Louisiana. This income was reduced by a loss of $0.2 million from the AllDay Electric joint venture, an electrical construction company in NorthernCalifornia. Income from non-consolidated joint ventures for the same period in2009 consisted of income of $2.4 million from the OMPP joint venture,reduced by a $0.2 million loss from All Day.

 

Foreignexchange gains for both the First Quarter 2010 and for the same period in 2009reflect currency exchange fluctuations of the United States dollar compared tothe Canadian dollar. Our contracts in Calgary, Canada are sold based on UnitedStates dollars, but a portion of the work is paid for with Canadian dollars,which can create a currency exchange difference.

 

Forthe First Quarter 2010, interest expense increased by $0.8 millioncompared to the same period in 2009. This was primarily due to interestpayments due on the subordinated debt of $0.7 million related to the JCGacquisition.

 

**Provision for income taxes**

 

Ourprovision for income tax increased $0.4 million for the First Quarter 2010to $4.0 million from the same period in 2009. The tax rate applied in thefirst quarter of 2010 was 37.1% as opposed to 39.0% for the same period in2009. This change in tax rate depends on our estimated full year results,coupled with assumptions on our mix in revenues and profits in the various taxjurisdictions throughout the USA and Canada.

 

**Liquidity and Capital Resources**

 

Liquidityrepresents our ability to pay our liabilities when they become due, fundbusiness operations and meet our contractual obligations.  Our primary sources of liquidity are our cashbalances at the beginning of each period and our net cash flow.  In addition to cash flow from operations, wehave availability under our lines of credit to augment liquidity needs.  In order to maintain sufficient liquidity, weevaluate our working capital requirements on a regular basis.  We may elect to raise additional capital byissuing common stock, convertible notes, term debt or increasing our creditfacility as necessary to fund our operations or to fund the acquisition of newbusinesses.

 

AtMarch 31, 2010, our balance sheet included a net cash balance of$83.3 million, and an additional $29.0 million in short-terminvestments. We also have borrowing capacity to help meet our foreseeable needsbased on our current cash flow forecast. We currently have a $20 millioncredit facility which expires on October 28, 2012, under which we canissue letter of credit for up to $15 million, We also have a credit facility of$15 million, which expires on October 27, 2010,  and a $10 million (Canadian dollars)facility for commercial letters of credit in Canada with an expiration date of December 31,2012. At March 31, 2010, $8.3 million was outstanding on these twofacilities representing issued letters of credit.

 

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**Cash Flows**

 

Cashflows during the three months ended March 31, 2010 and 2009 are summarizedas follows:

 
| ** **                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                          | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** **                                          | ** ** | **(Thousands)**                        | ** ** |
| ***Change in cash:***                               |       |                                   |       |   |   |
| Net cash provided by (used in) operating activities |       | $                                      | (1,112     | ) | $ | 6,773 |   |
| Net cash used in investing activities               |       | (60                                    | )          | (10,051 | ) |
| Net cash used in financing activities               |       | (4,669                                 | )          | (8,748 | ) |
| Net cash used by discontinued operations            |       | (874                                   | )          | (2,710 | ) |
| Net change in cash                                  |       | $                                      | (6,715     | ) | $ | (14,736 | ) |

 

**Operating activities**

 

Thesource of our cash flow from operating activities and the use of a portion ofthat cash in our operations for the three months ended March 31, 2010 and2009 were as follows:

 
| ** **                                          | ** ** | **Three Months Ended  March 31,** | ** ** |
|-----------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                          | ** ** | **2010**                               | ** ** | **2009** | ** ** |
| ** **                                          | ** ** | **(Thousands)**                        | ** ** |
| ***Operating Activities:***                         |       |                                   |       |   |   |
| Operating Income                                    |       | $                                      | 10,718     |   | $ | 7,090 |   |
| Depreciation                                        |       | 4,172                                  |       | 1,835 |   |
| Amortization of intangible assets                   |       | 1,381                                  |       | 9 |   |
| Gain on sale of property and equipment              |       | (1,139                                 | )          | (1,124 | ) |
| Changes in assets and liabilities                   |       | (15,649                                | )          | (820 | ) |
| Non-consolidated entity distributions               |       | 4,393                                  |       | 3,400 |   |
| Foreign exchange gain                               |       | 92                                     |       | 229 |   |
| Interest income (expense), net                      |       | (1,127                                 | )          | (267 | ) |
| Provision for income taxes                          |       | (3,953                                 | )          | (3,599 | ) |
| Net cash provided by (used in) operating activities |       | $                                      | (1,112     | ) | $ | 6,753 |   |
|                                                |       |                                   |       |   |   |
| Capital expenditures                                |       | $                                      | (2,566     | ) | $ | (4,194 | ) |

 

Cashflow from operating activities for the First Quarter 2010 decreased by $7.9million compared to the same period in 2009 due primarily to the increased useof cash of $14.8 million for changes in assets and liabilities, offset by anincrease of $3.6 million in operating income and $3.7 million in depreciationand amortization of intangible assets.

 

Thechanges in assets and liabilities decreased operating cash flow by $15.6 millionin the First Quarter 2010. The components of this change are included in theconsolidated statements of cash flow. The significant changes include:

 

·                  a$9.1 million increase in accounts receivable;

 

·                  a$3.3 million increase in accounts payable;

 

·                  billings inexcess of costs and estimated earnings decreased by $0.6 million;

 

·                  costs andestimated earnings in excess of billings increased by $4.8 million;

 

·                  accruedexpenses and other current liabilities increased by $0.7 million;

 

·                  inventory,prepaid expenses and other current assets increased by $6.9 million; and

 

·                  other long-termliabilities increased by $2.1 million.

 

Thedecrease in billings in excess of costs and estimated earnings was principallydue to the timing of the billings on certain projects and the nature and typeof projects.

 

Asof March 31, 2010, accounts receivable represented 24.6% of total assets.We have an excellent collection history stemming from many factors, includingperforming work for recurring customers and substantial pre-acceptance reviewof the financial worthiness and credit history of new customers. We billcustomers on an ongoing basis as projects are being constructed. As acontractor, we have certain lien rights that can provide additional security onthe accounts receivable that are generated, which may give priority to us overlenders or certain other creditors of the

 

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project. The increase in both accountsreceivable and accounts payable as of March 31, 2010, are due primarily tothe timing of our billings to clients and payments to our vendors related tovarious construction projects, as well as the addition of new acquisitionsduring the last quarter of 2009, offset by reduced revenues of our legacybusiness during the First Quarter 2010 compared to the same period in 2009.

 

***Investing activities***

 

We purchased property andequipment for $2.6 million during the First Quarter 2010 and$4.2 million during the same period in 2009. These purchases wereprincipally for our construction activities. For the First Quarter 2010purchases, we paid $2.6 million in cash and incurred no additional loanobligations. 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.

 

As part of our cashmanagement program, we sold $1.1 million in short term investments duringthe First Quarter 2010. Our short term investments consist primarily of CDspurchased through the CDARS (Certificate of Deposit Account Registry Service)process to provide FDIC backing of the CDs.

 

***Financing activities***

 

Financing activitiesrequired the use of $5.1 million of cash during the First Quarter 2010. Significanttransactions using cash flows from financing activities included:

 

·                  Cashdistributions of $2.0 million were paid to the former members of JCGduring the First Quarter 2010. We provided this distribution to the formermembers of JCG, principally to allow them to pay their personal income taxliability stemming from the JCG profits prior to the December 2009acquisition. This final distribution to the former members of JCG was made inaccordance with the terms of the acquisition agreement.

 

·                  $1.6 millionand $2.5 million in repayment of long-term debt during the First Quarter2010 and 2009, respectively, based on scheduled maturities of such debt.

 

·                  $1.0 and$0.8 million was paid as dividends to our stockholders during the First Quarter2010 and 2009, respectfully (representing a dividend of $0.025 per share).

 

·                  $3.1 millionwas collected for the conversion of 620,699 warrants to common stock during theFirst Quarter 2010.

 

**Capital requirements**

 

We believe that we will beable to support our ongoing working capital needs through cash on hand, shortterm investments, operating cash flows and the availability under our existingcredit facilities will be adequate to cover our operational and business needsfor the next twelve months.

 

**Common stock**

 

On July 31, 2008, the Company completed the merger (“Merger”) ofRhapsody Acquisition Corp. (the Company’s former name) and PrimorisCorporation, a privately held Nevada corporation (“Former Primoris”).  The July 2008 merger agreement providedthat the Former Primoris stockholders 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 milestones for both 2009 and 2008.  As a result, 2,500,025 shares of common stockwere issued to Former Primoris stockholders in March 2009 and 2,499,975shares of common stock were issued to Former Primoris stockholders in March 2010.

 

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As part of the consideration for the acquisition of JCG, the Companyissued 81,852.78 shares of Preferred Stock to JCG’s former members.  On April 12, 2010, at a special meetingof the stockholders, the stockholders approved the conversion of the 81,852.78shares of Preferred Stock into an aggregate of 8,185,278 shares of commonstock.

 

As of March 31, 2010, there were 3,996,800 warrants outstanding topurchase the Company’s common stock. Each warrant entitles the holder to purchase one share of common stockat a price of $5.00 per share and is exercisable at any time on or prior to October 2,2010, unless earlier redeemed by the Company. During the first quarter 2010, atotal of 620,699 warrants were exercised.

 

**Creditagreements**

 

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. As of March 31, 2010 and December 31,2009, total commercial letters of credit outstanding under this credit facilitytotaled $3,634 and $849, respectively. The principal amount of each of Revolving Loan A andRevolving Loan B will bear interest at either: (i) LIBOR plus anapplicable margin as specified in the Agreement, or (ii) the prime rateannounced by the Lender plus an applicable margin as specified in theAgreement. The principal amount of any loan bearing interest at LIBOR plus anapplicable margin may not be prepaid in whole or in part at any time. However,if any such loan is prepaid, we will be subject to certain prepaymentpenalties. There is no prepayment penalty for any loan bearing interest at theprime rate announced by the Lender plus an applicable margin.

 

In January 2008, weentered into a credit facility (as amended) for purposes of issuing commercialletters of credit in Canada, for an amount up to 10 million in Canadiandollars. 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.

 

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. Certain of oursubsidiaries have executed joint and several guaranties in favor of the Lenderfor all amounts under the Agreement. The Agreement and the line of creditfacilities contain various restrictive covenants, including, among others,restrictions on investments, capital expenditures, minimum tangible net worthand debt service coverage requirements. The Company was in compliance withits restrictive covenants as of March 31, 2010.

 

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

 

We enter into agreementswith banks for the banks to issue letters of credit to clients or potentialclients for two separate purposes as follows:

 

·                  Born HeatersCanada, one of our subsidiaries, has entered into contracts for the delivery ofengineered equipment, which require letters of credit. These letters of creditmay be drawn upon by the client in instances where Born Heaters Canada fails toprovide the contracted services or equipment. Most of these letters of creditare for Canadian exports, of which 90% is guaranteed by the EconomicDevelopment Bank of Canada against “unfair” calling.

 

·                  Insurancecompanies may from time to time require letters of credit to cover the risk ofinsurance deductible programs. These letters of credit can be drawn upon by theinsurance company if we fail to pay the deductible of certain insurancepolicies in case of a claim.

 

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**Related party transactions**

 

We have entered into varioustransactions with Stockdale Investment Group, Inc. (“SIGI”). Our majoritystockholder, Chief Executive Officer, President and Chairman of the Board ofDirectors, Brian Pratt, also holds a majority interest in SIGI. In addition,two of our officers and/or directors also serve as officers and/or directors ofSIGI (with their respective positions with SIGI reflected in parentheses):Brian Pratt (chairman and director) and John M. Perisich (secretary).

 

Two of our officers and/ordirectors also served as officers and directors of SIGI prior to the Merger,including John P. Schauerman (president and director) and Scott Summers (vicepresident and director).

 

We lease properties fromSIGI located in Bakersfield, Pittsburg and San Dimas, California, as well as aproperty in Pasadena, Texas. During the First Quarter 2010 and 2009, we paid$221 and $190, respectively, in lease payments to SIGI for the use of theseproperties. Prior to the Merger, we also leased certain construction andtransportation equipment from SIGI. This equipment was purchased from SIGI onthe closing date of the Merger and the leases were terminated.

 

We leased an airplane fromSIGI for business use. During the three months ended March 31, 2009, wepaid $60 in lease payments to SIGI for the use of the airplane. This lease wasterminated on March 31, 2009 when SIGI sold the plane.

 

We lease a property fromRoger Newnham, a manager at our subsidiary, Born Heaters Canada. The propertyis located in Calgary, Canada. This lease was entered into on similar terms asnegotiated with an independent third party. During the First Quarter 2010 and2009, we paid $62 and $86, 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.

 

**Contractual obligations**

 

As of March 31, 2010,we had $42.3 million of outstanding debt and capital lease obligations,and $51.0 million of subordinated debt.

 

A summary of contractualobligations as of March 31, 2010 were as follows:

 
| **Payments due by period**                 | ** ** | **Total**       | ** ** | **1 Year** | ** ** | **2-3 Years** | ** ** | **4-5 Years** | ** ** | **After  5 Years** | ** ** |
|--------------------------------------------|------------|-----------------|------------|------------|------------|---------------|------------|---------------|------------|--------------------|------------|
| ** **                                 | ** ** | **(Thousands)** | ** ** |
| Debt and capital lease  obligations        |       | $               | 42,251     |       | $          | 10,428        |       | $             | 17,813     |               | $          | 14,010 |   | $ | — |   |
| Interest on long-term debt                 |       | 5,241           |       | 2,097      |       | 2,550         |       | 494           |       | —             |       |
| Subordinated debt                          |       | 51,028          |       | 9,165      |       | 19.634        |       | 22,229        |       | —             |       |
| Interest on subordinated  debt             |       | 8,909           |       | 2,656      |       | 4,762         |       | 1,491         |       | —             |       |
| Equipment operating leases                 |       | 4,019           |       | 2,393      |       | 1,626         |       | —        |       | —             |       |
| Real property leases                       |       | 4,890           |       | 1,776      |       | 2,791         |       | 323           |       | —             |       |
| Real property  leases—related parties |       | 6,559           |       | 988        |       | 1,769         |       | 1,708         |       | 2,094              |       |
|                                       |       | $               | 122,897    |       | $          | 29,603        |       | $             | 50,945     |               | $          | 40,255 |   | $ | 2,094 |   |
| Stand-by letters of credit                 |       | $               | 8,265      |       | $          | 3,474         |       | $             | 4,114      |               | $          | 677 |   | $ | — |   |

 

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

 

**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 March 31, 2010, we had lettersof credit outstanding of $8.3 million.

 

·                  Equipmentoperating leases with a balance of $4.0 million at March 31, 2010.

 

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·                  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 March 31,2010 we had $767 million in outstanding bonds.

 

**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 existingcontracts. We calculate backlog differently for different types of contracts.For our fixed price and fixed unit price contracts, we include the fullremaining portion of the contract in our calculation. We do not includeunit-price, time-and-equipment, time-and-materials and cost-plus contracts inthe calculation of backlog, as their ultimate revenue amount is difficult todetermine.

 

Any contract, includingfixed price contracts, may be terminated by our customers on relatively shortnotice. In the event of a project cancellation, we may be reimbursed forcertain costs, but typically, we have no contractual right to the totalrevenues reflected in backlog. Projects may remain in backlog for extendedperiods of time, especially with the longer-term nature of the JCG heavy civilhighway projects.

 

At March 31, 2010, ourtotal backlog of $824.4 million increased $29.0 million, or 3.6%,from $795.4 million as of December 31, 2009. We expect thatapproximately $492.2 million, or 59.7%, of the total backlog at March 31,2010, will be recognized as revenue during the remainder of 2010, with $340.0 millionexpected for the East Construction segment, $111.3 million for the WestConstruction segment and $40.9 million for the Engineering segment.

 

Backlogby operating segment at March 31, 2010 and December 31, 2009 was asfollows:

 
| ** **                 | ** ** | ** **                         | ** ** | ** **                  | ** ** | **Restated  (1)**           | ** ** | **As  Reported** | ** ** |
|----------------------------|------------|------------------------------------|------------|-----------------------------|------------|-----------------------------|------------|------------------|------------|
| ** **                 | ** ** | **March 31,  2010**           | ** ** | **December 31,  2009** | ** ** | **December 31,  2009** | ** ** |
| ** **                 | ** ** | **Amount**                         | ** ** | **Percentage**              | ** ** | **Amount**                  | ** ** | **Percentage**   | ** ** | **Amount** | ** ** | **Percentage** | ** ** |
| ** **                 | ** ** | **(Thousands,  except % amounts)** | ** ** |
| ***Segment:***             |       |                               |       |                        |       |                        |       |             |       |   |   |   |   |
| East Construction Services |       | $                                  | 536,445    |                        | 65.1       | %                           | $          | 572,545          |       | 74.8 | % | $ | 572,545 |   | 72.0 | % |
| West Construction Services |       | 222,859                            |       | 27.0                        | %          | 136,722                     |       | 17.9             | %          | 166,822 |   | 21.0 | % |
| Engineering                |       | 65,105                             |       | 7.9                         | %          | 56,012                      |       | 7.3              | %          | 56,012 |   | 7.0 | % |
|                       |       | $                                  | 824,409    |                        | 100.0      | %                           | $          | 765,279          |       | 100.0 | % | $ | 795,379 |   | 100.0 | % |

 

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(1)                      In July 2009,we announced demobilization of a construction project at Chevron Corp’sRichmond Refinery located on Contra Costa, California.  The project was performed under a contractfrom Praxair, Inc. At December 31, 2009, approximately $40 millionwas included in the backlog amount shown for West Construction Servicessegment.

 

In April 2010, theCalifornia Court of Appeals ruled that there were deficiencies in theEnvironment Impact Report for the project, and at the same time, Praxair, Inc.provided us with a notice of termination for the project.  In accordance with the terms of our contract,the project converted from a fixed price contract to a reimbursed cost plusmargin contract.  Due to the termination,we adjusted our cost estimates for the contract and reduced the contingentamounts normally associated with fixed price contracts, which resulted in areduction of approximately $30 million in our backlog amount as of December 31,2009, as restated in the table above.  Inthe First Quarter 2010, we recognized revenues of $9.5 million and at March 31,2010 have a remaining backlog amount of less than $1 million for this project.

 

In accordance with the termsof the contract, Praxair, Inc. has engaged a firm to perform an audit ofsome of the costs related to the project. We do not anticipate that the results of the audit will have a materialimpact on our financial condition, results of operations and cash flows.

 

Our backlog at any point intime may not accurately represent the revenue that we expect to realize duringany period. Additionally, our backlog at the end of the period may not beindicative of the revenue we expect to earn over the course of the followingtwelve months.

 

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**Item 3. 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, interest ratesand commodity prices. We may seek to manage these risks through the use offinancial 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.

 

The carrying amounts forcash and cash equivalents, accounts receivable, long-term debt and accountspayable and accrued liabilities shown in the condensed consolidated balancesheets approximate fair value at March 31, 2010 and December 31, 2009due to the generally short maturities of these items. At March 31, 2010,we invested primarily in short-term dollar denominated bank deposits. We expectto hold our investments to maturity.

 

At March 31, 2010, allof our long-term debt was under fixed interest rates.

 

As of March 31, 2010,we had four derivative financial instruments for the purpose of hedging futurecurrency exchange in Canadian dollars. The contracts enable us to purchaseCanadian dollars before certain dates in 2010 at certain exchange rates. Thesecontracts expire in April, June and September 2010. The relatedCanadian dollars purchased are one contract for $1.5 million CAD, twocontracts for each $0.75 million CAD and one contract for $0.5 millionCAD. The related gain or loss on these contracts is not significant at March 31,2010. We intend to continue to hedge foreign currency risks in those situationswhere we believe such transactions are prudent.

 

**Item 4. Controls and Procedures**

 

***Disclosure Controls and Procedures***

 

As of March 31, 2010,we carried out an evaluation, under the supervision and with the participationof our management, including our chief executive officer (“CEO”) and chieffinancial officer (“CFO”), of the effectiveness of the design and operation ofour “disclosure controls and procedures”, as such term is defined underExchange Act Rules 13a-15(e) and 15d-15(e).

 

Based on this evaluation,our CEO and CFO concluded that, as of March 31, 2010, the disclosurecontrols and procedures were effective to ensure that information required tobe disclosed by us in the reports we file or submit under the Exchange Act isrecorded, processed, summarized and reported within the time periods specifiedin the rules and forms of the SEC, and accumulated and communicated to ourmanagement, including our CEO and CFO, as appropriate to allow timely decisionsregarding required disclosure.

 

In designing and evaluatingthe disclosure controls and procedures, our management recognized that anycontrols and procedures, no matter how well designed and operated, can provideonly reasonable assurance of achieving the desired control objectives and inreaching a reasonable level of assurance our management necessarily wasrequired to apply its judgment in evaluating the cost-benefit relationship ofpossible controls and procedures.

 

***Changes in Internal Control Over FinancialReporting***

 

During the quarter ended March 31,2010, there were no changes in our internal control over financial reportingthat materially affected, or is reasonably likely to materially affect, ourinternal control over financial reporting.

 

**Part II. Other Information**

 

**Item 1. Legal Proceedings**

 

From time to time, we aresubject to claims and legal proceedings arising out of our business. Ourmanagement believes that we have meritorious defenses to such 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, our management believes that the outcome ofthese matters will not have a materially adverse effect on our financialcondition or results of operations.

 

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**Item 1A. Risk Factors.**

 

In addition to the otherinformation set forth in this Report, you should carefully consider the factorsdiscussed in the section entitled “*Risk Factors*”in our Annual Report on Form 10-K for the year ended December 31,2009, which to our knowledge have not materially changed. Those risks, whichcould materially affect our business, financial condition or future results,are not the only risks we face. Additional risks and uncertainties notcurrently known to us or that we currently deem to be immaterial also maymaterially adversely affect our business, financial condition and/or operatingresults.

 

**Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.**

 

On October 14,2009, we announced that we had acquired certain assets and assumed certainliabilities of Cravens Partners, Ltd. (“Cravens Partners”), a Texas-basedprovider of civil and utility infrastructure construction services. Under theterms of the purchase agreement, and in addition to the consideration paid atclosing, we agreed to pay the seller certain additional earn-out payments basedon Cravens Partners’ attaining specified financial goals for the 3-year period2009 to 2011.  On March 30, 2010, upon the achievement of a 2009 performancetarget, we issued to the seller 74,906 shares of CommonStock in earn-out consideration.  These securities were issued pursuant to Section 4(2) ofthe Securities Act of 1933, as amended.

 

**Item 3. Defaults Upon Senior Securities.**

 

None.

 

**Item 4. (Removed and Reserved).**

 

**Item 5. Other Information.**

 

None.

 

**Item 6. Exhibits.**

 

The following exhibits arefiled as part of this Quarterly Report on Form 10-Q.

 
| **Exhibit  Number** | ** ** | **Description**                                                                                        |
|---------------------|------------|--------------------------------------------------------------------------------------------------------|
| 31.1                |       | Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s  Chief Executive Officer (*) |
| 31.2                |       | Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s  Chief Financial Officer (*) |
| 32.1                |       | Section 1350 Certification by the Registrant’s Chief Executive  Officer (*)                  |
| 32.2                |       | Section 1350 Certification by the Registrant’s Chief Financial  Officer (*)                  |

 

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(*)                                 Filed herewith

 

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**SIGNATURES**

 

Pursuant to the requirementsof the Securities Exchange Act of 1934, the Registrant has duly caused thisreport to be signed on its behalf by the undersigned, thereunto dulyauthorized.

 
|                          | PRIMORIS SERVICES CORPORATION                                         |
|-------------------------------|-----------------------------------------------------------------------|
|                          |                                                                  |
| Date:  May 10, 2010 | /s/ PETER J. MOERBEEK                                                 |
|                          | Peter J. Moerbeek*Executive Vice President, Chief Financial  Officer* |

 

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**EXHIBITS ATTACHED TO THIS QUARTERLY REPORT ON FORM 10-Q**

 
| **Exhibit  Number** | ** ** | **Description**                                                                                    |
|---------------------|------------|----------------------------------------------------------------------------------------------------|
| 31.1                |       | Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s  Chief Executive Officer |
| 31.2                |       | Rule 13a-14(a)/15d-14(a) Certification by the Registrant’s  Chief Financial Officer |
| 32.1                |       | Section 1350 Certification by the Registrant’s Chief Executive  Officer                  |
| 32.2                |       | Section 1350 Certification by the Registrant’s Chief Financial  Officer                  |

 

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