Annual report pursuant to Section 13 and 15(d)

Business Acquisition

v3.10.0.1
Business Acquisition
 12 Months Ended
Sep. 30, 2018
Business Combinations [Abstract]  
Business Acquisition
Business Acquisitions
The Scruggs Company
On May 15, 2018, the Company executed a stock purchase agreement (the “Stock Purchase Agreement”) to complete the acquisition of 100% of the common shares and voting interests of The Scruggs Company (“Scruggs”), a privately-owned infrastructure and road construction company headquartered in Hahira, Georgia that operates three hot mix asphalt plants, three aggregate mines and one industrial plant (the “Scruggs Acquisition”). The Scruggs Acquisition complemented the Company’s vertically integrated southeastern United States operations, providing new bidding areas in the expanding Georgia market. The Company funded the purchase price with cash on hand plus an additional $22.0 million borrowed under its existing Compass Term Loan as described in Note 12 - Debt. The purchase price of $51.3 million, excluding cash acquired of $4.7 million, was paid in cash at closing.
This acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations.
Management completed the purchase price allocation for this acquisition during the fiscal year ended September 30, 2018. Identifiable assets acquired and liabilities assumed were recorded at their estimated fair values based on the methodology described under "Fair Value Measurements" in Note 3 - Significant Accounting Policies. The fair values of assets acquired and liabilities assumed, and the estimated useful lives of intangible assets acquired, are as follows (in thousands):
Contracts receivable including retainage
 
$
9,184

Costs and estimated earnings in excess of billings on uncompleted contracts
 
1,787

Inventory
 
4,323

Other current assets (1)
 
731

Property, plant and equipment:
 
 
Construction equipment
 
17,571

Quarry reserves
 
13,986

Land and land improvements
 
7,302

Plant
 
6,917

Buildings
 
1,552

Backlog intangible (2)
 
594

Customer relationship (3)
 
1,100

Goodwill
 
2,319

Accounts payable
 
(3,646
)
Billings in excess of costs and estimated earnings on uncompleted contracts
 
(4,589
)
Current maturities of long-term debt
 
(358
)
Other current liabilities
 
(1,770
)
Payable to seller
 
(4,940
)
Long-term debt, net of current maturities
 
(744
)
 
 
$
51,319

 
 
 
(1) Other current assets excludes cash acquired
(2) The estimated useful life of the backlog intangible asset is 17 months
(3) The estimated useful life of the customer relationship intangible is 8 years
The amount of the purchase price exceeding the net fair value of identifiable assets acquired and liabilities assumed was recorded as goodwill. Under the terms of the Stock Purchase Agreement, the parties made a Section 338(h)(10) election under the Internal Revenue Code. Accordingly, goodwill, the backlog intangible and customer relationship intangible assets allocated to the purchase price and the step-up to fair value of property, plant and equipment reflected in the acquisition date balance sheet are deductible by the Company for income tax purposes. Goodwill primarily represents the assembled work force and synergies expected to result from the acquisition. Management has determined that Scruggs represents a new reporting unit for purposes of assessing potential impairment of goodwill, and has allocated all goodwill recognized in connection with the acquisition to that new reporting unit. Scruggs represents the Company’s fifth platform operating company and functions one level below the Company’s single operating segment, along with its other platform operating companies each representing reporting units.
The Consolidated Statement of Income for the fiscal year ended September 30, 2018 includes $35.8 million of revenue and $3.5 million of net income attributable to operations of Scruggs since the acquisition date of May 15, 2018. The Company recorded certain costs to effect the Scruggs Acquisition as they were incurred, which are reflected as general and administrative expenses on the Consolidated Statement of Income in the amount of $0.2 million for the fiscal year ended September 30, 2018. The following presents pro forma revenues and net income as though the Scruggs Acquisition had occurred on October 1, 2016 (unaudited, in thousands):

 
For the Fiscal Year Ended September 30,

 
2018
 
2017
Pro forma revenues
 
$
735,197

 
$
661,979

Pro forma net income
 
55,558

 
34,671

 
 
 
 
 

Pro forma financial information is presented as if the operations of Scruggs had been included in the consolidated results of the Company since October 1, 2016, and gives effect to transactions that are directly attributable to the Scruggs Acquisition, including adjustments to:
(a)
Include the pro forma results of operations of Scruggs for the fiscal years ended September 30, 2018 and 2017.
(b)
Include additional depreciation and depletion expense related to the fair value of acquired property, plant and equipment and quarry reserves, as applicable, as if such assets were acquired on October 1, 2016 and consistently applied to the Company’s depreciation and depletion methodologies.
(c)
Include interest expense under the Compass Term Loan as if the $22.0 million borrowed to partially finance the purchase price was borrowed on October 1, 2016. Interest expense calculations further assume that no principal payments were made applicable to the $22.0 million borrowed during the period from October 1, 2016 through September 30, 2018, and that the interest rate in effect on the date the Company made the additional $22.0 million borrowing on May 15, 2018 was in effect for the period from October 1, 2016 through September 30, 2018.
(d)
Exclude $0.2 million of acquisition-related expenses from the fiscal year ended September 30, 2018, as though such expenses were incurred prior to the pro forma acquisition date of October 1, 2016.
Pro forma information is presented for informational purposes and may not be indicative of revenue or net income that would have been achieved if the Scruggs acquisition had occurred on October 1, 2016.
Sand and Gravel Mining Operations
On September 22, 2017, the Company acquired certain ongoing sand and gravel mining operations located in Etowah, Elmore and Autauga counties in Alabama in order to expand our aggregate production facilities. This acquisition was accounted for as a business combination in accordance with ASC 805, Business Combinations. Consideration paid to consummate the acquisition consisted of $10.8 million cash paid on the closing date. The Company also entered into a purchase commitment with the seller to purchase $3.1 million of inventory over the two years following the acquisition. Of that amount, $2.3 million had been purchased as of September 30, 2018.
Identifiable assets acquired and liabilities assumed were recorded at their estimated fair values based on the methodology described under "Fair Value Measurements" in Note 3 - Significant Accounting Policies. The amount of consideration paid in excess of the fair value of net assets acquired is recorded as goodwill, which is deductible for income tax purposes. The following summarizes the fair value of identifiable assets acquired (in thousands):
Inventory
$
1,179

Quarry reserves
4,800

Land
1,746

Plant
1,247

Equipment
1,228

Goodwill
643

 
$
10,843

 
 

The results of operations associated with this acquisition are included in the consolidated financial statements since the acquisition date and were not material to the Consolidated Statements of Income. Pro forma results of operations as if the acquisition had been consummated on October 1, 2015 would not be material to the Consolidated Statements of Income.