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EXCEL - IDEA: XBRL DOCUMENT - TUTOR PERINI CORPFinancial_Report.xls

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended March 31, 2015

 

OR

 

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

 

For the transition period from             to             

 

Commission File Number:  1-6314

 

Tutor Perini Corporation

(Exact name of registrant as specified in its charter)

 

 

 

 

MASSACHUSETTS

 

04-1717070

(State or other jurisdiction of
incorporation or organization)

 

(I.R.S. Employer
Identification No.)

 

15901 OLDEN STREET, SYLMAR, CALIFORNIA 91342-1093

(Address of principal executive offices)

(Zip code)

 

(818) 362-8391

(Registrant’s telephone number, including area code)

 

 

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes   No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes   No 

 

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

 

 

 

 

Large accelerated filer 

 

Accelerated filer 

 

 

 

Non-Accelerated filer 

 

Smaller reporting company 

 

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

 

The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at May 1, 2015 was 49,001,429.

 

 

 

 

 

 


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

 

 

 

 

 

 

Page Number

Part I. 

Financial Information:

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

Consolidated Condensed Balance Sheets —  March 31, 2015 and December 31, 2014

3 - 4

 

 

Consolidated Condensed Statements of Operations — Three months ended March 31, 2015 and 2014

 

 

Consolidated Condensed Statements of Comprehensive Income — Three months ended March 31, 2015 and 2014

 

 

Consolidated Condensed Statement of Stockholders’ Equity Three months ended March 31, 2015

 

 

Consolidated Condensed Statements of Cash Flows — Three months ended March 31, 2015 and 2014

 

 

Notes to Consolidated Condensed Financial Statements

9 - 28

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

29 - 36

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36 

 

Item 4.

Controls and Procedures

36 

Part II. 

Other Information:

 

 

Item 1.

Legal Proceedings

36 

 

Item 1A.

Risk Factors

36 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

36 

 

Item 3.

Defaults Upon Senior Securities

36 

 

Item 4.

Mine Safety Disclosures

37 

 

Item 5.

Other Information

37 

 

Item 6.

Exhibits

38 

 

Signatures

 

39 

 

 

2


 

Part I.  - Financial Information

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS

MARCH 31, 2015 AND DECEMBER 31, 2014

(Unaudited-in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

ASSETS

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

Cash and cash equivalents

 

$

145,958 

 

$

135,583 

Restricted cash

 

 

44,093 

 

 

44,370 

Accounts receivable, including retainage

 

 

1,394,120 

 

 

1,479,504 

Costs and estimated earnings in excess of billings

 

 

795,510 

 

 

726,402 

Deferred income taxes

 

 

17,962 

 

 

17,962 

Other current assets

 

 

74,367 

 

 

68,735 

Total current assets

 

 

2,472,010 

 

 

2,472,556 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT (net of accumulated depreciation of $228,211 in 2015 and $220,028 in 2014)

 

 

523,622 

 

 

527,602 

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

 

Goodwill

 

 

585,006 

 

 

585,006 

Intangible assets, net

 

 

99,311 

 

 

100,254 

Other

 

 

86,531 

 

 

87,897 

Total assets

 

$

3,766,480 

 

$

3,773,315 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

3


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS (continued)

MARCH 31, 2015 AND DECEMBER 31, 2014

(Unaudited-in thousands, except share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

December 31, 2014

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

Current maturities of long-term debt

 

$

87,600 

 

$

81,292 

Accounts payable, including retainage

 

 

802,191 

 

 

798,174 

Billings in excess of costs and estimated earnings

 

 

286,042 

 

 

319,296 

Accrued expenses and other current liabilities

 

 

152,916 

 

 

159,814 

Total current liabilities

 

 

1,328,749 

 

 

1,358,576 

 

 

 

 

 

 

 

LONG-TERM DEBT, less current maturities

 

 

795,742 

 

 

784,067 

 

 

 

 

 

 

 

DEFERRED INCOME TAXES

 

 

150,018 

 

 

150,371 

 

 

 

 

 

 

 

OTHER LONG-TERM LIABILITIES

 

 

113,507 

 

 

114,796 

Total liabilities

 

 

2,388,016 

 

 

2,407,810 

 

 

 

 

 

 

 

CONTINGENCIES AND COMMITMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

 

Preferred stock, $1 par value:

 

 

 

 

 

 

Authorized – 1,000,000 shares

 

 

 

 

 

 

Issued and outstanding – none

 

 

 —

 

 

 —

Common stock - $1 par value: 75,000,000 shares authorized; Shares issued and outstanding: 49,001,429 shares and 48,671,492 shares

 

 

49,001 

 

 

48,671 

Additional paid-in capital

 

 

1,033,997 

 

 

1,025,941 

Retained earnings

 

 

337,637 

 

 

332,511 

Accumulated other comprehensive loss

 

 

(42,171)

 

 

(41,618)

Total stockholders' equity

 

 

1,378,464 

 

 

1,365,505 

 

 

 

 

 

 

 

Total liabilities and stockholders' equity

 

$

3,766,480 

 

$

3,773,315 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

4


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS

 (Unaudited-in thousands, except per share data)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

 

March 31,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

 

Revenues

 

 

$

1,066,465 

 

$

955,233 

 

 

 

 

 

 

 

 

Cost of operations

 

 

 

975,706 

 

 

849,886 

 

 

 

 

 

 

 

 

Gross profit

 

 

 

90,759 

 

 

105,347 

 

 

 

 

 

 

 

 

General and administrative expenses

 

 

 

70,675 

 

 

63,850 

 

 

 

 

 

 

 

 

INCOME FROM CONSTRUCTION OPERATIONS

 

 

 

20,084 

 

 

41,497 

 

 

 

 

 

 

 

 

Other (expense) income, net

 

 

 

(754)

 

 

(3,373)

Interest expense

 

 

 

(11,125)

 

 

(10,831)

 

 

 

 

 

 

 

 

Income before income taxes

 

 

 

8,205 

 

 

27,293 

 

 

 

 

 

 

 

 

Provision for income taxes

 

 

 

(3,079)

 

 

(11,354)

 

 

 

 

 

 

 

 

NET INCOME

 

 

$

5,126 

 

$

15,939 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER COMMON SHARE

 

 

$

0.11 

 

$

0.33 

 

 

 

 

 

 

 

 

DILUTED EARNINGS PER COMMON SHARE

 

 

$

0.10 

 

$

0.33 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

BASIC

 

 

 

48,747 

 

 

48,440 

Effect of dilutive stock options and restricted stock units

 

 

 

796 

 

 

490 

DILUTED

 

 

 

49,543 

 

 

48,930 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

5


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(Unaudited-in thousands) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended

 

 

March 31,

 

 

2015

 

2014

 

 

 

 

 

 

 

NET INCOME

 

$

5,126 

 

$

15,939 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS):

 

 

 

 

 

 

  Foreign currency translation

 

 

(964)

 

 

(490)

  Change in fair value of investments

 

 

(16)

 

 

188 

  Change in fair value of interest rate swap

 

 

74 

 

 

138 

Other comprehensive income before taxes

 

 

(906)

 

 

(164)

INCOME TAX EXPENSE (BENEFIT):

 

 

 

 

 

 

  Foreign currency translation

 

 

(376)

 

 

(204)

  Change in fair value of investments

 

 

(6)

 

 

  Change in fair value of interest rate swap

 

 

29 

 

 

57 

Income tax expense

 

 

(353)

 

 

(140)

NET OTHER COMPREHENSIVE INCOME (LOSS)

 

 

(553)

 

 

(24)

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

 

$

4,573 

 

$

15,915 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

6


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2015

(Unaudited-in thousands) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

Additional

 

 

 

 

Other

 

 

 

 

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

Stock

 

Capital

 

Earnings

 

(Loss) Income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2014

 

$

48,671 

 

$

1,025,941 

 

$

332,511 

 

$

(41,618)

 

$

1,365,505 

Net income

 

 

 —

 

 

 —

 

 

5,126 

 

 

 —

 

 

5,126 

Other comprehensive income/(loss)

 

 

 —

 

 

 —

 

 

 —

 

 

(553)

 

 

(553)

Total comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4,573 

Stock-based compensation expense

 

 

 —

 

 

9,159 

 

 

 —

 

 

 —

 

 

9,159 

Issuance of common stock, net

 

 

330 

 

 

(1,103)

 

 

 —

 

 

 —

 

 

(773)

Balance - March 31, 2015

 

$

49,001 

 

$

1,033,997 

 

$

337,637 

 

$

(42,171)

 

$

1,378,464 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

7


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

THREE MONTHS ENDED MARCH 31,

 

 

2015

 

2014

Cash Flows from Operating Activities:

 

 

 

 

 

 

Net income

 

$

5,126 

 

$

15,939 

Adjustments to reconcile net income to net cash from operating activities:

 

 

 

 

 

 

Depreciation and amortization

 

 

10,594 

 

 

14,659 

Stock-based compensation expense

 

 

9,159 

 

 

5,429 

Deferred income taxes

 

 

 —

 

 

45 

(Gain) loss on sale of property and equipment

 

 

(276)

 

 

427 

Other long-term liabilities

 

 

2,381 

 

 

3,494 

Other non-cash items

 

 

(2,227)

 

 

(427)

Changes in other components of working capital 

 

 

(27,081)

 

 

(80,696)

NET CASH USED IN OPERATING ACTIVITIES

 

 

(2,324)

 

 

(41,130)

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

Acquisition of property and equipment excluding certain financed purchases

 

 

(5,691)

 

 

(8,352)

Proceeds from sale of property and equipment

 

 

798 

 

 

1,417 

Change in restricted cash

 

 

277 

 

 

(675)

NET CASH USED BY INVESTING ACTIVITIES

 

 

(4,616)

 

 

(7,610)

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

Proceeds from debt

 

 

280,200 

 

 

178,038 

Repayment of debt

 

 

(262,112)

 

 

(113,551)

Business acquisition-related payments

 

 

 —

 

 

(1,031)

Issuance of common stock and effect of cashless exercise

 

 

(773)

 

 

(1,575)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

 

17,315 

 

 

61,881 

 

 

 

 

 

 

 

Net Increase in Cash and Cash Equivalents

 

 

10,375 

 

 

13,141 

Cash and Cash Equivalents at Beginning of Year

 

 

135,583 

 

 

119,923 

Cash and Cash Equivalents at End of Period

 

$

145,958 

 

$

133,064 

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Paid For:

 

 

 

 

 

 

Interest

 

 

7,616 

 

 

5,383 

Income taxes

 

$

8,057 

 

$

11,703 

Supplemental Disclosure of Non-cash Transactions:

 

 

 

 

 

 

Property and equipment acquired through financing arrangements not included above

 

 

 —

 

 

22,332 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

8


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

(1)     Basis of Presentation

 

The unaudited consolidated condensed financial statements presented herein include the accounts of Tutor Perini Corporation and its wholly owned subsidiaries (“Tutor Perini” or the “Company”). The Company’s interests in construction joint ventures are accounted for using the proportionate consolidation method whereby the Company’s proportionate share of each joint venture’s assets, liabilities, revenues and cost of operations are included in the appropriate classifications in the consolidated financial statements. All intercompany transactions and balances have been eliminated in consolidation.

 

The unaudited consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification. These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

In the opinion of management, the accompanying unaudited consolidated condensed financial statements include all adjustments, consisting only of normal recurring adjustments necessary to present fairly the Company’s financial position as of March 31, 2015 and December 31, 2014, results of operations and comprehensive income, for the three months ended March 31, 2015 and 2014, and cash flows for the three months ended March 31, 2015 and 2014. The results of the three months ended March 31, 2015 are not indicative of the results that may be expected for the year ending December 31, 2015 because, among other reasons, such results can vary depending on the timing of progress achieved and changes in estimated profitability of projects being reported.

 

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

 

(2)     Significant Accounting Policies

 

The significant accounting policies followed by the Company and its subsidiaries in preparing its consolidated financial statements are set forth in Note 1 to the financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014.

 

Recently Issued Accounting Pronouncements

 

In May 2014, the FASB issued Accounting Standards Update (“ASU”) ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which supersedes the revenue recognition requirements in ASC 605, Revenue Recognition. This ASU addresses when an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. This ASU is effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period, using one of two retrospective application methods. Early application is not permitted. In April 2015, FASB proposed to defer the effective date of the ASU to annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

In June 2014, the FASB issued ASU No. 2014-12, Compensation — Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period, clarifying the recognition timing of expense associated with certain performance based stock awards when the performance target that affects vesting could be achieved after the requisite service period. This ASU is an update to FASB ASC Topic 718 and is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015 with earlier adoption permitted. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements.

 

In February 2015, the FASB issued ASU No. 2015-02, Consolidation (Topic 810). The goal of this ASU is to reduce the potentially distortive impact on reporting entities’ consolidated financial statements resulting from the consolidation of certain legal entities, including joint ventures and variable interest entities. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2015. The adoption of this guidance is not expected to have a material impact on the Company’s financial statements. 

In April 2015, the FASB issued ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. This ASU is effective for fiscal years, and interim periods within those years,

9


 

beginning after December 15, 2015. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements. 

Use of and Changes in Estimates

 

The Company’s construction business involves making significant estimates and assumptions in the normal course of business relating to its contracts and its joint venture contracts. Management focuses on evaluating the performance of contracts individually. These estimates can vary in the normal course of business as projects progress, when estimated productivity assumptions change based on experience to date and uncertainties are resolved. Change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. The Company uses the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. The impact on operating margin in a reporting period and future periods from a change in estimate will depend on the stage of contract completion.

 

There were no significant changes in contract estimates at completion that impacted gross profit for the three months ended March 31, 2015 and 2014.

 

(3)     Cash and Cash Equivalents and Restricted Cash

 

Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less when acquired.

 

Cash and cash equivalents, as reported in the accompanying Consolidated Condensed Balance Sheets, consist of amounts held by the Company that are available for general corporate purposes and the Company’s proportionate share of amounts held by construction joint ventures that are available only for joint venture-related uses, including future distributions to joint venture partners. Restricted cash is primarily held to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.

 

Cash and cash equivalents and restricted cash consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(in thousands)

Corporate cash and cash equivalents (available for general corporate purposes)

 

$

61,903 

 

$

40,846 

Company's share of joint venture cash and cash equivalents (available only for joint venture purposes, including future distributions)

 

 

84,055 

 

 

94,737 

Total Cash and Cash Equivalents

 

$

145,958 

 

$

135,583 

 

 

 

 

 

 

 

Restricted Cash

 

$

44,093 

 

$

44,370 

 

 

 

 

 

 

 

(4)     Costs and estimated earnings in excess of billings

 

Costs and estimated earnings in excess of billings related to the Company’s contracts and joint venture contracts consisted of the following:

 

 

 

 

 

 

 

 

 

 

 

March 31,

 

December 31,

 

 

2015

 

2014

 

 

(in thousands)

Unbilled costs and profits incurred to date*

 

$

241,631 

 

$

253,078 

Unapproved change orders

 

 

235,242 

 

 

161,375 

Claims

 

 

318,637 

 

 

311,949 

 

 

$

795,510 

 

$

726,402 

 

10


 


* Represents the excess of contract costs and profits recognized to date on the percentage of completion accounting method over the amount of contract billings to date on certain contracts.

 

Of the balance of “Unapproved change orders” and “Claims” included above in costs and estimated earnings in excess of billings at March 31, 2015 and December 31, 2014, approximately $43.4 million and $38.4 million, respectively, are the amounts subject to pending litigation or dispute resolution proceedings as described in Note 7 — Contingencies and Commitments. These amounts are management’s estimate of the probable cost recovery from the disputed claims considering such factors as evaluation of entitlement, settlements reached to date and experience with the customer. In the event that future facts and circumstances, including the resolution of disputed claims, cause a reduction in the aggregate amount of the estimated probable cost recovery from the disputed claims, the amount of such reduction will be recorded against earnings in the relevant future period.

 

The prerequisite for billing “Unbilled costs and profits incurred to date” is provided in the defined billing terms of each of the applicable contracts. The prerequisite for billing “Unapproved change orders” or “Claims” is the final resolution and agreement between the parties.

 

(5)     Fair Value Measurements

 

The Company measures certain financial instruments, including cash and cash equivalents, such as money market funds, at fair value. The fair values were determined based on a three-tier valuation hierarchy for disclosure of significant inputs. These hierarchical tiers are defined as follows:

 

Level 1 — inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2 — inputs are other than quoted prices in active markets that are either directly or indirectly observable through market corroboration.

 

Level 3 — inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions based on the best information available in the circumstances.

 

The carrying amount of cash and cash equivalents approximates fair value due to the short-term nature of these items. The carrying value of receivables, payables and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, is estimated to approximate fair value. Of the Company’s long-term debt, the fair values of the fixed rate senior unsecured notes as of March 31, 2015 and December 31, 2014 were $312.0 million and $310.3 million, respectively, compared to the carrying value of $298.8 million as of both March 31, 2015 and December 31, 2014. The fair value of the senior unsecured notes was estimated using Level 1 inputs based on market quotations including broker quotes or interest rates for the same financial instruments at March 31, 2015 and December 31, 2014. The carrying values of the remaining balance of the Company’s long-term debt of $584.5 million and $566.6 million at March 31, 2015 and December 31, 2014, respectively, were estimated to approximate their fair values.

 

The following is a summary of financial statement items carried at estimated fair values measured on a recurring basis as of the dates presented:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted prices

 

 

other

 

 

Significant

 

 

 

Total

 

 

in active

 

 

observable

 

 

unobservable

 

 

 

Carrying

 

 

markets

 

 

inputs

 

 

inputs

At March 31, 2015

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

(in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 Cash and cash equivalents (1)

 

$

145,958 

 

$

145,958 

 

$

 —

 

$

 —

 Restricted cash (1)

 

 

44,093 

 

 

44,093 

 

 

 —

 

 

 —

 Investments in lieu of retainage (2)

 

 

31,425 

 

 

22,670 

 

 

8,755 

 

 

 —

Total

 

$

221,476 

 

$

212,721 

 

$

8,755 

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 Interest rate swap contract (3)

 

$

305 

 

$

 —

 

$

305 

 

$

 —

 Contingent consideration (4)

 

 

25,560 

 

 

 —

 

 

 —

 

 

25,560 

 

 

$

25,865 

 

$

 —

 

$

305 

 

$

25,560 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

11


 

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

 

 

Quoted prices

 

 

other

 

 

Significant

 

 

 

Total

 

 

in active

 

 

observable

 

 

unobservable

 

 

 

Carrying

 

 

markets

 

 

inputs

 

 

inputs

At December 31, 2014

 

 

Value

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

 

(in thousands)

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 Cash and cash equivalents (1)

 

$

135,583 

 

$

135,583 

 

$

 —

 

$

 —

 Restricted cash (1)

 

 

44,370 

 

 

44,370 

 

 

 —

 

 

 —

Investments in lieu of retainage (2)

 

 

33,224 

 

 

25,761 

 

 

7,463 

 

 

 —

Total

 

$

213,177 

 

$

205,714 

 

$

7,463 

 

$

 —

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 Interest rate swap contract (3)

 

$

381 

 

$

 —

 

$

381 

 

$

 —

 Contingent consideration (4)

 

 

24,814 

 

 

 —

 

 

 —

 

 

24,814 

 

 

$

25,195 

 

$

 —

 

$

381 

 

$

24,814 

 

 

 

 


(1)

Cash, cash equivalents and restricted cash consist primarily of money market funds with original maturity dates of three months or less, for which fair value is determined through quoted market prices.

(2)

Investments in lieu of retainage are classified as account receivables, including retainage and are comprised primarily of money market funds for which fair value is determined through quoted market prices. Investment in lieu of retainage also includes U.S. Treasury Notes and other municipal bonds for which fair value is determined through quoted market prices and other similar high quality investments whose values are determined from readily-available pricing sources for comparable instruments.

(3)

As discussed in Note 10 — Financial Commitments, the Company entered into a swap agreement with Bank of America, N.A. to establish a long-term interest rate for its former $200 million five-year term loan. The swap agreement became effective for the term loan principal balance outstanding at January 31, 2012. This term loan was paid off and the then current amount refinanced on June 5, 2014, providing for a $250 million term loan maturing on June 5, 2019. The interest rate swap continues on its original basis for the initial term and amount and finalizes on June 30, 2016. Bank of America calculates the fair market value of the interest rate swap liability by utilizing a mark-to-market valuation model that is based on current observable interest rates, expected future interest rates and the Company’s credit risk. The Company reviews the mark-to-market valuation when determining the fair value of the interest rate swap liability to be recognized. This liability is classified as a component of other long-term liabilities.

(4)

The liabilities listed as of March 31, 2015 and December 31, 2014 above represent the contingent consideration for the Company’s acquisitions in 2011 for which the measurement periods for purchase price analyses for the acquisitions have concluded.

 

The Company did not have any transfers between Levels 1 and 2 of financial assets or liabilities that are fair valued on a recurring basis during the three months ended March 31, 2015 and 2014.

 

 

The following is a summary of changes in Level 3 liabilities measured at fair value on a recurring basis during the three months ended March 31, 2015 and 2014:

 

 

 

 

 

 

 

 

 

 

 

 

Contingent

 

 

Consideration

 

 

(in thousands)

Balance at December 31, 2014

 

$

24,814 

Fair value adjustments included in other income (expense), net

 

 

746 

Contingent consideration settled

 

 

 —

Balance at March 31, 2015

 

$

25,560 

 

12


 

 

 

 

 

 

 

 

 

 

 

 

 

Contingent

 

 

Consideration

 

 

(in thousands)

Balance at December 31, 2013

 

$

46,022 

Fair value adjustments included in other income (expense), net

 

 

3,404 

Contingent consideration settled

 

 

(1,031)

Balance at March 31, 2014

 

$

48,395 

 

 

The fair values of the contingent consideration were estimated using an income approach based on the cash flows that the acquired entity is expected to generate in the future. This approach requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period, as well as determine the weighted-average cost of capital to be used as a discount rate (weighted-average cost of capital inputs have ranged from 14%-18%).

 

(6)     Goodwill and Intangible Assets

 

The Company tests goodwill and intangible assets with indefinite lives for impairment by applying a fair value test in the fourth quarter of each year and between annual tests if events occur or circumstances change that suggest a material adverse change to the most recently concluded valuation. The Company did not observe any changes in facts or circumstances during the three months ended March 31, 2015 that would indicate a material adverse change to the fourth quarter 2014 concluded valuation.

 

The Company tests intangible assets with finite lives for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. The Company did not observe any events or circumstances during the three months ended March 31, 2014 that would indicate that the carrying value of its intangible assets may not be recoverable.

 

The following table presents the carrying amount of goodwill allocated to the Company’s reporting units as of March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialty

 

 

 

 

 

Civil

 

Building

 

Contractors

 

Total

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Goodwill Balance

 

$

492,074 

 

$

424,724 

 

$

156,193 

 

$

1,072,991 

Accumulated Impairment

 

 

(76,716)

 

 

(411,269)

 

 

 —

 

 

(487,985)

Balance at December 31, 2014

 

$

415,358 

 

$

13,455 

 

$

156,193 

 

$

585,006 

Current activity

 

 

 —

 

 

 —

 

 

 —

 

 

Balance at March 31, 2015

 

$

415,358 

 

$

13,455 

 

$

156,193 

 

$

585,006 

 

 

 

Intangible assets consist of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

Weighted

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Average

 

 

 

 

 

Accumulated

 

Impairment

 

Carrying

 

Amortization

 

 

Cost

 

Amortization

 

Charge

 

Value

 

Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names (non-amortizable)

 

$

117,600 

 

$

 —

 

$

(67,190)

 

$

50,410 

 

Indefinite

Trade names (amortizable)

 

 

74,350 

 

 

(9,451)

 

 

(23,232)

 

 

41,667 

 

20 years

Contractor license

 

 

6,000 

 

 

 —

 

 

(6,000)

 

 

 —

 

Indefinite

Customer relationships

 

 

39,800 

 

 

(15,921)

 

 

(16,645)

 

 

7,234 

 

11.4 years

Construction contract backlog

 

 

73,706 

 

 

(73,706)

 

 

 —

 

 

 —

 

3.6 years

Total

 

$

311,456 

 

$

(99,078)

 

$

(113,067)

 

$

99,311 

 

 

 

 

 

13


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

Weighted

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

Average

 

 

 

 

 

Accumulated

 

Impairment

 

Carrying

 

Amortization

 

 

 

Cost

 

Amortization

 

Charge

 

Value

 

Period

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names (non-amortizable)

 

$

117,600 

 

$

 —

 

$

(67,190)

 

$

50,410 

 

Indefinite

Trade names (amortizable)

 

 

74,350 

 

 

(8,829)

 

 

(23,232)

 

 

42,289 

 

20 years

Contractor license

 

 

6,000 

 

 

 —

 

 

(6,000)

 

 

 —

 

Indefinite

Customer relationships

 

 

39,800 

 

 

(15,600)

 

 

(16,645)

 

 

7,555 

 

11.4 years

Construction contract backlog

 

 

73,706 

 

 

(73,706)

 

 

 —

 

 

 —

 

3.6 years

Total

 

$

311,456 

 

$

(98,135)

 

$

(113,067)

 

$

100,254 

 

 

 

 

Amortization expense for the three months ended March 31, 2015 totaled $0.9 million. As of March 31, 2015, amortization expense is estimated to be $2.8 million for the remainder of 2015, $3.5 million in 2016, $3.5 million in 2017, $3.5 million in 2018, $3.5 million in 2019 and $32.1 million thereafter.

 

(7) Contingencies and Commitments

 

The Company and certain of its subsidiaries are involved in litigation and are contingently liable for commitments and performance guarantees arising in the ordinary course of business. The Company and certain of its clients have made claims arising from the performance under their contracts. The Company recognizes certain significant claims for recovery of incurred cost when it is probable that the claim will result in additional contract revenue and when the amount of the claim can be reliably estimated. These assessments require judgments concerning matters such as litigation developments and outcomes, the anticipated outcome of negotiations, the number of future claims and the cost of both pending and future claims. In addition, because most contingencies are resolved over long periods of time, liabilities may change in the future due to various factors.

 

Several matters are in the litigation and dispute resolution process. The following discussion provides a background and current status of these matters.

 

Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter

 

During 1995 Tutor-Saliba-Perini (“Joint Venture”) filed a complaint in the Superior Court of the State of California for the County of Los Angeles against the Los Angeles County Metropolitan Transportation Authority (“LAMTA”), seeking to recover costs for extra work required by LAMTA in connection with the construction of certain tunnel and station projects, all of which were completed by 1996. In 1999, LAMTA countered with civil claims under the California False Claims Act against the Joint Venture, Tutor-Saliba and the Company jointly and severally (together, “TSP”), and obtained a judgment that was reversed on appeal and remanded for retrial before a different judge.

 

Between 2005 and 2010, the court granted certain Joint Venture motions and LAMTA capitulated on others, which reduced the number of false claims LAMTA may seek and limited LAMTA’s claims for damages and penalties. In September 2010, LAMTA dismissed its remaining claims and agreed to pay the entire amount of the Joint Venture’s remaining claims plus interest. In the remanded proceedings, the Court subsequently entered judgment in favor of TSP and against LAMTA in the amount of $3.0 million after deducting $0.5 million, representing the tunnel handrail verdict plus accrued interest against TSP. The parties filed post-trial motions for costs and fees. The Court ruled that TSP’s sureties could recover costs, LAMTA could recover costs for the tunnel handrail trial, and no party could recover attorneys’ fees. TSP appealed the false claims jury verdict on the tunnel handrail claim and other issues, including the denial of TSP’s and its sureties’ request for attorneys’ fees. LAMTA subsequently filed its cross-appeal. In June 2014, the Court of Appeal issued its decision reversing judgment on the People’s Unfair Competition claim and reversing the denial of TSP’s Sureties’ request for attorney’s fees and affirming the remainder of the judgment. In January 2015, payment was made by LAMTA in the amount of $3.8 million in settlement of all outstanding issues except for the attorney’s fees for TSP’s Sureties.

 

Subsequent to the Court of Appeal’s June 2014 decision, LAMTA filed a request for hearing before the California Supreme Court, challenging the Court of Appeal’s decision that TSP’s Sureties are entitled to attorney’s fees. In September 2014, the Supreme Court denied the MTA’s petition for Review. In September 2014, the Court of Appeal remitted the case back to the trial court to make further rulings consistent with the decision of the Court of Appeal. In November 2014, the court set the hearing on the motion for TSP’s Surety’s attorney’s fees for March 2015, the date of which was subsequently re-set for May 1, 2015.

 

The Company does not expect this matter to have any material effect on its consolidated financial statements.

 

14


 

Long Island Expressway/Cross Island Parkway Matter

 

The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange project for the New York State Department of Transportation (the “NYSDOT”). The $130 million project was substantially completed in January 2004 and was accepted by the NYSDOT as finally complete in February 2006. The Company incurred significant added costs in completing its work and suffered extended schedule costs due to numerous design errors, undisclosed utility conflicts, lack of coordination with local agencies and other interferences for which the Company believes that the NYSDOT is responsible.

 

In March 2011, the Company filed its claim and complaint with the New York State Court of Claims and served to the New York State Attorney General’s Office, seeking damages in the amount of $53.8 million. In May 2011, the NYSDOT filed a motion to dismiss the Company’s claim on the grounds that the Company had not provided required documentation for project closeout and filing of a claim. In September 2011, the Company reached agreement on final payment with the Comptroller’s Office on behalf of the NYSDOT which resulted in an amount of $0.5 million payable to the Company and formally closed out the project, which allowed the Company’s claim to be re-filed. The Company re-filed its claim in the amount of $53.8 million with the NYSDOT in February 2012 and with the Court of Claims in March 2012. In May 2012, the NYSDOT served its answer and counterclaims in the amount of $151 million alleging fraud in the inducement and punitive damages related to disadvantaged business enterprise (“DBE”) requirements for the project. The Court subsequently ruled that NYSDOT’s counterclaims may only be asserted as a defense and offset to the Company’s claims and not as affirmative claims. The Company does not expect the counterclaim to have any material effect on its consolidated financial statements.

 

In November 2014, the Appellate Division First Department affirmed the dismissal of the City’s affirmative defenses and counterclaims based on DBE fraud. Discovery is ongoing.

 

Management has made an estimate of the total anticipated recovery on this project, and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the financial statements at that time.

 

Fontainebleau Matter

 

Desert Mechanical Inc. (“DMI”) and Fisk Electric Company (“Fisk”), wholly owned subsidiaries of the Company, were subcontractors on the Fontainebleau Project in Las Vegas (“Fontainebleau”), a hotel/casino complex with approximately 3,800 rooms. In June 2009, Fontainebleau filed for bankruptcy protection, under Chapter 11 of the U.S. Bankruptcy Code, in the Southern District of Florida. Fontainebleau is headquartered in Miami, Florida.

 

DMI and Fisk filed liens in Nevada for approximately $44 million, representing unreimbursed costs to date and lost profits, including anticipated profits. Other unaffiliated subcontractors have also filed liens. In June 2009, DMI filed suit against Turnberry West Construction, Inc. (“Turnberry”), the general contractor, in the 8th Judicial District Court, Clark County, Nevada, and in May 2010, the court entered an order in favor of DMI for approximately $45 million.

 

In January 2010, the Bankruptcy Court approved the sale of the property to Icahn Nevada Gaming Acquisition, LLC, and this transaction closed in February 2010. As a result of a July 2010 ruling relating to certain priming liens, there was approximately $125 million set aside from this sale, which is available for distribution to satisfy the creditor claims based on seniority. At that time, the total estimated sustainable lien amount was approximately $350 million. The project lender filed suit against the mechanic’s lien claimants, including DMI and Fisk, alleging that certain mechanic’s liens are invalid and that all mechanic’s liens are subordinate to the lender’s claims against the property. The Nevada Supreme Court ruled in October 2012 in an advisory opinion at the request of the Bankruptcy Court that lien priorities would be determined in favor of the mechanic lien holders under Nevada law.

 

In October 2013, a settlement was reached by and among the Statutory Lienholders and the other interested parties. The agreed upon settlement has not had an impact on the Company’s recorded accounting position as of the period ended March 31, 2015. The execution of that settlement agreement continues under the supervision of a mediator appointed by the Bankruptcy Court. Management has made an estimate of the total anticipated recovery on this project, and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the financial statements at that time.

 

Honeywell Street/Queens Boulevard Bridges Matter

 

In 1999, the Company was awarded a contract for reconstruction of the Honeywell Street/Queens Boulevard Bridges project for the City of New York (the “City”). In June 2003, after substantial completion of the project, the Company initiated an action to recover $8.8 million in claims against the City on behalf of itself and its subcontractors. In March 2010, the City filed counterclaims for $74.6 million and other relief, alleging fraud in connection with the DBE requirements for the project. In May 2010, the Company served the City with its response to the City’s counterclaims and affirmative defenses. In August 2013, the Court granted TPC’s motion to dismiss the City’s affirmative defenses and counterclaims relating to fraud. In September 2013, the City filed a Notice of Appeal to

15


 

the Court’s decision; said appeal was dismissed by the Appellate Court in November 2014.  In February 2015, the Court set a due date of July 2015 for the Note of Issue to be filed, at which point it is expected case will be scheduled for trial.

 

The Company does not expect this matter to have any material effect on its consolidated financial statements.

 

Westgate Planet Hollywood Matter

 

Tutor-Saliba Corporation (“TSC”), a wholly owned subsidiary of the Company, contracted to construct a time share development project in Las Vegas which was substantially completed in December 2009. The Company’s claims against the owner, Westgate Planet Hollywood Las Vegas, LLC (“WPH”), relate to unresolved owner change orders and other claims. The Company filed a lien on the project in the amount of $23.2 million, and filed its complaint with the District Court, Clark County, Nevada. Several subcontractors have also recorded liens, some of which have been released by bonds and some of which have been released as a result of subsequent payment. WPH has posted a mechanic’s lien release bond for $22.3 million.

 

WPH filed a cross-complaint alleging non-conforming and defective work for approximately $51 million, primarily related to alleged defects, misallocated costs, and liquidated damages. WPH revised the amount of their counterclaims to approximately $45 million.

 

Following multiple post-trial motions, final judgment was entered in this matter on March 20, 2014. TSC was awarded total judgment in the amount of $19.7 million on its breach of contract claim, which includes an award of interest up through the date of judgment, plus attorney’s fees and costs. WPH has paid $0.6 million of that judgment. WPH was awarded total judgment in the amount of $3.1 million on its construction defect claims, which includes interest up through the date of judgment. The awards are not offsetting. WPH and its Sureties have filed a notice of appeal. TSC has filed a notice of appeal on the defect award. In July 2014, the Court ordered WPH to post an additional supersedeas bond on appeal, in the amount of $1.7 million, in addition to the lien release bond of $22.3 million, which increases the security up to $24.0 million. Oral argument on the appeals is anticipated to be scheduled for early 2016.

 

The Company does not expect this matter to have any material effect on its consolidated financial statements. Management has made an estimate of the total anticipated recovery on this project and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the financial statements at that time.

 

Brightwater Matter

 

In 2006, the Department of Natural Resources and Parks Wastewater Treatment Division of King County (“King County”), as Owner, and Vinci Construction Grands Projects/Parsons RCI/Frontier-Kemper, Joint Venture (“VPFK”), as Contractor, entered into a contract to construct the Brightwater Conveyance System and tunnel sections in Washington State. Frontier-Kemper, a wholly owned subsidiary of the Company, is a 20% minority partner in the joint venture.

 

In April 2010, King County filed a lawsuit alleging damages in the amount of $74 million, plus costs, for VPFK’s failure to complete specified components of the project in the King County Superior Court, State of Washington. Shortly thereafter, VPFK filed a counterclaim in the amount of approximately $75 million, seeking reimbursement for additional costs incurred as a result of differing site conditions, King County’s defective specifications, for damages sustained on VPFK’s tunnel boring machines (“TBM”), and increased costs as a result of hyperbaric interventions. VPFK’s claims related to differing site conditions, defective design specifications, and damages to the TBM were presented to a Dispute Resolution Board (“DRB”). King County amended the amount sought in its lawsuit to approximately $132 million. In August 2011, the DRB generally found that King County was liable to VPFK for VPFK’s claims for encountering differing site conditions, including damages to the TBM, but not on VPFK’s alternative theory of defective specifications. From June through August 2012, each party filed several motions for summary judgment on certain claims and requests in preparation for trial, which were heard and ruled upon by the Court. The Court granted and denied various requests of each party related to evidence and damages.

 

In December 2012, a jury verdict was received in favor of King County in the amount of $155.8 million and a verdict in favor of VPFK in the amount of $26.3 million. In late April 2013, the Court ruled on post-trial motions and ordered VPFK’s sureties to pay King County’s attorneys’ fees and costs in the amount of $14.7 million. All other motions were denied. On May 7, 2013, VPFK paid the full verdict amount and the associated fees, thus terminating any interest on the judgment. VPFK’s notice of appeal was filed on May 31, 2013. King County has appealed approximately $17.0 million of the verdict award in VPFK’s favor and VPFK’s sureties have appealed the Court’s order granting King County’s request for legal fees and costs. Oral argument was held on March 9, 2015 and a decision is expected within three to six months.

 

The ultimate financial impact of King County’s lawsuit is not yet specifically determinable. In the fourth quarter of 2012, management developed a range of possible outcomes and has recorded a charge to income and a contingent liability of $5.0 million in accrued expenses. In developing a range of possible outcomes, management considered the jury verdict, continued litigation and potential settlement strategies. Management determined that there was no estimate within the range of possible outcomes that was more probable than the other and recorded a liability at the low end of the range. As of March 31, 2015, there were no changes in facts or

16


 

circumstances that led management to believe that there were any changes to the probability of outcomes. The amount of payments in excess of the established contingent liability is recorded in Accounts Receivable on the Company’s Consolidated Condensed Balance Sheet as of March 31, 2015. Estimating and recording future outcomes of litigation proceedings require significant judgment and assumptions about the future, which are inherently subject to risks and uncertainties. If a final recovery turns out to be materially less favorable than our estimates, this may have a significant impact on the Company’s financial results. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the financial statements at that time.

 

156 Stations Matter

 

In December 2003, Five Star Electric Corporation (“FSE”), a wholly owned subsidiary of the Company, entered into an agreement with the Prime Contractor Transit Technologies, L.L.C (“Transit”), a Consortium member of Siemens Transportation Transit Technologies, L.L.C (“Siemens”), to assist in the installation of new public address and customer information screens system for each of the 156 stations for the New York City Transit Authority (“NYCTA”) as the owner.

 

In June 2012, an arbitration panel awarded FSE a total of approximately $11.9 million. Subsequently, the Court affirmed FSE’s position, however, decided that only $8.5 million of the total arbitration award of $11.9 million can be recovered against the payment bond. In December 2014, FSE filed its reply for the motion for re-argument with regard to the reduction in recoverable costs against the payment bond.

 

This matter was fully settled in April 2015 and payment was received. The settlement amount was consistent with the Company’s recorded position and, accordingly, the settlement did not have a material impact on the Company’s consolidated financial statements.

 

U.S. Department of Commerce, National Oceanic and Atmospheric Administration Matter

Rudolph and Sletten, Inc. (“R&S”), a wholly owned subsidiary of the Company, entered into a contract with the United States Department of Commerce, National Oceanic and Atmospheric Administration (“NOAA” or “Owner”) for the construction of a 287,000 square-foot facility for NOAA’s Southwest Fisheries Science Center Replacement Headquarters and Laboratory in La Jolla, California. The contract work began on May 24, 2010, and was substantially completed in September 2012. R&S incurred significant additional costs as a result of a design that contained errors and omissions, NOAA’s unwillingness to correct design flaws in a timely fashion and a refusal to negotiate the time and pricing associated with change order work.

 

R&S has filed three certified claims against NOAA for contract adjustments related to the unresolved Owner change orders, delays, design deficiencies and other claims. The First Certified Claim was submitted on August 20, 2013, in the amount of $26.8 million ("First Certified Claim") and the second certified claim was submitted on October 30, 2013, in the amount of $2.6 million ("Second Certified Claim") and the Third Certified Claim was submitted on October 1, 2014 in the amount of $0.7 million.

 

NOAA requested an extension of nine months to issue a decision on the First Certified Claim, but did not request an extension of time related to review of the Second Certified Claim. On January 6, 2014, R&S filed suit in the United States Federal Court of Claims on the Second Certified Claim plus interest and attorney's fees and costs. This was followed by submission of a law suit on the First Certified Claim on July 31, 2014. In October 2014, the court ordered that the two lawsuits be consolidated for purposes of oral argument on the respective Motions to Dismiss. In February 2015 the Court denied NOAA’s motion to dismiss the Second Certified Claim. In March 2014 the Contracting Officer issued decisions on all Claims accepting a total of approximately $1.0 million of the Claims. The Court has ordered both parties to submit a joint status summary setting forth whether the case should now be consolidated and a schedule for discovery should be set.

 

Management has made an estimate of the total anticipated recovery on this project, and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the financial statements at that time.

 

(8)     Income Taxes

 

The Company’s income tax provision was  $3.1 million for the three months ended March 31, 2015, compared to the income tax provision of  $11.4 million for the three months ended March 31, 2014. The effective income tax rate was 37.5% as compared to 41.6% for the same period in 2014.

 

As of March 31, 2015, the total amount of unrecognized tax benefits, including related interest and penalties was $7.8 million. If the total amount of unrecognized tax benefits was recognized, $6.9 million of unrecognized tax benefits and $0.9 million of interest would decrease the effective tax rate.

 

(9)     Stock-Based Compensation

 

17


 

The Company is authorized to grant up to 8,500,000 stock-based compensation awards to key executives, employees and directors of the Company under the Amended and Restated Tutor Perini Corporation Long-Term Incentive Plan (the “Plan”). The Plan allows stock-based compensation awards to be granted in a variety of forms, including stock options, stock appreciation rights, restricted stock unit awards, unrestricted stock awards, deferred stock awards and dividend equivalent rights. The terms and conditions of the awards granted are established by the Compensation Committee of the Company’s Board of Directors who also administers the Plan.

 

The Company intends to settle stock awards in shares upon vesting to the extent that the Company has shares available under the Plan. A total of 114,928 shares of common stock remain available for future grant under the Plan at March 31, 2015.

 

Restricted Stock Unit Awards

 

Restricted stock unit awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets. Upon vesting, each restricted stock unit award is exchanged for one share of the Company’s common stock. The grant date fair values of these awards are determined based on the closing price of the Company’s stock on either the award date (if subject only to service conditions), or the date that the Compensation Committee establishes the applicable performance target (if subject to performance conditions). The related compensation expense is amortized over the applicable requisite service period. As of March 31, 2015, the Compensation Committee has approved the grant of an aggregate of 6,228,430 restricted stock unit awards under the 2004 Stock Option and Incentive Plan (and amendments) to eligible participants.

 

During March of 2015, the Compensation Committee established the 2015 performance targets for 291,500 restricted stock units awarded in 2015, 2013, and 2012. The restricted stock unit awards granted during the first quarter of 2015 had a weighted average grant date fair value of $23.35. The grant date fair value is determined based on the closing price of the Company’s common stock on the date of the grant.

 

During March of 2014, the Compensation Committee established the 2014 performance targets for 866,500 restricted stock units awarded in 2014, 2013, and 2012. The restricted stock unit awards granted during the first quarter of 2014 had a weighted average grant date fair value of $27.33. The grant date fair value is determined based on the closing price of the Company’s common stock on the date of the grant.

 

1,560 restricted stock unit awards were forfeited during the three months ended March 31, 2015.

 

During the three months ended March 31, 2015 and 2014, the Company recognized $5.6 million and $3.9 million, respectively, of compensation expense related to restricted stock unit awards, and such expense is included in general and administrative expenses in the Consolidated Statements of Operations. As of March 31, 2015,  there was $19.9 million of unrecognized compensation cost related to the unvested awards which, absent significant forfeitures in the future, is expected to be recognized over a weighted average period of approximately 2.5 years.

 

A summary of restricted stock unit awards activity for the three months ended March 31, 2015 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aggregate

 

 

 

 

 

Weighted Average

 

Intrinsic

 

 

 

Number

 

Grant Date

 

Value

 

 

 

of Shares

 

Fair Value

 

(in thousands)

Granted and Unvested - January 1, 2015

 

 

1,056,597 

 

$

26.54 

 

$

25,432 

Activity during the three months ended March 31, 2015:

 

 

 

 

 

 

 

 

 

Vested

 

 

(335,940)

 

$

27.64 

 

$

7,323 

Granted