FORM 10-K
United States Securities and Exchange Commission
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Commission File No. 1-6314
Washington, DC 20549
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(Mark One)
x Annual Report Pursuant to Section 13 or 15(d) of the Securities Act of 1934.
For the fiscal year ended December 31, 2010.
o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
For the transition period from __________-to-__________.
Tutor Perini Corporation
(Exact name of registrant as specified in its charter)
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Massachusetts
(State of Incorporation)
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04-1717070
(IRS Employer Identification No.)
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15901 Olden Street, Sylmar, California
(Address of principal executive offices)
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91342
(Zip Code)
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(818) 362-8391
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Title of Each Class
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Name of each exchange on which registered
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Common Stock, $1.00 par value
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The New York Stock Exchange
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Securities registered pursuant to Section 12(g) of the Act: None
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “accelerated filer”, “large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
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Large accelerated filer o
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Accelerated filer x
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Non-accelerated filer o
(Do not check if a smaller reporting company)
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Smaller reporting company o
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The aggregate market value of voting Common Stock held by nonaffiliates of the registrant was $434,565,224 as of June 30, 2010, the last business day of the registrant’s most recently completed second fiscal quarter.
The number of shares of Common Stock, $1.00 par value per share, outstanding at February 25, 2011 was 47,089,593.
Documents Incorporated by Reference
Portions of the definitive proxy statement relating to the registrant’s annual meeting of stockholders are incorporated by reference into Part III of this report.
TUTOR PERINI CORPORATION
INDEX TO ANNUAL REPORT
ON FORM 10-K
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PAGE
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PART I
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Item 1:
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3 – 13
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Item 1A:
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14 – 23
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Item 1B:
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23
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Item 2:
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24
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Item 3:
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25
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Item 4:
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25
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PART II
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Item 5:
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27 – 28
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Item 6:
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29 – 30
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Item 7:
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31 – 45
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Item 7A:
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45
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Item 8:
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46
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Item 9:
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46
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Item 9A:
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47 – 48
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Item 9B:
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49
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PART III
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Item 10:
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49
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Item 11:
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49
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Item 12:
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49
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Item 13:
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49
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Item 14:
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49
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PART IV
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Item 15:
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50
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51
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PART I.
Forward-looking Statements
The statements contained in this Annual Report on Form 10-K that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding our management’s expectations, hopes, beliefs, intentions or strategies regarding the future and statements regarding future guidance and non-historical performance. These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us. Our expectations, beliefs and projections are expressed in good faith and we believe there is a reasonable basis for them. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to, our ability to successfully and timely complete construction projects; our ability to win new contracts and convert backlog into revenue; the potential delay, suspension, termination, or reduction in scope of a construction project; the continuing validity of the underlying assumptions and estimates of total forecasted project revenues, costs and profits and project schedules; the outcomes of pending or future litigation, arbitration or other dispute resolution proceedings; the availability of borrowed funds on terms acceptable to us; the ability to retain certain members of management; the ability to obtain surety bonds to secure our performance under certain construction contracts; possible labor disputes or work stoppages within the construction industry; changes in federal and state appropriations for infrastructure projects; possible changes or developments in international or domestic political, social, economic, business, industry, market and regulatory conditions or circumstances; and actions taken or not taken by third parties, including our customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials. Also see “Item 1A. Risk Factors” on pages 14 through 23. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
ITEM 1. BUSINESS
General
Tutor Perini Corporation, formerly known as Perini Corporation, was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. Tutor Perini Corporation and its subsidiaries (or “Tutor Perini,” “Company,” “we,” “us,” and “our,” unless the context indicates otherwise) is a leading construction company, based on revenues, as ranked by Engineering News-Record, or “ENR”, offering diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. We have provided construction services since 1894 and have established a strong reputation within our markets by executing large, complex projects on time and within budget while adhering to strict quality control measures. We offer general contracting, pre-construction planning and comprehensive project management services, including the planning and scheduling of the manpower, equipment, materials and subcontractors required for a project. We also offer self-performed construction services including site work, concrete forming and placement, steel erection, electrical and mechanical, plumbing and HVAC. During 2010, we performed work on approximately 300 construction projects for over 145 federal, state and local government agencies or authorities and private customers. Our headquarters are in Sylmar, California, and we have thirty-two other principal office locations throughout the United States and certain U.S. territories. Our common stock is listed on the New York Stock Exchange under the symbol “TPC”.
Our business is conducted through three basic segments: civil, building, and management services. Our civil segment is comprised of Tutor Perini Civil Construction, Tutor-Saliba Corporation (“Tutor-Saliba”), and Cherry Hill Construction, Inc. (“Cherry Hill”) and focuses on public works construction, including the new construction, repair, replacement and reconstruction of the public infrastructure such as highways, bridges, mass transit systems and wastewater treatment facilities. On November 1, 2010 we acquired Superior Gunite, a California based privately held construction company specializing in pneumatically placed structural concrete, and certain related companies. Our building segment, comprised of Perini Building Company, James A. Cummings, Inc. (“Cummings”), Rudolph and Sletten, Inc. (“Rudolph and Sletten”), Keating Building Company (“Keating”), Desert Plumbing & Heating Company, Inc., and Powerco Electric Corporation, focuses on large, complex projects in the hospitality and gaming, transportation, healthcare, municipal offices, sports and entertainment, education, correctional facilities, biotech, pharmaceutical, industrial, and high-tech markets, and electrical and mechanical, plumbing and HVAC services as a subcontractor to the Company and other general contractors. Our management services segment, including Perini Management Services, Inc. (“PMSI”), and Black Construction’s operations in Guam, provides diversified construction and design-build services to the U.S. military and government agencies, as well as surety companies and multi-national corporations in the United States and overseas.
On January 3, 2011, we acquired Fisk Electric Company, a privately held electrical construction company based in Houston, Texas, which covers many of the major commercial and industrial electrical construction markets in the southwest and southeast regions with abilities to cover other attractive markets nationwide.
Business Segment Overview
Civil Segment
Our civil segment specializes in public works construction and the repair, replacement and reconstruction of infrastructure, primarily in the western, northeastern and mid-Atlantic United States. Our civil contracting services include construction and rehabilitation of highways, bridges, mass transit systems, and wastewater treatment facilities. Our customers primarily award contracts through one of two methods: the traditional public "competitive bid" method, in which price is the major determining factor, or through a request for proposals where contracts are awarded based on a combination of technical capability and price. Traditionally, our customers require each contractor to pre-qualify for construction business by meeting criteria that include technical capabilities and financial strength. Our financial strength and outstanding record of performance on challenging civil works projects enables us to pre-qualify for projects in situations where smaller, less diversified contractors are unable to meet the qualification requirements. We believe this is a competitive advantage that makes us an attractive partner on the largest infrastructure projects and prestigious design-build, or DBOM (design-build-operate-maintain) contracts, which combine the nation's top contractors with engineering firms, equipment manufacturers and project development consultants in a competitive bid selection process to execute highly sophisticated public works projects. In its 2010 rankings based on revenue, ENR ranked us as the nation’s ninth largest contractor in the heavy contractor and transportation markets.
We believe the civil segment provides significant opportunities for growth due to historically large government funding sources aimed at the replacement and repair of aging U.S. infrastructure, including the 2009 multi-billion dollar economic stimulus package, and the increase in alternative funding sources such as public-private partnerships. The economic stimulus package includes significant funding for civil construction, public healthcare and public education projects over the next several years. In addition, multiple dedicated sources of funding for transportation at the local, state and federal levels exist in the form of dedicated taxes, bond funding and the Highway Trust Fund. We have been active in civil construction since 1894 and believe we have a particular expertise in large, complex civil construction projects. We have completed or are currently working on some of the most significant civil construction projects in the United States. We are currently working on SR99 bored tunnel project in Seattle, Washington; the John F. Kennedy International Airport runway widening in Queens, New York; rehabilitation of the Tappan Zee Bridge in Westchester County, New York; various segments of the Greenwich Street corridor project in New York, New York; the I-5 Bridge replacement in Shasta County, California; the Caldecott Tunnel Project near Oakland, California; the New Irvington tunnel in Fremont, California; the Harold Structures mass transit project in Queens, New York; runway paving at Andrews AFB in Maryland; and the construction of express toll lanes along I-95 in Maryland. We have completed work on multiple portions of the Boston Central Artery/Tunnel project; New Jersey Light Rail Transit; the Richmond/San Rafael Bridge retrofit in California; the Alameda Corridor project in California; rehabilitations of the Triborough, Williamsburg and Whitestone Bridges in New York and the Passaic River Bridge in New Jersey; the Jamaica Station Transportation Center in New York; and sections of both the Brooklyn-Queens Expressway and the Long Island Expressway in New York.
In January 2005, we acquired Cherry Hill to expand our presence in the mid-Atlantic and southeastern regions of the United States. Cherry Hill specializes in excavation, foundations, paving and construction of civil infrastructure. The Company’s merger with Tutor-Saliba in September 2008 significantly expanded our civil construction presence. Tutor-Saliba is an established civil construction contractor specializing in mass transit, airport, bridge, and waste water treatment projects in the western United States. On November 1, 2010 we acquired Superior Gunite, a California based privately held construction company, and certain related companies, specializing in pneumatically placed structural concrete utilized in infrastructure projects such as bridges, dams, tunnels and retaining walls.
Building Segment
Our building segment has significant experience providing services to a number of specialized building markets for private and public works clients, including the hospitality and gaming, transportation, healthcare, municipal offices, sports and entertainment, education, correctional facilities, biotech, pharmaceutical, industrial and high-tech markets, electrical and mechanical, plumbing and HVAC services to both governments and private non-residential customers. We believe our success within the building segment results from our proven ability to manage and perform large, complex projects with aggressive fast-track schedules, elaborate designs and advanced mechanical, electrical and life safety systems, while providing accurate budgeting and strict quality control. Although price is a key competitive factor, we believe our strong reputation, long-standing customer relationships and significant level of repeat and referral business have enabled us to achieve our leading position.
In its 2010 rankings based on revenue, ENR ranked us as the second largest contractor in the United States in the general building market for the second year in a row. Within the general building category, we were ranked as the largest builder in both the hotel, motel and convention center market and the entertainment facilities market, and the second largest builder in the airport facilities market. We were also ranked the second largest green building contractor in the United States. We are a recognized leader in the hospitality and gaming market, specializing in the construction of high-end destination resorts and casinos and Native American developments. We work with hotel operators, Native American tribal councils, developers and architectural firms to provide diversified construction services to meet the challenges of new construction and renovation of hotel and resort properties. We believe that our reputation for completing projects on time is a significant competitive advantage in this market, as any delay in project completion may result in significant loss of revenues for the customer.
We have been awarded and have recently completed, or are currently working on, large public works building projects including McCarran International Airport Terminal 3 in Las Vegas, NV; the Philadelphia Convention Center in Philadelphia, PA; and the San Bernardino Courthouse in San Bernardino, CA. We have also completed the construction of large, complex projects such as the Airport Parking Garage and Rental Car Facility in Ft. Lauderdale, FL; the Palm Beach International Airport Parking Garage in West Palm Beach, FL; the Los Angeles Police Headquarters in Los Angeles, CA; the San Francisco International Airport reconstruction in San Francisco, CA; the Florida International University Health and Life Sciences Building in Miami, FL; the Glendale Arena in Glendale, AZ; the Stanford University Cancer Center in Stanford, CA; the Johnson & Johnson Pharmaceutical R&D Expansion in La Jolla, CA; and the Kaiser Hospital and Medical Office Building in Santa Clara, CA.
As a result of our reputation and track record, we were awarded and have completed or are currently working on contracts for several marquee projects in the hospitality and gaming market, including Project CityCenter for MGM MIRAGE, The Cosmopolitan Resort and Casino, the Wynn Encore Hotel and the Planet Hollywood Tower, all in Las Vegas, NV, and the Aqueduct Racetrack Casino in Jamaica, New York. We have also completed work on several other marquee projects in the hospitality and gaming market, including Paris Las Vegas in Nevada; Mohegan Sun and the MGM Grand at Foxwoods resort expansion, both in Connecticut; the Morongo Casino Resort and Spa and the Pechanga Resort and Casino, both in California; the Seminole Hard Rock Hotels and Casinos in Florida; the Red Rock Casino Resort Spa, the Augustus Tower at Caesars Palace, the Trump International Hotel and Tower, all in Las Vegas, Nevada; and the Gaylord National Resort and Convention Center in the Washington, DC area.
In January 2003, the acquisition of Cummings expanded our presence in the southeastern region of the United States. Cummings specializes in the construction of schools, municipal buildings and commercial developments. In October 2005, we acquired Rudolph and Sletten, an established building contractor and construction management company based in Redwood City, California, to expand our presence on the west coast of the United States. Rudolph and Sletten specializes in the construction of corporate campuses and healthcare, gaming, biotech, pharmaceutical, industrial, and high-tech projects. In September 2008, we merged with Tutor-Saliba to further expand our presence in the western United States. Tutor-Saliba is an established general contractor with expertise in both civil and building projects, including highways, bridges, mass transit systems, hospitality and gaming, transportation, healthcare, education and office building projects, primarily in Nevada and California for both public and private customers. In January 2009, we acquired Keating Building Company, a Philadelphia-based construction, construction management and design-build company with expertise in both private and public works building projects. The acquisition of Keating has enabled us to expand our building construction market presence in the eastern half of the United States, including the northeast and mid-Atlantic regions.
Management Services Segment
Our management services segment provides diversified construction and design-build services to the U.S. military and government agencies, as well as surety companies and multi-national corporations in the United States and overseas. Our ability to plan and execute rapid response assignments and multi-year contracts through our diversified construction and design-build abilities provides us with a competitive edge. We have been selected based on superior past performance for multi-year, multi-trade, task order and ID/IQ (Indefinite Delivery/Indefinite Quantity) construction programs by the U.S. Departments of Defense, State, Interior and Homeland Security. We have been chosen by the federal government for significant projects related to defense and reconstruction projects in Iraq and Afghanistan. For example, we have completed in excess of two million square feet of overhead coverage protection projects throughout Iraq, a housing complex and a helicopter maintenance facility for the U.S. Government. In addition, we completed work on the design and construction of four military bases in Afghanistan for the Afghan National Army.
We believe we are well positioned to capture additional management services projects that involve long-term contracts and provide a recurring source of revenues as the level of government expenditures for defense and homeland security has increased in response to the global threat of terrorism. This segment has historically focused on regions such as Iraq and Afghanistan, with additional growth opportunities in Guam as the United States military expands its presence in that region. Black Construction, one of our subsidiaries and the largest contractor on the island of Guam, is expected to generate a significant portion of its future revenues from the construction of facilities during the planned expansion of the United States military’s presence in Guam. The United States military has announced plans to relocate approximately 8,000 U.S. Marines and other military personnel from Okinawa, Japan to Guam. The work will include new construction, renovation and additions or upgrades to a wide range of facility types including bridges, barracks, dormitories, educational and medical buildings, waterfront-marine facilities, hangars, runways and much more. Our proven abilities with federal government projects have also enabled us to win contracts from private defense contractors who are executing projects for the federal government.
We also provide diversified management services to surety companies and multi-national corporations. We are under agreement with a major North American surety company to provide rapid response, contract completion services. Upon notification from the surety of a contractor bond default, we provide management or general contracting services to fulfill the contractual and financial obligations of the surety.
Markets and Customers
Our construction services are targeted toward end markets that are diversified across project types, client characteristics and geographic locations. Revenues by business segment for each of the three years in the period ended December 31, 2010 are set forth below:
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Revenues by Segment
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Year Ended December 31,
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2010
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2009
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2008
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(in thousands)
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Building
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$ | 2,326,980 | $ | 4,484,937 | $ | 5,146,563 | ||||||
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Civil
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667,704 | 361,677 | 310,722 | |||||||||
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Management Services
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204,526 | 305,352 | 203,001 | |||||||||
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Total
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$ | 3,199,210 | $ | 5,151,966 | $ | 5,660,286 | ||||||
Revenues by end market for the building segment for each of the three years in the period ended December 31, 2010 are set forth below:
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Building Segment Revenues by End Market
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2010
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2009
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2008
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(in thousands)
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Hospitality and Gaming
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$ | 814,768 | $ | 2,672,799 | $ | 3,714,822 | ||||||
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Transportation Facilities
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516,556 | 419,318 | 51,175 | |||||||||
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Healthcare Facilities
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283,498 | 409,216 | 619,959 | |||||||||
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Industrial Buildings
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260,800 | 76,917 | 55,251 | |||||||||
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Municipal and Government
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207,650 | 273,455 | 33,688 | |||||||||
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Education Facilities
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113,779 | 218,943 | 215,472 | |||||||||
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Office Buildings
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46,493 | 127,758 | 298,914 | |||||||||
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Condominiums
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21,489 | 140,813 | 97,580 | |||||||||
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Sports and Entertainment
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9,068 | 41,744 | 26,136 | |||||||||
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Other
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52,879 | 103,974 | 33,566 | |||||||||
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Total
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$ | 2,326,980 | $ | 4,484,937 | $ | 5,146,563 | ||||||
Revenues by end market for the civil segment for each of the three years in the period ended December 31, 2010 are set forth below:
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Civil Segment Revenues by End Market
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2010
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2009
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2008
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(in thousands)
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Mass Transit
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$ | 392,787 | $ | 93,053 | $ | 30,812 | ||||||
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Highways
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124,386 | 77,952 | 103,968 | |||||||||
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Bridges
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109,719 | 103,354 | 110,201 | |||||||||
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Wastewater Treatment and Other
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40,398 | 87,308 | 57,263 | |||||||||
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Sitework
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414 | 10 | 8,478 | |||||||||
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Total
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$ | 667,704 | $ | 361,677 | $ | 310,722 | ||||||
Revenues by end market for the management services segment for each of the three years in the period ended December 31, 2010 are set forth below:
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Management Services Segment
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Revenues by End Market
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2010
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2009
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2008
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(in thousands)
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U.S. Government Services
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$ | 152,434 | $ | 276,833 | $ | 183,757 | ||||||
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Surety and Other
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52,092 | 28,519 | 19,244 | |||||||||
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Total
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$ | 204,526 | $ | 305,352 | $ | 203,001 | ||||||
We provide our services to a broad range of private and public customers. The allocation of our revenues by client source for each of the three years in the period ended December 31, 2010 is set forth below:
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Revenues by Client Source
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Year Ended December 31,
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2010
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2009
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2008
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Private Owners
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47 | % | 70 | % | 85 | % | ||||||
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State and Local Governments
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44 | % | 23 | % | 12 | % | ||||||
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Federal Governmental Agencies
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9 | % | 7 | % | 3 | % | ||||||
| 100 | % | 100 | % | 100 | % | |||||||
Private Owners. We derived approximately 47% of our revenues from private customers during 2010. Our private customers include major hospitality and gaming resort owners, Native American sovereign nations, public corporations, private developers, healthcare companies and private universities. We provide services to our private customers primarily through negotiated contract arrangements, as opposed to competitive bids.
State and Local Governments. We derived approximately 44% of our revenues from state and local government customers during 2010. Our state and local government customers include state transportation departments, metropolitan authorities, cities, municipal agencies, school districts and public universities. We provide services to our state and local customers primarily pursuant to contracts awarded through competitive bidding processes. Our civil contracting services are concentrated in the northeastern, mid-Atlantic and western United States. Our building construction services for state and local government customers, which have included correctional facilities, schools and dormitories, healthcare facilities, convention centers, parking structures and municipal buildings, are in locations throughout the country.
Federal Governmental Agencies. We derived approximately 9% of our revenues from federal governmental agencies during 2010. These agencies have included the U.S. State Department, the U.S. Navy, the U.S. Army Corps of Engineers, and the U.S. Air Force. We provide services to federal agencies primarily pursuant to contracts for specific or multi-year assignments that involve new construction or infrastructure improvements. A substantial portion of our revenues from federal agencies is derived from projects in overseas locations. We expect this to continue for the foreseeable future as a result of our expanding base of experience and relationships with federal agencies, together with an anticipated favorable expenditure trend for defense, security and reconstruction work due primarily to the ongoing threats of terrorism and the planned relocation of approximately 8,000 U.S. Marines and other military personnel from Okinawa, Japan to the island of Guam.
For additional information on customers, markets, measures of profit or loss, and total assets, both U.S and foreign, please see Note 12 of Notes to Consolidated Financial Statements, entitled “Business Segments”.
Backlog
We include a construction project in our backlog at such time as a contract is awarded or a letter of commitment is obtained and adequate construction funding is in place. As a result, we believe the backlog figures are firm, subject only to the cancellation provisions contained in the various contracts. Historically, these provisions have not had a material adverse effect on us.
Backlog is summarized below by business segment as of December 31, 2010 and 2009:
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Backlog by Business Segment
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December 31,
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December 31,
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2010
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2009
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(dollars in thousands)
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Building
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$ | 2,663,315 | 62 | % | $ | 3,125,780 | 73 | % | ||||||||
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Civil
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1,360,084 | 32 | % | 1,001,507 | 23 | % | ||||||||||
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Management Services
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260,891 | 6 | % | 182,904 | 4 | % | ||||||||||
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Total
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$ | 4,284,290 | 100 | % | $ | 4,310,191 | 100 | % | ||||||||
We estimate that approximately $2.2 billion, or 51%, of our backlog at December 31, 2010 will not be completed in 2011.
Backlog by end market for the building segment as of December 31, 2010 and 2009 is set forth below:
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Building Segment Backlog by End Market
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December 31,
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December 31,
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2010
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2009
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(dollars in thousands)
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Municipal and Government
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$ | 804,296 | 30 | % | $ | 460,765 | 15 | % | ||||||||
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Healthcare Facilities
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563,834 | 21 | % | 713,296 | 23 | % | ||||||||||
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Industrial Buildings
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394,822 | 15 | % | 255,859 | 8 | % | ||||||||||
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Hospitality and Gaming
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366,395 | 14 | % | 783,794 | 25 | % | ||||||||||
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Transportation Facilities
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269,080 | 10 | % | 737,084 | 24 | % | ||||||||||
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Education Facilities
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179,118 | 7 | % | 105,650 | 3 | % | ||||||||||
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Condominiums
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34,962 | 1 | % | 9,475 |
<1%
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Office Buildings
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10,748 |
<1
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% | 7,114 |
<1%
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Other
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40,060 | 2 | % | 52,743 | 1 | % | ||||||||||
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Total
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$ | 2,663,315 | 100 | % | $ | 3,125,780 | 100 | % | ||||||||
Backlog by end market for the civil segment as of December 31, 2010 and 2009 is set forth below:
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Civil Segment Backlog by End Market
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December 31,
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December 31,
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2010
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2009
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(dollars in thousands)
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Highways
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$ | 698,028 | 51 | % | $ | 319,514 | 32 | % | ||||||||
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Bridges
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381,579 | 28 | % | 181,863 | 18 | % | ||||||||||
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Mass Transit
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155,985 | 11 | % | 457,786 | 46 | % | ||||||||||
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Wastewater Treatment and Other
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117,914 | 9 | % | 42,131 | 4 | % | ||||||||||
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Sitework
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6,578 | <1 | % | 213 |
<1
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% | ||||||||||
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Total
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$ | 1,360,084 | 100 | % | $ | 1,001,507 | 100 | % | ||||||||
Backlog by end market for the management services segment as of December 31, 2010 and 2009 is set forth below:
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Management Services Segment Backlog by End Market
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December 31,
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December 31,
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2010
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2009
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(dollars in thousands)
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U.S. Government Services
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$ | 219,087 | 84 | % | $ | 147,192 | 80 | % | ||||||||
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Surety and Other
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41,804 | 16 | % | 35,712 | 20 | % | ||||||||||
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Total
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$ | 260,891 | 100 | % | $ | 182,904 | 100 | % | ||||||||
Competition
The construction industry is highly competitive and the markets in which we compete include numerous competitors. However, there is a difference in the number of active market participants and a differentiation in their capabilities based on size of project. We typically target large, complex projects. As a result, we face fewer competitors, as smaller contractors are unable to effectively compete or are unable to secure bonding to support large projects.
In certain end markets of the building segment, such as hospitality and gaming and healthcare, we are one of the largest providers of construction services in the United States. In our building segment, we compete with a variety of national and regional contractors. Our primary competitors are Balfour Beatty Construction, Clark, DPR, Gilbane, Hensel Phelps, JE Dunn, McCarthy, PCL, Skanska, Suffolk, and Turner. In our civil segment, we compete principally with large civil construction firms that operate in the west, northeast and mid-Atlantic regions, including Skanska, Granite, Tully, Schiavone, Traylor Brothers, American Infrastructure, and Kiewit. In our management services segment, we compete principally with national engineering and construction firms such as Fluor, Washington Division of URS, Kellogg Brown & Root, Shaw, and CH2M Hill. Major competitors to Black Construction’s operations in Guam include DCK Construction, Coretech, Watts Constructors and Hensel Phelps. We believe price, experience, reputation, responsiveness, customer relationships, project completion track record and quality of work are key factors in customers awarding contracts across our end markets.
Types of Contracts and The Contract Process
Type of Contracts
The general contracting and management services we provide consist of planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms, plans and specifications contained in a construction contract. We provide these services by entering into traditional general contracting arrangements, such as guaranteed maximum price, cost plus fee and fixed price contracts and construction management or design-build contracting arrangements. These contract types and the risks generally inherent therein are discussed below:
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Guaranteed maximum price (GMP) contracts provide for a cost plus fee arrangement up to a maximum agreed upon price. These contracts place risks on the contractor for amounts in excess of the GMP, but may permit an opportunity for greater profits than under Cost Plus contracts through sharing agreements with the owner on any cost savings that may be realized. Services provided by our building segment to various private customers often are performed under GMP contracts.
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Cost plus fee (Cost Plus) contracts provide for reimbursement of the costs required to complete a project plus a stipulated fee arrangement. Cost Plus contracts include cost plus fixed fee (CPFF) contracts and cost plus award fee (CPAF) contracts. CPFF contracts provide for reimbursement of the costs required to complete a project plus a fixed fee. CPAF contracts provide for reimbursement of the costs required to complete a project plus a base fee as well as an incentive fee based on cost and/or schedule performance. Cost Plus contracts serve to minimize the contractor’s financial risk, but may also limit profits.
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Fixed price (FP) contracts, which include fixed unit price contracts, are generally used in competitively bid public civil and building construction projects and generally commit the contractor to provide all of the resources required to complete a project for a fixed sum or at fixed unit prices. Usually FP contracts transfer more risk to the contractor but offer the opportunity, under favorable circumstances, for greater profits. FP contracts represent a significant portion of our publicly bid civil construction projects. We also perform publicly bid building construction projects and certain task order contracts for agencies of the U.S. government in our management services segment under FP contracts.
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Construction management (CM) contracts are those under which a contractor agrees to manage a project for the owner for an agreed-upon fee, which may be fixed or may vary based upon negotiated factors. CM contracts serve to minimize the contractor’s financial risk, but may also limit profit relative to the overall scope of a project.
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Design-build contracts are those under which a contractor provides both design and construction services for a customer. These contracts may be either GMP, fixed price contracts or cost plus fee contracts.
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Historically, a high percentage of our contracts have been of the GMP and fixed price type. As a result of increasing opportunities in public works civil and building markets, combined with our increased resume and expertise as a result of the merger with Tutor-Saliba, the fixed price type of contract has grown and is expected to grow as a percentage of total revenues and backlog. A summary of revenues and backlog by type of contract for each of the three years in the period ended December 31, 2010 follows:
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Revenues for the
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Year Ended December 31,
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2010
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2009
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2008
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Cost Plus, GMP or CM
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51 | % | 72 | % | 89 | % | ||||||
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FP
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49 | % | 28 | % | 11 | % | ||||||
| 100 | % | 100 | % | 100 | % | |||||||
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Backlog as of
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December 31,
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2010
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2009
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2008
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Cost Plus, GMP or CM
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43 | % | 53 | % | 78 | % | ||||||
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FP
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57 | % | 47 | % | 22 | % | ||||||
| 100 | % | 100 | % | 100 | % | |||||||
The Contract Process
We identify potential projects from a variety of sources, including advertisements by federal, state and local governmental agencies, through the efforts of our business development personnel and through meetings with other participants in the construction industry such as architects and engineers. After determining which projects are available, we make a decision on which projects to pursue based on factors such as project size, duration, availability of personnel, current backlog, competitive advantages and disadvantages, prior experience, contracting agency or owner, source of project funding, geographic location and type of contract.
After deciding which contracts to pursue, we generally have to complete a prequalification process with the applicable agency or customer. The prequalification process generally limits bidders to those companies with the operational experience and financial capability to effectively complete the particular project(s) in accordance with the plans, specifications and construction schedule.
Our estimating process typically involves three phases. Initially, we perform a detailed review of the plans and specifications, summarize the various types of work involved and related estimated quantities, determine the project duration or schedule and highlight the unique aspects of and risks associated with the project. After the initial review, we decide whether to continue to pursue the project. If we elect to pursue the project, we perform the second phase of the estimating process which consists of estimating the cost and availability of labor, material, equipment, subcontractors and the project team required to complete the project on time and in accordance with the plans and specifications. The final phase consists of a detailed review of the estimate by management including, among other things, assumptions regarding cost, approach, means and methods, productivity and risk. After the final review of the cost estimate, management adds an amount for profit to arrive at the total bid amount.
Public bids to various governmental agencies are generally awarded to the lowest bidder. Requests for proposals or negotiated contracts with public or private customers are generally awarded based on a combination of technical capability and price, taking into consideration factors such as project schedule and prior experience.
During the construction phase of a project, we monitor our progress by comparing actual costs incurred and quantities completed to date with budgeted amounts and the project schedule and periodically, at a minimum on a quarterly basis, prepare an updated estimate of total forecasted revenue, cost and profit for the project.
During the ordinary course of most projects, the customer, and sometimes the contractor, initiate modifications or changes to the original contract to reflect, among other things, changes in specifications or design, construction method or manner of performance, facilities, equipment, materials, site conditions and period for completion of the work. Generally, the scope and price of these modifications are documented in a "change order" to the original contract and are reviewed, approved and paid in accordance with the normal change order provisions of the contract.
Often a contract requires us to perform extra, or change order, work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process may result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved and funded by the customer. Also, unapproved change orders, contract disputes or claims result in costs being incurred by us that cannot be billed currently and, therefore, are reflected as "costs and estimated earnings in excess of billings" in our balance sheet. See Note 1(d) of Notes to Consolidated Financial Statements, entitled “Method of Accounting for Contracts.” In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.
The process for resolving claims varies from one contract to another but, in general, we attempt to resolve claims at the project supervisory level through the normal change order process or with higher levels of management within our organization and the customer’s organization. Depending upon the terms of the contract, claim resolution may involve a variety of other resolution methods, including mediation, binding or non-binding arbitration or litigation. Regardless of the process, when a potential claim arises on a project, we typically have the contractual obligation to perform the work and incur the related costs. We do not recoup the costs until the claim is resolved. It is not uncommon for the claim resolution process to last months or years, especially if it involves litigation.
Our contracts generally involve work durations in excess of one year. Revenue from our contracts in process is generally recorded under the percentage of completion contract accounting method. For a more detailed discussion of our policy in these areas, see Note 1(d) of Notes to Consolidated Financial Statements.
Construction Costs
While our business may experience some adverse consequences if shortages develop or if prices for materials, labor or equipment increase excessively, provisions in certain types of contracts often shift all or a major portion of any adverse impact to the customer. On our fixed price contracts, we attempt to insulate ourselves from the unfavorable effects of inflation by incorporating escalating wage and price assumptions, where appropriate, into our construction cost estimates and by obtaining firm fixed price quotes from major subcontractors and material suppliers at the time of the bid period. Construction and other materials used in our construction activities are generally available locally from multiple sources and have been in adequate supply during recent years. Construction work in selected overseas areas primarily employs expatriate and local labor which can usually be obtained as required.
Environmental Matters
Our properties and operations are subject to federal, state and municipal laws and regulations relating to the protection of the environment, including requirements for water discharges, air emissions, the use, management and disposal of solid or hazardous materials or wastes and the cleanup of contamination. For example, we must apply water or chemicals to reduce dust on road construction projects and to contain contaminants in storm run-off water at construction sites. In certain circumstances, we may also be required to hire subcontractors to dispose of hazardous materials encountered on a project in accordance with a plan approved in advance by the owner. We believe that we are in substantial compliance with all applicable laws and regulations; however, future requirements or amendments to current laws or regulations imposing more stringent requirements could require us to incur additional costs to maintain or achieve compliance.
In addition, some environmental laws, such as the U.S. federal "Superfund" law and similar state statutes, can impose liability for the entire cost of cleanup of contaminated sites upon any of the current or former owners or operators or upon parties who sent wastes to these sites, regardless of who owned the site at the time of the release or the lawfulness of the original disposal activity. Contaminants have been detected at some of the sites that we own, or where we worked as a contractor in the past, and we have incurred costs for investigation or remediation of hazardous substances. We believe that our liability for these sites will not be material, either individually or in the aggregate, and have pollution liability insurance available for such matters. Perini Environmental Services, Inc., or Perini Environmental, a wholly owned subsidiary of Tutor Perini that was phased out during 1997, provided hazardous waste engineering and construction services to both private clients and public agencies nationwide. Perini Environmental was responsible for compliance with applicable laws in connection with its activities. We believe that we have minimal exposure to environmental liability because Tutor Perini (and previously Perini Environmental) generally carry insurance or receive indemnification from customers to cover the risks associated with the remediation business.
We own real estate in five states and in Guam and, as an owner, are subject to laws governing environmental responsibility and liability based on ownership. We are not aware of any significant environmental liability associated with our ownership of real estate.
Insurance and Bonding
All of our properties and equipment, both directly owned and owned through joint ventures with others, are covered by insurance and we believe that such insurance is adequate. In addition, we maintain general liability, excess liability and workers’ compensation insurance in amounts that we believe are consistent with our risk of loss and industry practice.
As a normal part of the construction business, we are often required to provide various types of surety bonds as an additional level of security of our performance. We have surety arrangements with several sureties. We also require many of our higher risk subcontractors to provide surety bonds as security for their performance. Since 2005, we also have purchased contract default insurance on certain construction projects to insure against the risk of subcontractor default as opposed to having subcontractors provide traditional payment and performance bonds.
Employees
The total number of personnel employed by us is subject to seasonal fluctuations, the volume of construction in progress and the relative amount of work performed by subcontractors. Our average number of full time equivalent employees during 2010 was 3,538.
We are signatory to numerous local and regional collective bargaining agreements, both directly and through trade associations, as a union contractor. These agreements cover all necessary union crafts and are subject to various renewal dates. Estimated amounts for wage escalation related to the expiration of union contracts are included in our bids on various projects and, as a result, the expiration of any union contract in the next fiscal year is not expected to have any material impact on us. As of December 31, 2010, approximately 1,200 of our total of 3,096 employees were union employees. During the past several years, we have not experienced any significant work stoppages caused by our union employees.
Available Information
Our website address is http://www.tutorperini.com. The information contained on our website is not included as a part of, or incorporated by reference into, this Annual Report on Form 10-K. We make available, free of charge on our Internet website, our annual reports on Form 10-K, our quarterly reports on Form 10-Q, our current reports on Form 8-K and amendments to such reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (the “Exchange Act”) as soon as reasonably practicable after we have electronically filed such materials with, or furnished it to, the United States Securities and Exchange Commission. You may read and copy any document we file at the SEC Headquarters, Public Reference Room, 100 F Street, NE, Washington, D.C. 20549. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. In addition, the SEC maintains a website at http://www.sec.gov that contains reports, proxy, information statements and other information regarding issuers, such as the Company, that file electronically with the SEC. Also available on our website are our Code of Business Conduct and Ethics, Corporate Governance Guidelines, the charters of the Committees of our Board of Directors and reports under Section 16 of the Exchange Act of transactions in our stock by our directors and executive officers.
ITEM 1A. RISK FACTORS
We are subject to a number of risks, including those summarized below. Such risks could have a material adverse effect on our financial condition, results of operations and cash flows. See our disclosure under “Forward-looking Statements” on page 3.
We may not fully realize the revenue value reported in our backlog.
As of December 31, 2010, our backlog of uncompleted construction work was approximately $4.3 billion. We include a construction project in our backlog at such time as a contract is awarded or a letter of commitment is obtained and adequate construction funding is in place. The revenue projected in our backlog may not be realized or, if realized, may not result in profits. For example, if a project reflected in our backlog is terminated, suspended or reduced in scope, it would result in a reduction to our backlog which would reduce, potentially to a material extent, the revenues and profits realized. If a customer cancels a project, we may be reimbursed for certain costs and profit thereon but typically have no contractual right to the total revenues reflected in our backlog. Significant cancellations or delays of projects in our backlog could have a material adverse effect on future revenues, profits, and cash flows.
Current economic conditions could adversely affect our operations.
The deterioration of economic and financial market conditions in the United States and overseas throughout 2009 and 2010, including severe disruptions in the credit markets, could continue to adversely affect our results of operations in future periods. The continued instability in the financial markets has made it difficult for certain of our customers, including private owners and state and local governments, to access the credit markets to obtain financing or refinancing, as the case may be, to fund new construction projects on satisfactory terms or at all. State and local governments continue to face potentially significant budget shortfalls as a result of declining tax and other revenues, which may cause them to defer or cancel planned infrastructure projects. During 2010, we have encountered increased levels of deferrals and delays related to new construction projects. Difficulty in obtaining adequate financing due to the unprecedented disruption in the credit markets may significantly increase the rate at which our customers defer, delay or cancel proposed new construction projects. Such deferrals, delays or cancellations could have an adverse impact on our future operating results.
Instability in the financial markets may also impact a customers’ ability to pay us on a timely basis, or at all, for work on projects already under construction in accordance with the contract terms. Customer financing may be subject to periodic renewals and extensions of credit by the lender. As credit markets remain tight and difficult economic conditions persist, lenders may be unwilling to continue renewing or extending credit to a customer. Such deferral, delay or cancellation of credit by the lender could impact the customer’s ability to pay us, which could have an adverse impact on our future operating results. A significant portion of our operations are concentrated in California, New York and Nevada. As a result, we are more susceptible to fluctuations caused by adverse economic or other conditions in these regions as opposed to others.
Economic downturns could reduce the level of consumer spending within the non-residential building industry, which could adversely affect demand for our services.
Consumer spending in certain private non-residential building type projects, especially hospitality and gaming, is discretionary and may decline during economic downturns when consumers have less disposable income. Even an uncertain economic outlook may adversely affect consumer and private industry spending in various business operations, as consumers may spend less in anticipation of a potential economic downturn. Decreased spending in the market could deter new projects within the industry and the expansion or renovation of existing facilities, which could negatively impact our revenues and earnings.
A decrease in government funding of infrastructure and other public projects could reduce the revenues of the company.
Approximately 32% (or $1.36 billion) of our backlog as of December 31, 2010, is derived from construction projects involving civil construction contracts. Civil construction markets are dependent on the amount of infrastructure work funded by various governmental agencies which, in turn, depends on the condition of the existing infrastructure, the need for new or expanded infrastructure and federal, state or local government spending levels. A slowdown in economic activity in any of the markets that we serve may result in less spending on public works projects. In addition, a decrease or delay in government funding of infrastructure projects or delays in the implementation of voter-approved bond measures could decrease the number of civil construction projects available and limit our ability to obtain new contracts, which could reduce revenues within our civil construction segment. In addition, budget shortfalls and credit rating downgrades in California and other states in which the Company is involved in significant infrastructure projects and any long-term impairment in the ability of state and local governments to finance construction projects by raising capital in the municipal bond market could curtail or delay the funding of future projects.
Our building segment also is involved in significant construction projects for public works projects such as Terminal 3 at McCarran International Airport in Las Vegas, public healthcare facilities, primarily in California, and public education facilities, primarily in Florida and California. These projects also are dependent upon funding by various federal, state and local governmental agencies. A decrease in government funding of public healthcare and education facilities, particularly in California and Florida, could decrease the number and/or size of construction projects available and limit our ability to obtain new contracts in these markets, which could further reduce our revenues and earnings.
A decrease in U.S. government funding or change in government plans, particularly with respect to construction projects in Iraq, Afghanistan and Guam, as well as the risks associated with undertaking projects in these countries, could adversely affect the continuation of existing projects or the number of projects available to us in the future.
We have performed design-build security upgrades at United States embassies and consulates throughout the world, and we are currently engaged in building activities in Iraq. The United States federal government has approved various spending bills for the reconstruction and defense of Iraq and Afghanistan and has allocated significant funds to the defense of United States interests around the world from the threat of terrorism. The United States federal government has also approved funds for development in conjunction with the relocation of military personnel into Guam. A decrease in government funding of these projects or a decision by the United States federal government to reduce or eliminate the use of outside contractors to perform this work would decrease the number of projects available to us and limit our ability to obtain new contracts in this area.
Our projects in Iraq, Afghanistan and other areas of political and economic instability carry with them specific security and operational risks. Intentional or unintentional acts in those countries could result in damage to our construction sites or harm to our employees and could result in our decision to withdraw our operations from the area. Also, as a result of these acts, the United States federal government could decide to cancel or suspend our operations in these areas.
Economic, political and other risks associated with our international operations involve risks not faced by our domestic competitors, which could adversely affect our revenues and earnings.
We derived approximately 5.0% (or $161.3 million) of our revenues and approximately $23.6 million of income from construction operations for the year ended December 31, 2010 from our work on projects located outside of the United States, including projects in Iraq, Afghanistan and Guam. We expect non-U.S. projects to continue to contribute to our revenues and earnings for the foreseeable future. Our international operations expose us to risks inherent in doing business in certain hostile regions outside the United States, including:
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political risks, including risks of loss due to civil disturbances, guerilla activities and insurrection;
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acts of terrorism and acts of war;
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unstable economic, financial and market conditions;
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potential incompatibility with foreign subcontractors and vendors;
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foreign currency controls and fluctuations;
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trade restrictions;
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variations in taxes; and
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changes in labor conditions, labor strikes and difficulties in staffing and managing international operations.
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Any of these factors could harm our international operations and, consequently, our business and consolidated operating results. Specifically, failure to successfully manage risks associated with our international operations could result in higher operating costs than anticipated or could delay or limit our ability to generate revenues and income from construction operations in key international markets.
We are subject to significant legal proceedings, which, if determined adversely to us, could harm our reputation, preclude us from bidding on future projects and/or have a material adverse effect on us.
We are involved in various lawsuits, including the legal proceedings described under Item 3 -- “Legal Proceedings.” Litigation is inherently uncertain and it is not possible to predict what the final outcome will be of any legal proceeding. A final judgment against us would require us to record the related liability and fund the payment of the judgment and, if such adverse judgment is significant, it could have a material adverse effect on us. Legal proceedings resulting in judgments or findings against us may harm our reputation and prospects for future contract awards.
Our contracts require us to perform extra or change order work, which can result in disputes and adversely affect our working capital, profits and cash flows.
Our contracts generally require us to perform extra, or change order, work as directed by the customer even if the customer has not agreed in advance on the scope or price of the work to be performed. This process can result in disputes over whether the work performed is beyond the scope of the work included in the original project plans and specifications or, if the customer agrees that the work performed qualifies as extra work, the price the customer is willing to pay for the extra work. Even when the customer agrees to pay for the extra work, we may be required to fund the cost of such work for a lengthy period of time until the change order is approved and funded by the customer.
Also, unapproved change orders, contract disputes or claims cause us to incur costs that cannot be billed currently and therefore may be reflected as "costs and estimated earnings in excess of billings" in our balance sheet. See Note 1(d) of Notes to Consolidated Financial Statements. To the extent our actual recoveries with respect to unapproved change orders, contract disputes or claims are lower than our estimates, the amount of any shortfall will reduce our revenues and the amount of costs and estimated earnings in excess of billings recorded on our balance sheet, and could have a material adverse effect on our working capital, results of operations and cash flows. In addition, any delay caused by the extra work may adversely impact the timely scheduling of other project work and our ability to meet specified contract milestone dates.
Increased regulation of the hospitality and gaming industry could reduce the number of future hospitality and gaming projects available, which, in turn, could adversely affect our future earnings.
The hospitality and gaming industry is regulated extensively by federal and state regulatory bodies, including state gaming commissions, the National Indian Gaming Commission and federal and state taxing and law enforcement agencies. From time to time, legislation is proposed in the legislatures of some of these jurisdictions that, if enacted, could adversely affect the tax, regulatory, operational or other aspects of the hospitality and gaming industry. Legislation of this type may be enacted in the future. The United States federal government has also previously considered a federal tax on casino revenues and may consider such a tax in the future. In addition, companies that operate in the hospitality and gaming industry are currently subject to significant state and local taxes and fees in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. New legislation or hospitality and gaming regulations could deter future hospitality and gaming construction projects in jurisdictions in which we derive significant revenues. As a result, the enactment of any such new legislation or regulations could adversely affect our future earnings.
If we are unable to accurately estimate the overall risks, revenues or costs on a contract, we may achieve a lower than anticipated profit or incur a loss on that contract.
We generally enter into four principal types of contracts with our clients: fixed price contracts, cost plus fee contracts, guaranteed maximum price contracts, and construction management contracts. We derive a significant portion of our civil construction segment and management services segment revenues and backlog from fixed price contracts.
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Fixed price and certain design-build contracts require us to perform the contract for a fixed price irrespective of our actual costs. As a result, we realize a profit on these contracts only if we successfully control our costs and avoid cost overruns.
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Cost plus fee contracts provide for reimbursement of the costs required to complete a project, but generally have a lower base fee and an incentive fee based on cost and/or schedule performance. If our costs exceed the revenues available under such a contract or are not allowable under the provisions of the contract, we may not receive reimbursement for these costs.
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Guaranteed maximum price contracts provide for a cost plus fee arrangement up to a maximum agreed-upon price. These contracts also place the risk on us for cost overruns that exceed the guaranteed maximum price.
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Construction management contracts are those under which we agree to manage a project for a customer for an agreed upon fee, which may be fixed or may vary based upon negotiated factors. Profitability on these types of contracts is impacted by changes in the scope of work or design issues, which could cause cost overruns beyond our control and limit profits on these contracts.
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Cost overruns, whether due to inefficiency, faulty estimates or other factors, result in lower profit or a loss on a project. A significant number of our contracts are based in part on cost estimates that are subject to a number of assumptions. If our estimates of the overall risks, revenues or costs prove inaccurate or circumstances change, we may incur a lower profit or a loss on that contract.
The percentage-of-completion method of accounting for contract revenues may result in material adjustments, which could result in a charge against our earnings.
We recognize contract revenues using the percentage-of-completion method. Under this method, estimated contract revenues are recognized by applying the percentage of completion of the project for the period to the total estimated revenues for the contract. Estimated contract losses are recognized in full when determined. Total contract revenues and cost estimates are reviewed and revised at a minimum on a quarterly basis as the work progresses and as change orders are approved. Adjustments based upon the percentage of completion are reflected in contract revenues in the period when these estimates are revised. To the extent that these adjustments result in an increase, a reduction or an elimination of previously reported contract profit, we recognize a credit or a charge against current earnings, which could be material.
We are subject to a number of risks as a U.S. government contractor, which could either harm our reputation, result in fines or penalties against us and/or adversely impact our financial condition.
We are a provider of services to U.S. government agencies and therefore are exposed to risks associated with government contracting. We must observe laws and regulations relating to the formation, administration and performance of government contracts which affect how we do business with our U.S. government customers and may impose added costs on our business. For example, the Federal Acquisition Regulations and the industrial security regulations of the U.S. Department of Defense and related laws include provisions that allow our U.S. government customers to terminate or not renew our contracts if we come under foreign ownership, control or influence and require us to disclose and certify cost and pricing data in connection with contract negotiations.
Our failure to comply with these or other laws and regulations could result in contract terminations, suspension or debarment from contracting with the U.S. government, civil fines and damages and criminal prosecution and penalties, any of which could cause our actual results to differ materially from those anticipated.
U.S. government agencies generally can terminate or modify their contract with us at their convenience and some government contracts must be renewed annually. If a government agency terminates or fails to renew a contract, our backlog may be reduced. If a government agency terminates a contract due to our unsatisfactory performance, it could result in liability to us and harm our ability to compete for future contracts.
U.S. government agencies, including the Defense Contract Audit Agency, or DCAA, routinely audit and investigate U.S. government contracts and U.S. government contractors’ administrative processes and systems. These agencies review our performance on contracts, pricing practices, cost structure and compliance with applicable laws, regulations and standards. They also review our compliance with regulations and policies and the adequacy of our internal control systems and policies, including our purchasing, property, estimating, compensation and management information systems. Any costs found to be improperly allocated to a specific contract will not be reimbursed, and any such costs already reimbursed must be refunded. Moreover, if any of the administrative processes or systems is found not to comply with requirements, we may be subjected to increased government oversight and approval that could delay or otherwise adversely affect our ability to compete for or perform contracts. Therefore, an unfavorable outcome to an audit by the DCAA or another agency could cause our results to differ materially from those anticipated. If an investigation uncovers improper or illegal activities, we may be subject to civil and criminal penalties and administrative sanctions, including termination of contracts, forfeitures of profits, suspension of payments, fines and suspension or debarment from doing business with the U.S. government. In addition, we would suffer serious harm to our reputation if allegations of impropriety were made against us. Each of these results could cause actual results to differ materially from those anticipated.
Our participation in construction joint ventures exposes us to liability and/or harm to our reputation for failures of our partners.
As part of our business, we enter into joint venture arrangements typically to jointly bid on and execute particular projects, thereby reducing our financial or operational risk with respect to such projects. Success on these joint projects depends in large part on whether our joint venture partners satisfy their contractual obligations. We and our joint venture partners are generally jointly and severally liable for all liabilities and obligations of our joint ventures. If a joint venture partner fails to perform or is financially unable to bear its portion of required capital contributions or other obligations, including liabilities stemming from lawsuits, we could be required to make additional investments, provide additional services or pay more than our proportionate share of a liability to make up for our partner’s shortfall. Further, if we are unable to adequately address our partner’s performance issues, the customer may terminate the project, which could result in legal liability to us, harm our reputation, and reduce our profit on a project.
Our pension plan is underfunded and we may be required to make significant future contributions to the plan.
Our defined benefit pension plan and our supplemental retirement plan are non-contributory pension plans covering many of our employees. Benefits under these plans were frozen as of June 1, 2004. As of December 31, 2010, these plans were underfunded by approximately $26.4 million. We are required to make cash contributions to our pension and supplemental retirement plans to the extent necessary to comply with minimum funding requirements imposed by employee benefit and tax laws. The amount of any such required contributions is determined based on an annual actuarial valuation of the plan as performed by the plans’ actuaries. During 2010, we contributed $3.8 million in cash to our defined benefit pension plan and supplemental retirement plan. The amount of our future contributions will depend upon asset returns, then-current discount rates and a number of other factors, and, as a result, the amount we may elect or be required to contribute to these plans in the future may vary significantly. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Critical Accounting Policies--Defined Benefit Retirement Plan."
The construction services industry is highly schedule driven, and our failure to meet schedule requirements of our contracts could adversely affect our reputation and/or expose us to financial liability.
Many of our contracts are subject to specific completion schedule requirements and subject us to liquidated damages in the event the construction schedules are not achieved. Our failure to meet schedule requirements could subject us not only to liquidated damages, but could further subject us to liability for our customer’s actual cost arising out of our delay and cause us to suffer damage to our reputation within our industry and customer base.
Competition for new project awards is intense and our failure to compete effectively could reduce our market share and profits.
New project awards are often determined through either a competitive bid basis or on a negotiated basis. Bid or negotiated contracts with public or private owners are generally awarded based upon price, but many times other factors, such as shorter project schedules or prior experience with the customer, influence the award of the contract. Within our industry, we compete with many national, regional and local construction firms. Some of these competitors have achieved greater market penetration than we have in the markets in which we compete, and some have greater financial and other resources than we do. As a result, we may need to accept lower contract margins or more fixed price or unit price contracts in order for us to compete against competitors that have the ability to accept awards at lower prices or have a pre-existing relationship with the customer. If we are unable to compete successfully in such markets, our relative market share and profits could be reduced.
We will require substantial personnel and specialty subcontractor resources to execute and perform on our contracts in backlog.
Our ability to execute and perform on our contracts in backlog depends in large part upon our ability to hire and retain highly skilled personnel, including engineering, project management and senior management professionals. In addition, our construction projects require a significant amount of trade labor resources, such as carpenters, masons and other skilled workers, as well as certain specialty subcontractor skills. In the event we are unable to attract, hire and retain the requisite personnel and subcontractors necessary to execute and perform on our contract backlog, we may experience delays in completing projects in accordance with project schedules, which may have an adverse effect on our financial results and harm our reputation. Further, the increased demand for personnel and specialty subcontractors may result in higher costs which could cause us to exceed the budget on a project, which in turn may have an adverse effect on our results of operations and harm our relationships with our customers. In addition, if we lack the personnel and specialty subcontractors necessary to perform on our current contract backlog, we may find it necessary to curtail our pursuit of new projects.
An inability to obtain bonding could limit the number of projects we are able to pursue.
As is customary in the construction business, we often are required to provide surety bonds to secure our performance under construction contracts. Our ability to obtain surety bonds primarily depends upon our capitalization, working capital, past performance, management expertise and certain external factors, including the overall capacity of the surety market. Surety companies consider such factors in relation to the amount of our backlog and their underwriting standards, which may change from time to time. Since 2001, the surety industry has undergone significant changes with several companies withdrawing completely from the industry or significantly reducing their bonding commitment. In addition, certain reinsurers of surety risk have limited their participation in this market. Therefore, we could be unable to obtain surety bonds, when required, which could adversely affect our future results of operations and revenues.
If Black Construction’s opportunity to win significant business from the expansion of the United States military’s operations on the island of Guam does not develop as anticipated, our growth prospects, revenues and earnings could be adversely affected in our Management Services segment.
A significant portion of the future revenues and growth prospects of Black Construction, one of our subsidiaries, over the next several years is expected to involve the construction of facilities for the expansion of the United States military’s base on the island of Guam. This construction is dependent upon the continued implementation of the United States military’s announced plan to relocate 8,000 U.S. Marines and other military personnel from Okinawa, Japan to the island of Guam. The continued implementation of the United States military’s plan, and the amount of work that Black Construction wins and performs in connection with the expansion of the United States military’s base on the island of Guam, depends upon a number of factors, including:
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•
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competition from other construction companies operating on the island of Guam;
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•
|
the political environment in the United States and Japan;
|
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|
•
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the ability to satisfy various local regulations and concerns surrounding the environmental impact of such a large-scale project on the island of Guam;
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•
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the financial and other terms agreed upon between the United States and Japan with respect to the relocation;
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•
|
the United States military’s and the Japanese government’s availability of funds for the continued funding of the expansion and relocation in light of funding demands for other national priorities and commitments;
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•
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political, military and terrorist activities that affect the United States foreign policy;
|
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•
|
the ability of the Company to invest sufficiently, and on favorable terms, in expanding Black Construction’s capabilities on the island of Guam, including hiring and relocating necessary personnel, acquiring land (including warehousing and barracks) and acquiring and relocating equipment; and
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•
|
economic, political and other risks relating to business outside of the United States (despite the fact that the island of Guam is a United States territory).
|
Any of these factors could result in a delay or cancellation of some or all of the anticipated work on the island of Guam, which would have an adverse effect on our growth prospects, future revenues and future earnings of the combined company.
We intend to continue to pursue acquisition opportunities, which may be difficult to integrate into our business.
We intend to continue to pursue acquisitions as part of our growth strategy, as evidenced by our recent acquisitions of Superior Gunite in the fourth quarter of 2010 and Fisk Electric in January 2011. The process of managing and integrating new acquisitions into our Company may result in unforeseen operating difficulties and may require significant financial, operational and managerial resources that would otherwise be available for the operation, development and expansion of our existing business. To the extent that we misjudge our ability to integrate and properly manage acquisitions, we may have difficulty achieving our operating, strategic and financial objectives.
Acquisitions also may involve a number of special financial, business and operational risks, such as:
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•
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difficulties in integrating diverse corporate cultures and management styles;
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•
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additional or conflicting government regulation;
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•
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disparate company policies and practices;
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•
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client relationship issues;
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•
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diversion of our management’s time, attention and resources;
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•
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decreased utilization during the integration process;
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•
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loss of key existing or acquired personnel;
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•
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increased costs to improve or coordinate managerial, operational, financial and administrative systems;
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•
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dilutive issuances of equity securities, including convertible debt securities to finance acquisitions;
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•
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the assumption of legal liabilities; and
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•
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amortization of acquired intangible assets.
|
In addition to the integration challenges mentioned above, acquisitions of non-U.S. companies offer distinct integration challenges relating to non-U.S. GAAP financial reporting, foreign laws and governmental regulations, including tax and employee benefit laws, and other factors relating to operating in countries other than the United States, which are discussed above in the discussion regarding the difficulties we may face operating outside of the United States.
In connection with mergers and acquisitions, we have recorded goodwill and other intangible assets that could become impaired and adversely affect our operating results.
Under accounting principles generally accepted in the United States, our mergers and acquisitions have been accounted for under the acquisition method. Under the acquisition method, the total purchase price we pay is allocated to the acquired company’s tangible assets and liabilities and identifiable intangible assets based on their estimated fair values as of the date of completion of the merger or acquisition. The excess of the purchase price over those estimated fair values is recorded as goodwill. We test goodwill and intangible assets with indefinite lives for impairment annually, in the fourth quarter of each year, and between these periods if events occur or circumstances change which suggest that the goodwill or intangible assets should be evaluated. At December 31, 2010, the carrying value of the goodwill and other indefinite-lived intangible assets recorded in mergers and acquisitions totaled $728.5 million and represents 26% of our total assets of $2.8 billion. To the extent the value of the goodwill or other intangible assets becomes impaired in the future, we will be required to incur non-cash charges to the Consolidated Statements of Operations relating to such impairment.
Conflicts of interest may arise involving certain of our directors.
We have engaged in joint ventures, primarily in civil construction, with O&G Industries, Inc., a Connecticut corporation, whose Vice Chairman is Raymond R. Oneglia, one of our directors. As of December 31, 2010, the Company has a 30% interest in a joint venture with O&G as the sponsor for a highway reconstruction project with an estimated total contract value of approximately $357 million. In accordance with the Company’s policy, the terms of this joint venture and any of our joint ventures with any affiliate have been and will be subject to review and approval by our Audit Committee. As in any joint venture, we could have disagreements with our joint venture partner over the operation of a joint venture or a joint venture could be involved in disputes with third parties, where we may or may not have an identity of interest with our joint venture partner. These relationships also may create conflicts of interest with respect to new business and other corporate opportunities.
Our reputation may be harmed and our future earnings may be negatively impacted if we are unable to retain key members of our management.
Our business substantially depends on the continued service of key members of our management, particularly Ronald N. Tutor, Robert Band, Mark A. Caspers, James (“Jack”) Frost, Craig W. Shaw, Paul E. Lloyd, Martin B. Sisemore, William R. Derrer, Daniel J. Keating, Larry Totten, Anthony Federico and Kenneth R. Burk, who, collectively, have an average of more than 30 years in the construction industry. Losing the services of any of these individuals could adversely affect our business until a suitable replacement can be found. We believe that they could not quickly be replaced with executives of equal experience and capabilities. Generally these executives are not bound by employment agreements with us and we do not maintain key person life insurance policies on any of these executives.
Ronald N. Tutor’s ownership interest in the Company, along with his management position and his right to designate up to two nominees to serve as members of our Board of Directors, provides him with significant influence over corporate matters and may make a third party’s acquisition of the Company (or its stock or assets) more difficult.
As of December 31, 2010, Mr. Tutor and two trusts controlled by Mr. Tutor owned approximately 31% of the outstanding shares of our common stock. In addition, Mr. Tutor is the chairman and chief executive officer of the Company and has the right to designate up to two nominees for election as members of the Company’s Board of Directors. As of the date of this Form 10-K, none of the current directors have been appointed by Mr. Tutor. If Mr. Tutor fully exercises his right to appoint two directors, he and his two designees would be 3 of 11 directors, as the size of the Board would increase by two members. Although the Shareholders Agreement, dated April 2, 2008, by and among Tutor Perini Corporation, Ronald N. Tutor and certain shareholders of Tutor-Saliba Corporation signatory thereto (the “Shareholders Agreement”) imposes significant limits on Mr. Tutor’s right to vote the shares of our common stock held by Mr. Tutor, two trusts controlled by him and any other affiliates of Mr. Tutor or the trusts (the “Tutor Group”), or to take specified actions that may facilitate an unsolicited acquisition of control of the Company by Mr. Tutor or his affiliates, Mr. Tutor will nonetheless still be able to exert significant influence over the outcome of a range of corporate matters, including significant corporate transactions requiring a shareholder vote, such as a merger or a sale of the Company or its assets. This concentration of ownership and influence in management and Board decision-making also could harm the price of our common stock by, among other things, discouraging a potential acquirer from seeking to acquire shares of our common stock (whether by making a tender offer or otherwise) or otherwise attempting to obtain control of the Company.
Our business, financial position, results of operations and cash flows could be adversely affected by work stoppages and other labor problems.
We are a signatory to numerous local and regional collective bargaining agreements, both directly and through trade associations. Future agreements reached in collective bargaining could increase our operating costs and reduce our profits as a result of increased wages and benefits. If we or our trade associations are unable to negotiate with any of our unions, we might experience strikes, work stoppages or increased operating costs as a result of higher than anticipated wages or benefits. If our unionized workers engage in a strike or other work stoppage, or our non-unionized employees become unionized, we could experience a disruption of our operations and higher ongoing labor costs, which could adversely affect our business, financial position, results of operations and cash flows.
We have a substantial amount of indebtedness which could adversely affect our financial position and prevent us from fulfilling our obligations under our debt agreements, in particular under our $300 million senior unsecured notes.
We currently have and will continue to have a substantial amount of indebtedness. As of December 31, 2010, we have a total debt of approximately $395.7 million, consisting of $297.8 million of senior unsecured notes (net of unamortized debt discount of $2.2 million) (the “Notes”) and $97.9 million of other debt. We may also incur significant additional indebtedness in the future. Our substantial indebtedness may:
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·
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make it difficult for us to satisfy our financial obligations, including making scheduled principal and interest payments on the Notes and our other indebtedness;
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·
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limit our ability to borrow additional funds for working capital, capital expenditures, acquisitions or other general business purposes;
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limit our ability to use our cash flow or obtain additional financing for future working capital, capital expenditures, acquisitions or other general business purposes;
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require us to use a substantial portion of our cash flow from operations to make debt service payments;
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limit our flexibility to plan for, or react to, changes in our business and industry;
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place us at a competitive disadvantage compared to our less leveraged competitors; and
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increase our vulnerability to the impact of adverse economic and industry conditions.
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We are subject to restrictive covenants under our credit facility that could limit our flexibility in managing the business.
Our credit facility imposes operating and financial restrictions on us. These restrictions include, among other things, limitations on our ability to:
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•
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create liens or other encumbrances;
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•
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enter into certain types of transactions with our affiliates;
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•
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make certain capital expenditures;
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•
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make investments, loans or other guarantees;
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•
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sell or otherwise dispose of a portion of our assets; or
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•
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merge or consolidate with another entity.
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In addition, our credit facility prohibits us from incurring debt from other sources without the consent of our lenders.
Our credit facility contains financial covenants that require us to maintain minimum net worth, minimum fixed charge coverage and maximum leverage ratios. Our ability to borrow funds for any purpose is dependent upon satisfying these tests.
If we are unable to meet the terms of the financial covenants or fail to comply with any of the other restrictions contained in our credit facility, an event of default could occur. An event of default, if not waived by our lenders, could result in the an acceleration of any outstanding indebtedness, causing such debt to become immediately due and payable. If such an acceleration occurs, we may not be able to repay such indebtedness on a timely basis. Since our credit facility is secured by substantially all of our assets, acceleration of this debt could result in foreclosure of those assets. In the event of a foreclosure, we would be unable to conduct our business and may be forced to discontinue ongoing operations.
Funds associated with auction rate securities that we have traditionally held as short-term investments may not be liquid or readily available.
As discussed in Note 2 of Notes to Consolidated Financial Statements entitled “Fair Value Measurements” included in this report, our investment securities consist of auction rate securities which are not currently liquid or readily available to convert to cash. If the global credit crisis persists or intensifies, it is possible that we will be required to further adjust the fair value of our auction rate securities. If we determine that the decline in the fair value of our auction rate securities is other-than-temporary, it would result in additional impairment charges being recognized in our Consolidated Statements of Operations, which could be material and which could adversely affect our financial results. In addition, the lack of liquidity associated with these investments may require us to access our credit facility until some or all of our auction rate securities are liquidated.
We could face risks associated with environmental laws.
We are subject to federal, state and local environmental laws and regulations, governing activities and operations that may have environmental or health and safety effects, such as the discharge of pollutants into the environment, the handling, storage and disposal of solid or hazardous materials or wastes and the investigation and remediation of contamination. We may be responsible for the investigation and remediation of environmental conditions at currently and formerly owned, leased, operated or used sites. We may be subject to associated liabilities, including liabilities for natural resource damage, third party property damage or personal injury resulting from lawsuits brought by the government or private litigants, relating to our operations, the operations of our facilities, or the land on which our facilities are located. We may be subject to these liabilities regardless of whether we lease or own the facility, and regardless of whether such environmental conditions were created by us or by a prior owner or tenant, or by a third party or a neighboring facility whose operations may have affected such facility or land. This is because liability for contamination under certain environmental laws can be imposed on the current or past owners or operators of a site without regard to fault. Moreover, in the course of our operations, hazardous wastes may be generated at third party owned or operated sites, and hazardous wastes may be disposed of or treated at third party owned or operated disposal sites. If those sites become contaminated, we could also be held responsible for the cost of investigating and remediating those sites, for any associated natural resource damage, and for civil or criminal fines or penalties.
We will have continuing contractual obligations with Mr. Tutor, which may create conflicts of interest or may not be practical to enforce on our behalf.
The Company and the former Tutor-Saliba shareholders, including Mr. Tutor, continue to have obligations following completion of the Tutor-Saliba merger. These obligations include indemnification obligations, which may entitle the Company to seek recovery from the former Tutor-Saliba shareholders for losses related to pre-merger actions or omissions of Tutor-Saliba. In addition, the Employment Agreement and the Shareholders Agreement also include obligations that are in effect, including the restrictions on competitive activities, several of which may be impacted by the operating performance of the Company or Tutor-Saliba or the activities of Mr. Tutor.
In light of the important role Mr. Tutor serves for the Company, it may be more difficult, impractical or inadvisable for the Company to enforce or assert defenses with respect to these contractual obligations against Mr. Tutor than against an unaffiliated third party, which may create a conflict of interest for the Company or Mr. Tutor. Other former Tutor-Saliba shareholders have continuing roles with the Company, and a similar conflict of interest may arise, although their interests in the Company will be significantly less than Mr. Tutor’s. If we determine that these contractual obligations should not be enforced even if there is a valid claim for enforcement or a valid defense to the enforcement of these obligations, we may not get the entire benefit for which it negotiated in these agreements, including recovery for certain losses related to Tutor-Saliba for which it otherwise would be entitled to indemnification.
We retain a certain level of self-insured risk for workers’ compensation, general liability, automobile liability and subcontractor default insurance. Therefore, large self-insured losses, associated with several insurable events, could adversely affect our operating results.
We self-insure for a portion of our claims exposure resulting from workers' compensation, general liability, automobile liability and certain events of subcontractor default. We maintain insurance coverage with licensed insurance carriers which limits our aggregate exposure to excessive loss experience in a given policy year. In addition, we maintain insurance coverage above the amounts for which we self-insure. We accrue currently for estimated incurred losses and expenses, and periodically evaluate and adjust our claims accrued liability to reflect our experience. However, if excessive loss experience should occur in a policy year or years, ultimate results may differ materially from our estimates, which could adversely affect our operating results and cash flow. Although we believe the level of our insurance coverage should be sufficient to cover reasonably expected claims, it is possible that one or more claims could exceed our aggregate coverage limits. Also, there are some types of losses such as from hurricanes, terrorism, wars, or earthquakes where insurance is limited and/or not economically justifiable. If an uninsured loss occurs, it could adversely affect our operating results and cash flow.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Properties used in our construction operations are summarized below. We believe our properties are well maintained, in good condition, adequate and suitable for our purposes.
|
Principal Offices
|
Business Segment(s)
|
Owned or Leased by Tutor Perini
|
Approximate Acres
|
Approximate Square Feet of Office Space
|
||||
|
Framingham, MA
|
Management Services
|
Owned
|
9
|
103,500
|
||||
|
Las Vegas, NV
|
Building
|
Leased
|
-
|
88,100
|
||||
|
Hendersen, NV
|
Building
|
Owned
|
12
|
62,200
|
||||
|
Jessup, MD
|
Civil
|
Owned
|
9
|
46,000
|
||||
|
Sylmar, CA
|
Building, Civil and Management Services
|
Leased
|
-
|
45,700
|
||||
|
Redwood City, CA
|
Building
|
Leased
|
-
|
44,900
|
||||
|
Philadelphia, PA
|
Building
|
Leased
|
-
|
35,800
|
||||
|
Sylmar, CA
|
Building
|
Owned
|
2
|
28,700
|
||||
|
Phoenix, AZ
|
Building
|
Leased
|
-
|
28,400
|
||||
|
Barrigada, Guam
|
Management Services
|
Owned
|
4
|
27,000
|
||||
|
Irvine, CA
|
Building
|
Owned
|
2
|
24,500
|
||||
|
Folcroft, PA
|
Building
|
Leased
|
-
|
21,600
|
||||
|
New Rochelle, NY
|
Civil
|
Owned
|
1
|
21,500
|
||||
|
Peekskill, NY
|
Civil
|
Owned
|
5
|
21,000
|
||||
|
Ft. Lauderdale, FL
|
Building
|
Leased
|
-
|
17,500
|
||||
|
San Diego, CA
|
Building
|
Leased
|
-
|
13,200
|
||||
|
Roseville, CA
|
Building
|
Leased
|
-
|
13,100
|
||||
|
Lakeview Terrace, CA
|
Civil
|
Leased
|
-
|
11,000
|
||||
|
San Leandro, CA
|
Civil
|
Leased
|
-
|
7,800
|
||||
|
Orlando, FL
|
Building
|
Leased
|
-
|
4,700
|
||||
|
Arlington, VA
|
Building
|
Leased
|
-
|
2,900
|
||||
|
Seattle, WA
|
Civil
|
Leased
|
-
|
2,800
|
||||
|
Metro Manila, Philippines
|
Management Services
|
Leased
|
-
|
2,500
|
||||
|
Pleasanton, CA
|
Building
|
Leased
|
-
|
1,300
|
||||
|
Agana Heights, Guam
|
Management Services
|
Owned
|
-
|
800
|
||||
|
Los Angeles, CA
|
Building
|
Leased
|
-
|
400
|
||||
|
Austin, TX
|
Building
|
Leased
|
-
|
200
|
||||
|
44
|
677,100
|
|||||||
|
Principal Permanent
|
||||||||
|
Storage Yards
|
||||||||
|
Fontana, CA
|
Building and Civil
|
Leased
|
33
|
|||||
|
Las Vegas, NV
|
Building
|
Owned
|
29
|
|||||
|
Barrigada, Guam
|
Management Services
|
Owned
|
13
|
|||||
|
Elkridge, MD
|
Civil
|
Owned
|
7
|
|||||
|
Jessup, MD
|
Civil
|
Owned
|
7
|
|||||
|
Stockton, CA
|
Building
|
Owned
|
7
|
|||||
|
Barrigada, Guam
|
Management Services
|
Leased
|
4
|
|||||
|
Annapolis Junction, MD
|
Civil
|
Owned
|
3
|
|||||
|
Las Vegas, NV
|
Building
|
Leased
|
3
|
|||||
|
Lakeview Terrace, CA
|
Civil
|
Leased
|
2
|
|||||
|
San Leandro, CA
|
Civil
|
Leased
|
1
|
|||||
|
Framingham, MA
|
Building and Civil
|
Owned
|
1
|
|||||
|
Seattle, WA
|
Civil
|
Leased
|
-
|
|||||
|
Salt Lake City, UT
|
Civil
|
Leased
|
-
|
|||||
|
Pasig, Philippines
|
Management Services
|
Leased
|
-
|
|||||
|
110
|
||||||||
ITEM 3. LEGAL PROCEEDINGS
Legal Proceedings are set forth in Part IV, Item 15 in this report and are hereby incorporated in this Item 3 by reference (see Note 8 of Notes to Consolidated Financial Statements entitled “Contingencies and Commitments”).
ITEM 4. (REMOVED AND RESERVED)
EXECUTIVE OFFICERS OF THE REGISTRANT
Listed below are the names, offices held, ages and business experience of our executive officers.
|
Name, Offices Held and Age
|
Year First Elected to Present Office and Business Experience
|
|
|
Ronald N. Tutor, Director, Chairman and Chief Executive Officer – 70
|
He has served as a Director since January 1997 and has served as our Chief Executive Officer since March 2000. He has also served as our Chairman since July 1999, Vice Chairman from January 1998 to July 1999, and Chief Operating Officer from January 1997 until March 2000 when he became Chief Executive Officer. Prior to our merger with Tutor-Saliba Corporation in September 2008, Mr. Tutor served as Chairman, President and Chief Executive Officer of Tutor-Saliba Corporation since prior to 1995 and actively managed that company since 1966.
|
|
|
Robert Band, Director and President of Tutor Perini and Chief Executive Officer, Management Services Group – 63
|
He was appointed Chief Executive Officer of Management Services Group in March 2009. He has served as a Director since May 1999. He has also served as our President since May 1999 and as Chief Operating Officer from March 2000 to March 2009. Previously, he served as Chief Executive Officer from May 1999 until March 2000, Executive Vice President and Chief Financial Officer from December 1997 until May 1999, and President of Perini Management Services, Inc. since January 1996. Previously, he served in various operational and financial capacities since 1973, including Treasurer from May 1988 to January 1990.
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|
|
James (“Jack”) Frost, Executive Vice President and Chief Executive Officer, Civil Group – 57
|
He was appointed to his current position in March 2009. Previously he was Executive Vice President and Chief Operating Officer of Tutor-Saliba. He joined Tutor-Saliba in 1988.
|
|
|
Mark A. Caspers, Executive Vice President and Chief Executive Officer, Building Group – 47
|
He was appointed to his current position in March 2009. Previously he was President and Chief Operating Officer of Perini Building Company, where he has worked since 1982.
|
|
|
Kenneth R. Burk, Executive Vice President and Chief Financial
Officer – 51
|
He was appointed to his current position in March 2009. Previously he served as Senior Vice President and Chief Financial Officer from September 2007 to March 2009. From February 2001 until July 2007, he served as President and Chief Executive Officer of Union Switch and Signal, Inc., a provider of technology services, control systems and specialty rail components for the rail transportation industry. From 1999 until 2000, he served as Executive Vice President and Chief Operating Officer of Railworks Corporation, a provider of services and supplies to the rail transportation industry. From 1994 to 1999, he served as Senior Vice President and Chief Financial Officer of Dick Corporation, a Pittsburgh, Pennsylvania-based engineering and construction firm.
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William B. Sparks, Executive Vice President, Treasurer and Corporate Secretary – 62
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He was appointed to his current position in March 2009. He joined Tutor-Saliba in 1995 as Senior Vice President and Chief Financial Officer.
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Our officers are elected on an annual basis at the Board of Directors’ Meeting immediately following the Annual Meeting of Stockholders in May, to hold such offices until the Board of Directors’ Meeting following the next Annual Meeting of Stockholders and until their respective successors have been duly appointed or until his earlier resignation or removal.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is traded on the New York Stock Exchange under the symbol "TPC". In 2009, we changed our name to Tutor Perini Corporation from Perini Corporation and accordingly changed our symbol from “PCR” to “TPC”. The quarterly market high and low sales prices for our common stock in 2010 and 2009 are summarized below:
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2010
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2009
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High
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Low
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High
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Low
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|||||||||||||||
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Market Price Range per Common Share:
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||||||||||||||||||
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Quarter Ended
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||||||||||||||||||
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March 31
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$ | 23.75 | - | $ | 18.15 | $ | 26.60 | - | $ | 10.21 | ||||||||
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June 30
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25.48 | - | 16.37 | 23.77 | - | 11.73 | ||||||||||||
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September 30
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21.25 | - | 15.56 | 21.98 | - | 13.83 | ||||||||||||
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December 31
|
23.85 | - | 18.60 | 22.35 | - | 16.26 | ||||||||||||
Dividends
On October 25, 2010 our Board of Directors declared a special cash dividend of $1.00 per share of common stock. The dividend was paid on November 12, 2010 to stockholders of record on November 4, 2010. Prior to the special cash dividend paid in 2010, we had not paid any cash dividends on our common stock since 1990.
Holders
At February 25, 2011, there were 728 holders of record of our common stock, including holders of record on behalf of an indeterminate number of beneficial owners, based on the stockholders list maintained by our transfer agent.
Issuer Purchases of Equity Securities
There were no repurchases by the Company of its equity securities during the three months ended December 31, 2010.
Performance Graph
The following graph compares the cumulative 5-year total return to shareholders on our common stock relative to the cumulative total returns of the New York Stock Exchange Composite Index (“NYSE”) and the Dow Jones Heavy Construction Index (“DJ Heavy Construction”). We selected the DJ Heavy Construction because we believe the index reflects the market conditions within the industry we primarily operate. The comparison of total return on investment, defined as the change in year-end stock price plus reinvested dividends, for each of the periods assumes that $100 was invested on January 1, 2005, in each of our common stock, the NYSE and the DJ Heavy Construction, with investment weighted on the basis of market capitalization.
The comparisons in the following graph are based on historical data and are not intended to forecast the possible future performance of our common stock.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG TUTOR PERINI CORPORATION,
NYSE COMPOSITE INDEX AND DJ HEAVY CONSTRUCTION INDEX
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Fiscal Year Ending December 31,
|
||||||||||||||||||||||||
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2005
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2006
|
2007
|
2008
|
2009
|
2010
|
|||||||||||||||||||
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Tutor Perini Corporation
|
100.00 | 127.45 | 171.51 | 96.81 | 74.87 | 92.53 | ||||||||||||||||||
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NYSE Composite Index
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100.00 | 120.47 | 131.15 | 79.67 | 102.20 | 115.88 | ||||||||||||||||||
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DJ Heavy Construction
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100.00 | 124.74 | 236.96 | 106.34 | 121.55 | 156.07 | ||||||||||||||||||
The information included under the heading “Performance Graph” in Item 5 of this Annual Report on Form 10-K is “furnished” and not “filed” and shall not be deemed to be “soliciting material” or subject to Regulation 14A, shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act.
ITEM 6. SELECTED FINANCIAL DATA
Selected Consolidated Financial Information
The following selected financial data has been derived from our audited consolidated financial statements and should be read in conjunction with the consolidated financial statements, the related notes thereto and the independent auditors’ report thereon, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” which are included elsewhere in this Form 10-K and in previously filed annual reports on Form 10-K of Tutor Perini Corporation. Backlog and new business awarded are not measures defined in accounting principles generally accepted in the United States of America and have not been derived from audited consolidated financial statements.
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Year Ended December 31,
|
||||||||||||||||||||
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2010 (1)
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2009 (2)
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2008 (3)
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2007
|
2006
|
||||||||||||||||
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(In thousands, except per share data)
|
||||||||||||||||||||
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OPERATING SUMMARY
|
||||||||||||||||||||
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Revenues:
|
||||||||||||||||||||
|
Building
|
$ | 2,326,980 | $ | 4,484,937 | $ | 5,146,563 | $ | 4,248,814 | $ | 2,515,051 | ||||||||||
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Civil
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667,704 | 361,677 | 310,722 | 234,778 | 281,137 | |||||||||||||||
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Management Services
|
204,526 | 305,352 | 203,001 | 144,766 | 246,651 | |||||||||||||||
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Total
|
3,199,210 | 5,151,966 | 5,660,286 | 4,628,358 | 3,042,839 | |||||||||||||||
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Cost of Operations
|
2,861,362 | 4,763,919 | 5,327,056 | 4,379,464 | 2,873,444 | |||||||||||||||
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Gross Profit
|
337,848 | 388,047 | 333,230 | 248,894 | 169,395 | |||||||||||||||
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G&A Expense
|
165,536 | 176,504 | 133,998 | 107,913 | 98,516 | |||||||||||||||
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Goodwill and Intangible Asset Impairment (4)
|
- | - | 224,478 | - | - | |||||||||||||||
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Income (Loss) From Construction Operations
|
172,312 | 211,543 | (25,246 | ) | 140,981 | 70,879 | ||||||||||||||
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Other Income (Expense), Net
|
(2,280 | ) | 1,098 | 9,559 | 15,361 | 2,581 | ||||||||||||||
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Interest Expense
|
(10,564 | ) | (7,501 | ) | (4,163 | ) | (1,947 | ) | (3,771 | ) | ||||||||||
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Income (Loss) Before Income Taxes
|
159,468 | 205,140 | (19,850 | ) | 154,395 | 69,689 | ||||||||||||||
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Provision for Income Taxes
|
(55,968 | ) | (68,079 | ) | (55,290 | ) | (57,281 | ) | (28,153 | ) | ||||||||||
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Net Income (Loss)
|
$ | 103,500 | $ | 137,061 | $ | (75,140 | ) | $ | 97,114 | $ | 41,536 | |||||||||
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Income (Loss) Available for Common Stockholders
|
$ | 103,500 | $ | 137,061 | $ | (75,140 | ) | $ | 97,114 | $ | 41,117 | (5) | ||||||||
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Per Share of Common Stock:
|
||||||||||||||||||||
|
Basic Earnings (Loss)
|
$ | 2.15 | $ | 2.82 | $ | (2.19 | ) | $ | 3.62 | $ | 1.56 | |||||||||
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Diluted Earnings (Loss)
|
$ | 2.13 | $ | 2.79 | $ | (2.19 | ) | $ | 3.54 | $ | 1.54 | |||||||||
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Cash Dividend Paid
|
$ | 1.00 | $ | - | $ | - | $ | - | $ | - | ||||||||||
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Book Value
|
$ | 27.88 | $ | 26.54 | $ | 23.56 | $ | 13.65 | $ | 9.18 | ||||||||||
|
Weighted Average Common Shares Outstanding:
|
||||||||||||||||||||
|
Basic
|
48,111 | 48,525 | 34,272 | 26,819 | 26,308 | |||||||||||||||
|
Diluted
|
48,649 | 49,084 | 34,272 | 27,419 | 26,758 | |||||||||||||||
|
Year Ended December 31,
|
||||||||||||||||||||
|
2010 (1)
|
2009 (2)
|
2008 (3)
|
2007
|
2006
|
||||||||||||||||
|
(In thousands, except ratios)
|
||||||||||||||||||||
|
FINANCIAL POSITION SUMMARY
|
||||||||||||||||||||
|
Working Capital
|
$ | 592,928 | $ | 303,118 | $ | 225,049 | $ | 293,521 | $ | 193,952 | ||||||||||
|
Current Ratio
|
1.61 | x | 1.23 | x | 1.13 | x | 1.24 | x | 1.22 | x | ||||||||||
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Long-term Debt, less current maturities
|
374,350 | 84,771 | 61,580 | 13,358 | 34,135 | |||||||||||||||
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Stockholders’ Equity
|
1,312,994 | 1,288,426 | 1,138,226 | 368,334 | 243,859 | |||||||||||||||
|
Ratio of Long-term Debt to Equity
|
.29 | x | .07 | x | .05 | x | .04 | x | .14 | x | ||||||||||
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Total Assets
|
$ | 2,779,220 | $ | 2,820,654 | $ | 3,073,078 | $ | 1,654,115 | $ | 1,195,992 | ||||||||||
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OTHER DATA
|
||||||||||||||||||||
|
Backlog at Year End (6)
|
$ | 4,284,290 | $ | 4,310,191 | $ | 6,675,903 | $ | 7,567,665 | $ | 8,451,381 | ||||||||||
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New Business Awarded (7)
|
$ | 3,173,309 | $ | 2,786,256 | $ | 4,768,524 | $ | 3,744,642 | $ | 3,596,436 | ||||||||||
|
(1)
|
Includes the results of Superior Gunite, acquired November 1, 2010. See Note 15 of Notes to Consolidated Financial Statements entitled “Acquisitions”.
|
|
(2)
|
Includes the results of Keating, acquired January 15, 2009. See Note 15 of Notes to Consolidated Financial Statements entitled “Acquisitions”.
|
|
(3)
|
Includes the results of Tutor-Saliba, acquired September 8, 2008.
|
|
(4)
|
Represents $224.5 million impairment charge to adjust goodwill and certain intangible assets to their fair values in the fourth quarter of 2008. See Note 3 of Notes to Consolidated Financial Statements entitled “Goodwill and Other Intangible Assets”.
|
|
(5)
|
Includes an adjustment to net income for the excess of fair value over carrying value upon redemption of the remaining outstanding balance of our $21.25 Preferred Stock, or $2.125 Depositary Shares, in May 2006.
|
|
(6)
|
A construction project is included in our backlog at such time as a contract is awarded or a letter of commitment isobtained and adequate construction funding is in place. Backlog is not a measure defined in accounting principles generally accepted in the United States of America, or GAAP, and our backlog may not be comparable to the backlog of other companies. Management uses backlog to assist in forecasting future results.
|
|
(7)
|
New business awarded consists of the original contract price of projects added to our backlog in accordance with Note (6) above plus or minus subsequent changes to the estimated total contract price of existing contracts. Management uses new business awarded to assist in forecasting future results.
|
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
We were incorporated in 1918 as a successor to businesses that had been engaged in providing construction services since 1894. We provide diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. Our construction business is conducted through three basic segments or operations: civil, building, and management services. Our civil segment specializes in public works construction and the repair, replacement and reconstruction of infrastructure, including highways, bridges, mass transit systems and water and wastewater treatment facilities, primarily in the western, northeastern and mid-Atlantic United States. Our building segment has significant experience providing services to a number of specialized building markets, including the hospitality and gaming, transportation, healthcare, municipal offices, sports and entertainment, educational, correctional facilities, biotech, pharmaceutical and high-tech markets, and electrical and mechanical, plumbing and HVAC services. Our management services segment provides diversified construction and design-build services to the U.S. military and federal government agencies, as well as surety companies and multi-national corporations in the United States and overseas.
The contracting and management services that we provide consist of general contracting, pre-construction planning and comprehensive management services, including planning and scheduling the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. We also offer self-performed construction services including site work, concrete forming and placement, steel erection, electrical and mechanical, plumbing and HVAC. We provide these services by using traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus fee contracts and, to a lesser extent, construction management or design-build contracting arrangements. In the ordinary course of our business, we enter into arrangements with other contractors, referred to as “joint ventures,” for certain construction projects. Each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in a predetermined percentage of the income or loss of the project. Generally, each joint venture participant is fully liable for the obligations of the joint venture.
For the year ended December 31, 2010, we recorded revenues of $3.2 billion, income from construction operations of $172.3 million and net income of $103.5 million. We received significant new contract awards, as well as additions to existing contracts, and ended the year with a contract backlog of $4.3 billion. At December 31, 2010, we had working capital of $592.9 million, a ratio of current assets to current liabilities of 1.61 to 1.00, and a ratio of long-term debt to equity of 0.29 to 1.00. Our stockholders’ equity increased to $1.3 billion as of December 31, 2010, reflecting the operating results achieved in 2010, despite difficult economic conditions particularly in the construction industry.
Recent Developments
Acquisition of Fisk Electric
On January 3, 2011, we completed the acquisition of Fisk Electric Company ("Fisk"), a privately held electrical construction company based in Houston, Texas. Under the terms of the transaction, we acquired 100% of Fisk's stock for $105 million in cash, subject to a post-closing adjustment based on the net worth of Fisk at closing, plus an amount to be determined based upon Fisk's operating results for 2011 through 2013. The transaction was financed using proceeds from the offering of senior unsecured notes which was completed in October 2010 (see “Senior Notes Offering” section below).
Based in Houston, Texas, Fisk covers many of the major commercial and industrial electrical construction markets in Southwest and Southeast locations with abilities to cover other attractive markets nationwide. Fisk's expertise in the design development of electrical and technology systems for major projects spans a broad variety of project types including: commercial office buildings, sports arenas, hospitals, research laboratories, hospitality and casinos, convention centers, and industrial facilities.
Fisk was acquired because we believe that Fisk is a strong strategic fit enabling us to expand our nationwide electrical construction capabilities and to realize significant synergies and opportunities in support of our non-residential building and civil operations.
Acquisition of Superior Gunite
On November 1, 2010, we completed the acquisition of Superior Gunite, a California based privately held construction company specializing in pneumatically placed structural concrete and certain related companies (collectively, “Superior”). Under the terms of the transaction, we acquired 100% of the stock of Superior for a purchase price of $35.8 million in cash, including a post-closing adjustment based on the net worth of Superior at closing, plus additional consideration in the form of an earn-out based on Superior’s fiscal 2011 through 2013 operating results. Superior was acquired because we believe it is a strong strategic fit, enabling us to achieve greater vertical integration by increasing the percentage of work we self-perform in our building and civil operations.
Senior Notes Offering
On October 20, 2010, we completed a private placement offering of $300 million in aggregate principal amount of 7.625% senior unsecured notes (the “Notes”), due November 1, 2018 to several initial purchasers. The Notes were priced at 99.258% of par, resulting in a yield to maturity of 7.75%. The Notes were made available in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”) and are guaranteed by certain subsidiary guarantors. The initial purchasers subsequently sold the Notes to qualified institutional buyers and to persons outside of the United States, as defined under the Securities Act. The private placement of the Notes resulted in net proceeds of approximately $297.8 million to the Company after deducting debt discount of $2.2 million. We intend to use the net proceeds from the offering of the Notes for general corporate purposes, including acquisitions such as Fisk Electric and Superior Gunite noted above, and stock repurchases.
Additionally, on October 20, 2010 in connection with the private placement of the Notes, the Company, our subsidiaries and the initial purchasers of the Notes entered into a Registration Rights Agreement that requires the Company and our subsidiaries, among other things, to use their commercially reasonable efforts to file a registration statement with the SEC and to cause such registration statement to be declared effective by the SEC within 365 days of the issue date of the Notes with respect to an offer to exchange the Notes for a new issue of debt securities, with substantially identical terms registered under the Securities Act. For further information on the Notes, see Note 4 of Notes to Consolidated Financial Statements.
Amended Credit Facility
On October 20, 2010, an amendment to the Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”) became effective that provided for, among other things, (i) the permitted incurrence of the additional indebtedness under the issuance of the Notes, (as described above), (ii) modifications to certain covenants to permit our consummation of the issuance of the Notes, and (iii) certain other modifications to our financial covenants and certain other covenants.
MGM CityCenter Matter
In public statements, MGM asserted its intent to enter into settlement discussions directly with subcontractors under contract with us. As of December 31, 2010 MGM has reached agreements with subcontractors to settle at a discount approximately $241 million of amounts billed to MGM. We have reduced amounts included in revenues, cost of construction operations, accounts receivable and accounts payable for the reduction in subcontractor pass-through billings. At December 31, 2010 we had approximately $249 million recorded as contract receivables for amounts due and owed to us and our subcontractors. Included in our receivables are pass-through subcontractor billings for contract work and retention, and other requests for equitable adjustment for additional work in the amount of $136 million. As subcontractor pass-through billings are settled, we will reduce our mechanic’s lien as appropriate. In the event MGM reaches additional settlements with subcontractors for amounts less than currently due and we agree to the settlement, we will reduce amounts included in revenues, cost of construction operations, accounts receivable and accounts payable for the reduction in subcontractor pass-through billings, which we would not expect to have an impact on recorded profit.
Declaration and Payment of Special Dividend
On October 25, 2010, the Board of Directors declared a special cash dividend of $1.00 per share of common stock payable to shareholders of record on November 4, 2010. The special dividend was paid on November 12, 2010.
Common Stock Repurchase Program
On March 19, 2010, our Board of Directors extended the common stock repurchase program put into place on November 13, 2008. The program allows us to repurchase up to $100 million of our common stock through March 31, 2011. Under the terms of the program, we may repurchase shares in open market purchases or through privately negotiated transactions. The timing and amount of any repurchase will be based on our evaluation of market conditions, business considerations and other factors. We expect to use cash on hand to fund repurchases of our common stock. Stock repurchases will be conducted in compliance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Repurchases also may be made under Rule 10b5-1 plans, which would permit common stock to be purchased when we would otherwise be prohibited from doing so under insider trading laws. The share repurchase program does not obligate us to repurchase any dollar amount or number of shares of our common stock, and the program may be extended, modified, suspended or discontinued at any time, at our discretion. During 2010, we repurchased 2,164,840 shares under the program for an aggregate purchase price of $39.4 million. There were no repurchases made during 2009. During 2008, we repurchased 2,003,398 shares for an aggregate purchase price of $31.8 million under the program.
Backlog Analysis for 2010
Our backlog of uncompleted construction work at December 31, 2010 was approximately $4.3 billion, as compared to the $4.3 billion at December 31, 2009. Building segment backlog decreased during the year as a result of the substantial completion of large hospitality and gaming projects in Las Vegas, Nevada, and the lack of new work acquired in the non-residential building markets. Civil segment backlog increased as anticipated due to the award of new projects in California, metropolitan New York and Washington state. The Company expects to continue to replace a portion of its high contract volume building projects with a growing share of higher margin new civil projects. The following table provides an analysis of our backlog by business segment for the year ended December 31, 2010.
|
Backlog at December 31, 2009
|
New Business Awarded (1)
|
Revenue Recognized in 2010
|
Backlog at December 31, 2010
|
|||||||||||||
|
(in millions)
|
||||||||||||||||
|
Building
|
$ | 3,125.8 | $ | 1,864.5 | $ | (2,327.0 | ) | $ | 2,663.3 | |||||||
|
Civil
|
1,001.5 | 1,026.3 | (667.7 | ) | 1,360.1 | |||||||||||
|
Management Services
|
182.9 | 282.5 | (204.5 | ) | 260.9 | |||||||||||
|
Total
|
$ | 4,310.2 | $ | 3,173.3 | $ | (3,199.2 | ) | $ | 4,284.3 | |||||||
|
|
(1)
|
New business awarded consists of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.
|
Critical Accounting Policies
Our accounting and financial reporting policies are in conformity with accounting principles generally accepted in the United States of America (“GAAP”). The preparation of our consolidated financial statements in conformity with GAAP requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. Although our significant accounting policies are described in Note 1, “Summary of Significant Accounting Policies,” of the Notes to Consolidated Financial Statements in Item 15 of this Form 10-K, the following discussion is intended to describe those accounting policies most critical to the preparation of our consolidated financial statements.
Use of Estimates - The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Our construction business involves making significant estimates and assumptions in the normal course of business relating to our contracts and our joint venture contracts due to, among other things, the one-of-a-kind nature of most of our projects, the long-term duration of our contract cycle and the type of contract utilized. Therefore, management believes that the “Method of Accounting for Contracts” is the most important and critical accounting policy. The most significant estimates with regard to these financial statements relate to the estimating of total forecasted construction contract revenues, costs and profits in accordance with accounting for long-term contracts (see Note 1(d) of Notes to Consolidated Financial Statements) and estimating potential liabilities in conjunction with certain contingencies, including the outcome of pending or future litigation, arbitration or other dispute resolution proceedings relating to contract claims (see Note 8 of Notes to Consolidated Financial Statements). Actual results could differ from these estimates and such differences could be material.
Our estimates of contract revenue and cost are highly detailed. We believe, based on our experience, that our current systems of management and accounting controls allow us to produce materially reliable estimates of total contract revenue and cost during any accounting period. However, many factors can and do change during a contract performance period which can result in a change to contract profitability from one financial reporting period to another. Some of the factors that can change the estimate of total contract revenue and cost include differing site conditions (to the extent that contract remedies are unavailable), the availability of skilled contract labor, the performance of major material suppliers to deliver on time, the performance of major subcontractors, unusual weather conditions and the accuracy of the original bid estimate. Because we have many contracts in process at any given time, these changes in estimates can offset each other without impacting overall profitability. However, large changes in cost estimates on larger, more complex construction projects can have a material impact on our financial statements and are reflected in our results of operations when they become known.
When recording revenue on contracts relating to unapproved change orders and claims, we include in revenue an amount equal to the amount of costs incurred by us to date for contract price adjustments that we seek to collect from customers for delays, errors in specifications or designs, change orders in dispute or unapproved as to scope or price, or other unanticipated additional costs, in each case when recovery of the costs is considered probable. When determining the likelihood of eventual recovery, we consider such factors as evaluation of entitlement, settlements reached to date and our experience with the customer. The settlement of these issues may take years depending upon whether the item can be resolved directly with the customer or involves litigation or arbitration. When new facts become known, an adjustment to the estimated recovery is made and reflected in the current period results.
The amount of unapproved change order and claim revenue is included in our balance sheet as part of costs and estimated earnings in excess of billings. The amount of costs and estimated earnings in excess of billings relating to unapproved change orders and claims included in our balance sheet at December 31, 2010 and 2009 is summarized below:
|
December 31,
|
||||||||
|
2010
|
2009
|
|||||||
|
(in thousands)
|
||||||||
|
Unapproved Change Orders
|
$ | 49,949 | $ | 32,683 | ||||
|
Claims
|
75,215 | 68,358 | ||||||
| $ | 125,164 | $ | 101,041 | |||||
Of the balance of unapproved change orders and claims included in costs and estimated earnings in excess of billings at December 31, 2010 and December 31, 2009, approximately $74.1 million and $62.7 million respectively, are amounts subject to pending litigation or dispute resolution proceedings as described in Item 3, “Legal Proceedings” and Note 8, “Contingencies and Commitments” of Notes to Consolidated Financial Statements for the respective periods. 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 our experience with the customer. In the event that future facts and circumstances, including the resolution of disputed claims, cause us to reduce the aggregate amount of our estimated probable cost recovery from the disputed claims, we will record the amount of such reduction against earnings in the relevant future period.
Method of Accounting for Contracts – Revenues and profits from our contracts and construction joint venture contracts are recognized by applying percentages of completion for the period to the total estimated profits for the respective contracts. Percentage of completion is determined by relating the actual cost of the work performed to date to the current estimated total cost of the respective contracts. When the estimate on a contract indicates a loss, the entire loss is recorded during the accounting period in which it is estimated. In the ordinary course of business, at a minimum on a quarterly basis, we prepare updated estimates of the total forecasted revenue, cost and profit or loss for each contract. The cumulative effect of revisions in estimates of the total forecasted revenue and costs, including unapproved change orders and claims, during the course of the work is reflected in the accounting period in which the facts that caused the revision become known. The financial impact of these revisions to any one contract is a function of both the amount of the revision and the percentage of completion of the contract. An amount equal to the costs incurred that are attributable to unapproved change orders and claims is included in the total estimated revenue when realization is probable. For a further discussion of unapproved change orders and claims, see Item 1, “Business – Types of Contracts and The Contract Process” and Item 1A, “Risk Factors”. Profit from unapproved change orders and claims is recorded in the accounting period in which such amounts are resolved.
Billings in excess of costs and estimated earnings represents the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method. Costs and estimated earnings in excess of billings represents the excess of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method over contract billings to date. Costs and estimated earnings in excess of billings results when (1) the appropriate contract revenue amount has been recognized in accordance with the percentage of completion accounting method, but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract and/or (2) costs, recorded at estimated realizable value, related to unapproved change orders or claims are incurred. For unapproved change orders or claims that cannot be resolved in accordance with the normal change order process as defined in the contract, we may employ other dispute resolution methods, including mediation, binding and non-binding arbitration, or litigation. See Item 3 – “Legal Proceedings” and Note 8, “Contingencies and Commitments” of Notes to Consolidated Financial Statements. The prerequisite for billing unapproved change orders and claims is the final resolution and agreement between the parties. Costs and estimated earnings in excess of billings related to our contracts and joint venture contracts at December 31, 2010 is discussed above under “Use of Estimates” and in Note 1(d) of Notes to Consolidated Financial Statements.
Impairment of Goodwill and Other Intangible Assets - We test goodwill and intangible assets with indefinite lives, primarily trade names and contractor license, 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 which suggest that the goodwill or indefinite-lived intangible assets should be evaluated. Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable.
During 2009, we completed a reorganization enabling us to realize greater operating efficiencies and take full advantage of the civil construction expertise acquired through the merger with Tutor-Saliba. As a result of the reorganization, the composition and number of reporting units has changed. We reallocated goodwill between its reorganized reporting units based on the relative fair value of pre-reorganization reporting unit components distributed to post-reorganization reporting units. The number of reportable segments has not changed (see Note 12 entitled “Business Segments” in the Notes to Consolidated Financial Statements). During 2010, we acquired Superior Gunite, which is included in our civil reportable segment.
When testing goodwill, we compare the fair value of the reporting unit to its carrying value. If the carrying value exceeds the fair value, we determine the fair value of the reporting unit’s individual assets and liabilities and calculate the implied fair value of goodwill. The impairment charge equals the excess of the carrying value of goodwill, if any, over the implied fair value of goodwill. To determine the fair value of the reporting unit, we primarily use the income approach which is based on the cash flows that the reporting unit expects to generate in the future. This income valuation method 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. Impairment assessment inherently involves management judgments as to assumptions about expected future cash flows and the impact of market conditions on those assumptions. We also use the market valuation method to estimate the fair value of our reporting units by utilizing industry multiples of operating earnings. When calculating impairment for intangible assets with indefinite lives, we compare the fair value of these assets, as determined based on the income and market valuation methods, to the carrying value. The impairment charge equals the excess of the carrying value of the asset, if any, over its fair value.
An implied control premium for the Company is calculated based on the fair value and the market capitalization at the date of our fair value assessment. In evaluating whether our implied control premium is reasonable, we consider a number of factors including the following factors of greatest significance.
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·
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Market control premium: We compare our implied control premium to the average control premium paid in transactions of companies in the construction industry during the year of evaluation.
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·
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Sensitivity analysis: We perform a sensitivity analysis to determine the minimum control premium required to recover the book value of the Company at the testing date. The minimum control premium required is then compared to the average control premium paid in transactions of companies in the construction industry during the year of evaluation.
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·
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Impact of low public float and limited trading activity: A significant portion of our common stock is owned by our Chairman and CEO. As a result, the public float of our common stock, calculated as the percentage of shares of common stock freely traded by public investors divided by our total shares outstanding, is significantly lower than that of our publicly traded peers. This circumstance does not impact the fair value of the Company, however based on our evaluation of third party market data, we believe it does lead to an inherent marketability discount impacting our stock price.
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On a quarterly basis we consider whether events or changes in circumstances indicate that assets, including goodwill and intangible assets not subject to amortization might be impaired. In conjunction with this analysis, we evaluate whether our current market capitalization is less than our stockholders’ equity and specifically consider (1) the duration and severity of any decline in market capitalization, (2) a reconciliation of the implied control premium to a current market control premium, (3) target price assessments by third party analysts and (4) how current market conditions impact our forecast of future cash flows. We also update our assessment of the fair value of each of our reporting units, considering whether our current forecast of future cash flows are in line with those used in our most recent annual impairment assessment and whether there are any significant changes in trends or any other material assumption used. As of December 31, 2010 we have concluded that we do not have an impairment indicator and that the estimated fair value of each reporting unit substantially exceeds its carrying value. There were no impairment charges recorded in 2010 or 2009.
In the fourth quarter of 2010, we performed an impairment evaluation of goodwill and other intangible assets. There was no change in the carrying amount of goodwill and other intangible assets as a result of this evaluation. As of the date of the most recent annual impairment analysis, the fair value of the Company substantially exceeded the carrying value of $1.3 billion and the market capitalization of $914 million. The implied control premium was within the range of market control premiums paid in transactions of companies in the construction industry during 2010.
Fair Value Measurements – We determined that we utilize unobservable (Level 3) inputs in determining the fair value of our investments in auction rate securities, valued at $88.1 million as of December 31, 2010. All of these instruments are classified as available for sale securities as of December 31, 2010. We have determined the estimated fair values of these securities utilizing a discounted cash flow analysis. In addition, we obtained an independent valuation of some of our auction rate security instruments and considered these valuations in determining the estimated fair values of the auction rate securities in our portfolio. Our analyses considered, among other items, the collateralization underlying the security investments, the expected future cash flows, including the final maturity, associated with the securities, and estimates of the next time the security is expected to have a successful auction or return to full par value.
In conjunction with our estimates of fair value at December 31, 2010, we determined that certain of our investments in auction rate securities were impaired and, accordingly, we recognized a $5.7 million impairment charge. This impairment charge was deemed to be other-than-temporary, thereby resulting in a charge to income. See Note 2 of Notes to Consolidated Financial Statements for more information.
Share-based Compensation - We have granted restricted stock units and stock options to certain employees and non-employee directors. We recognize share-based compensation expense net of an estimated forfeiture rate and only recognize compensation expense for those shares expected to vest on a straight-line basis over the requisite service period of the award (which corresponds to the vesting period). Determining the appropriate fair value model and calculating the fair value of stock option awards requires the input of highly subjective assumptions, including the expected life of the stock option awards and the expected volatility of our stock price over the life of the awards. We used the Black-Scholes-Merton option pricing model to value our stock option awards, and utilized the historical volatility of our common stock as a reasonable estimate of the future volatility of our common stock over the expected life of the awards. The assumptions used in calculating the fair value of share-based payment awards represent our best estimates, but these estimates involve inherent uncertainties and the application of management’s judgment. As a result, if factors change which require the use of different assumptions, share-based compensation expense could be materially different in the future. In addition, if the actual forfeiture rate is materially different from our estimate, share-based compensation expense could be significantly different from what has been recorded through December 31, 2010.
Insurance Liabilities – We assume the risk for the amount of the self-insured deductible portion of the losses and liabilities primarily associated with workers' compensation, general liability and automobile liability coverage. Losses are accrued based upon our estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions followed in the insurance industry. The estimate of our insurance liability within our self-insured deductible limits includes an estimate of incurred but not reported claims based on data compiled from historical experience. Actual experience could differ significantly from these estimates and could materially impact our consolidated financial position and results of operations. We purchase varying levels of insurance from third parties, including excess liability insurance, to cover losses in excess of our self-insured deductible limits. Currently, our self-insured deductible limit for workers' compensation, general liability and automobile coverage is generally $1.0 million per occurrence. In addition, on certain projects, we assume the risk for the amount of the self-insured deductible portion of losses that arise from any subcontractor defaults. Our self-insured deductible limit for subcontractor default on projects covered under our program is $2.0 million per occurrence, subject to a $3.5 million annual aggregate.
Accounting for Income Taxes – Information relating to our provision for income taxes and the status of our deferred tax assets and liabilities is presented in Note 5, “Income Taxes” of Notes to Consolidated Financial Statements. A key assumption in the determination of our book tax provision is the amount of the valuation allowance, if any, required to reduce the related deferred tax assets. The net deferred tax assets reflect management’s estimate of the amount which will, more likely than not, reduce future taxable income.
We identified and reviewed potential tax uncertainties for tax positions taken or expected to be taken in a tax return and determined that the exposure to those uncertainties did not have a material impact on our results of operations or financial condition as of December 31, 2010.
Defined Benefit Retirement Plan – The status of our defined benefit pension plan obligations, related plan assets and cost is presented in Note 7 of Notes to Consolidated Financial Statements entitled “Employee Benefit Plans”. Plan obligations and annual pension expense are determined by actuaries using a number of key assumptions which include, among other things, the discount rate and the estimated future return on plan assets. The discount rate of 5.84% used for purposes of computing the 2010 annual pension expense was determined at the beginning of the calendar year based upon an analysis performed by our actuaries which matches the cash flows of our plan’s projected liabilities to bond investments of similar amounts and durations. We plan to change the discount rate used for computing the 2011 annual pension expense to 5.18% based upon a similar analysis by our actuaries.
The estimated return on plan assets is primarily based on historical long-term returns of equity and fixed income markets according to our targeted allocation of plan assets (75% equity and 25% fixed income). We plan to continue to use a return on asset rate of 7.5% in 2011 based on projected equity and bond market performance compared to long-term historical averages.
The plans’ benefit obligations exceeded the fair value of plan assets on December 31, 2010, 2009, and 2008 by $26.4 million, $22.9 million and $30.3 million, respectively. Accordingly, we recorded adjustments to our pension liability with an offset to accumulated other comprehensive income (loss), a component of stockholders’ equity.
Effective June 1, 2004, all benefit accruals under our pension plan were frozen; however, the vested benefit was preserved. Due to the expected increase in amortization of prior years’ investment losses, we anticipate that pension expense will increase from $2.4 million in 2010 to $3.4 million in 2011. Cash contributions to our defined benefit pension plan are anticipated to be approximately $4.2 million in 2011. Cash contributions may vary significantly in the future depending upon asset performance and the interest rate environment.
Results of Operations -
2010 Compared to 2009
For the year ended December 31, 2010, we recorded revenues of $3,199.2 million, income from construction operations of $172.3 million and net income of $103.5 million. Basic and diluted earnings per common share for 2010 were $2.15 and $2.13, respectively, as compared to $2.82 and $2.79, respectively, for 2009.
Revenues from Construction Operations
The following table summarizes our revenue by segment.
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Revenues for the Year Ended December 31,
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(dollars in millions)
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2010
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2009
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$ Change
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% Change
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Building
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$ | 2,327.0 | $ | 4,484.9 | $ | (2,157.9 | ) | (48.1 | )% | |||||||
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Civil
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667.7 | 361.7 | 306.0 | 84.6 | % | |||||||||||
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Management Services
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204.5 | 305.4 | (100.9 | ) | (33.0 | )% | ||||||||||
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Total
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$ | 3,199.2 | $ | 5,152.0 | $ | (1,952.8 | ) | (37.9 | )% | |||||||
Overall revenues decreased by $1,952.8 million (or 37.9%), from $5,152.0 million in 2009 to $3,199.2 million in 2010. This decrease was due primarily to a $2,157.9 million decrease in our building segment revenues, from $4,484.9 million in 2009 to $2,327.0 million in 2010, resulting from the substantial completion of the CityCenter project in December 2009, which contributed approximately $2.0 billion of revenues to the building segment during 2009, as well as other declines in revenues in the hospitality and gaming and private nonresidential building markets due to continued financing and economic challenges arising from the current state of the global economy. Civil segment revenues increased by $306.0 million (or 84.6%), from $361.7 million in 2009 to $667.7 million in 2010, due to an increased number of projects under construction in the metropolitan New York area which were awarded during 2009. Management Services segment revenues decreased by $100.9 million (or 33.0%), from $305.4 million in 2009 to $204.5 million in 2010, due primarily to the completion of several overhead coverage system projects in Iraq and an airport facility in Guam.
Income from Construction Operations
The following table summarizes our income from construction operations by segment.
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Income from Construction Operations for the Year Ended December 31,
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(dollars in millions)
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2010
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2009
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$ Change
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% Change
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Building
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$ | 95.8 | $ | 155.5 | $ | (59.7 | ) | (38.4 | )% | |||||||
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Civil
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87.8 | 44.3 | 43.5 | 98.2 | % | |||||||||||
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Management Services
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22.2 | 53.4 | (31.2 | ) | (58.4 | )% | ||||||||||
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Corporate
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(33.5 | ) | (41.7 | ) | 8.2 | (19.7 | )% | |||||||||
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Total
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$ | 172.3 | $ | 211.5 | $ | (39.2 | ) | (18.5 | )% | |||||||
Overall income from construction operations decreased by $39.2 million (or 18.5%), from $211.5 million in 2009 to $172.3 million in 2010, due primarily to decreases in our building and management services segments. Building segment income from construction operations decreased by $59.7 million (or 38.4%), from $155.5 million in 2009 to $95.8 million in 2010, due primarily to the substantial completion in 2009 of several large projects in the hospitality and gaming and private nonresidential building markets, including the CityCenter project. However, our building segment achieved an increase in operating margin due to a higher mix of public works projects in 2010 and by increasing the amount of our self-performed work. Civil segment income from construction operations increased by $43.5 million (or 98.2%), from $44.3 million in 2009 to $87.8 million in 2010, due primarily to the increase in revenues discussed above coupled with favorable performance on certain large projects. Management services income from construction operations decreased by $31.2 million (or 58.4%), from $53.4 million 2009 to $22.2 million in 2010, reflecting the favorable performance achieved in 2009 upon substantial completion of several overhead coverage system projects in Iraq and an airport facility in Guam. Overall income from construction operations was favorably impacted by an $8.2 million (or 19.7%) decrease in corporate G&A expense, from $41.7 million in 2009 to $33.5 million in 2010, due to savings related to cost-reduction measures instituted during 2009.
Other Income (Expense), Interest Expense and Provision for Income Taxes
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Year Ended December 31,
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(dollars in millions)
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2010
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2009
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$ Change
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% Change
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Other Income (Expense), net
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$ | (2.3 | ) | $ | 1.1 | $ | (3.4 | ) | (309.1 | )% | ||||||
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Interest Expense
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10.6 | 7.5 | 3.1 | 41.3 | % | |||||||||||
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Provision for Income Taxes
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56.0 | 68.1 | (12.1 | ) | (17.8 | )% | ||||||||||
Other income (expense), net decreased by $3.4 million (or 309.1%), from income of $1.1 million in 2009 to expense of $2.3 million in 2010, due primarily to the recognition of $5.7 million impairment charge relating to the adjustment of our investments in auction rate securities to fair value, and an increase in amortization of deferred debt costs due to the amendments to our credit agreement in 2010 and the issuance of our $300 million senior unsecured notes in October 2010. The impact of these increased charges was partly offset by a net reduction in certain business acquisition related liabilities.
Interest expense increased by $3.1 million (or 41.3%), from $7.5 million in 2009 to $10.6 million in 2010, primarily due to the interest expense recorded in 2010 associated with our $300 million senior unsecured notes, partly offset by a non-recurring interest charge recorded in 2009 and a reduction in interest expense due to not borrowing under our credit facility during 2010, as compared to 2009.
The provision for income taxes decreased by $12.1 million (or 17.8%), from $68.1 million in 2009 to $56.0 million in 2010, due primarily to the decrease in pretax income in 2010, as compared to 2009, partly offset by a higher effective tax rate. The effective tax rate for 2010 was 35.1% as compared to an effective tax rate of 33.2% for 2009. The lower tax rate in 2009 was the result of a favorable variance in permanent tax liability differences.
Results of Operations -
2009 Compared to 2008
In 2009, revenues decreased by $508.3 million to $5,152.0 million and gross profit increased by $54.8 million to $388.0 million. Income from construction operations increased by $236.8 million, from a loss of $25.2 million to income of $211.5 million. Net income increased by $212.2 million, from a loss of $75.1 million to income of $137.1 million. Excluding the recognition of a $224.5 million pretax ($202.8 million after tax) non-cash impairment charge relating to goodwill and other intangible assets recorded in 2008, income from construction operations would have increased $12.3 million from $199.2 million. The improvement of gross profit and income from construction operations primarily reflects the increased contribution of our civil segment and the addition of projects from the merger of Tutor-Saliba and the acquisition of Keating. Basic and diluted earnings per common share for 2009 were $2.82 and $2.79, respectively, as compared to basic and diluted loss per common share of $2.19 in 2008. Excluding the non-cash impairment charge, basic and diluted earnings per share in 2008 would have been $3.73 and $3.67, respectively.
Revenues from Construction Operations
The following table summarizes our revenues by segment.
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Revenues for the Year Ended December 31,
|
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(dollars in millions)
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2009
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2008
|
$ Change
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% Change
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||||||||||||
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Building
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$ | 4,484.9 | $ | 5,146.6 | $ | (661.7 | ) | (12.8 | )% | |||||||
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Civil
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361.7 | 310.7 | 51.0 | 16.4 | % | |||||||||||
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Management Services
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305.4 | 203.0 | 102.4 | 50.4 | % | |||||||||||
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Total
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$ | 5,152.0 | $ | 5,660.3 | $ | (508.3 | ) | (9.0 | )% | |||||||
Overall revenues decreased by $508.3 million (or 9.0%), from $5,660.3 million in 2008 to $5,152.0 million in 2009. Revenue increases in both the civil and management services segments were offset by a decrease in building construction revenues of $661.7 million (or 12.8%). The decrease in building construction revenues is due to the completion of several large building projects in 2009 such as CityCenter, and was partially offset by the addition of $715.6 million in revenues from a full year of projects acquired in the merger with Tutor-Saliba and the acquisition of Keating. Civil construction revenues increased by $51.0 million (or 16.4%), from $310.7 million in 2008 to $361.7 million in 2009, due to the acquisition of new work during 2009, such as the I-5 Bridge replacement in Shasta County, California and the Caldecott Tunnel Project near Oakland, California. Management services revenues increased by $102.4 million (or 50.4%), from $203.0 million in 2008 to $305.4 million in 2009 due to an increase in volume from new work.
Income (Loss) from Construction Operations
The following table summarizes by segment the income (loss) from construction operations before and after the impairment charge.
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Income (Loss) from Construction Operations for the Year Ended December 31,
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| (dollars in millions) |
2009
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2008
|
$ Change
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% Change
|
||||||||||||
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Building before impairment charge
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$ | 155.5 | $ | 151.8 | $ | 3.7 | 2.4 | % | ||||||||
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Impairment charge
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- | (197.6 | ) | 197.6 |
NM*
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Building, net
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155.5 | (45.8 | ) | 201.3 |
NM*
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Civil before impairment charge
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44.3 | 28.1 | 16.2 | 57.6 | % | |||||||||||
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Impairment charge
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- | (6.0 | ) | 6.0 |
NM*
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Civil, net
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44.3 | 22.1 | 22.2 |
NM*
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Management Services before impairment charge
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53.4 | 41.5 | 11.9 | 28.7 | % | |||||||||||
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Impairment charge
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- | (20.9 | ) | 20.9 |
NM*
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Management Services, net
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53.4 | 20.6 | 32.8 |
NM*
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||||||||||||
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Subtotal before impairment charge
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253.2 | 221.4 | 31.8 | 14.4 | % | |||||||||||
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Impairment charge
|
- | (224.5 | ) | 224.5 |
NM*
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|||||||||||
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Subtotal, net of impairment charge
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253.2 | (3.1 | ) | 256.3 |
NM*
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Less: Corporate
|
(41.7 | ) | (22.1 | ) | (19.6 | ) | 88.7 | % | ||||||||
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Total before impairment charge
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211.5 | 199.3 | 12.2 | 6.1 | % | |||||||||||
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Impairment charge
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- | (224.5 | ) | 224.5 |
NM*
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|||||||||||
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Total, net of impairment charge
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$ | 211.5 | $ | (25.2 | ) | $ | 236.7 |
NM*
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_____________________________
*NM – Not meaningful.
The following discussion of income from construction operations has been prepared on a pre-impairment charge basis in order to enable users of this information to better compare normal operating results of each segment between the two periods. Since the impairment charge impacts 2008 only and does not affect revenues, cost of revenues or general expenses we incur to conduct our day-to-day construction operations, management believes the following discussion, analysis and comparison of 2009 and 2008 operating results is more meaningful to users when prepared on a pre-impairment charge basis.
Building construction income from operations before the impairment charge remained fairly consistent, increasing by $3.7 million (or 2.4%), from $151.8 million in 2008 to $155.5 million in 2009. Building construction income from operations, net of the impairment charge recorded in 2008, decreased slightly due to a decrease in revenues discussed above, and was favorably impacted in 2009 by a higher margin on certain large public works projects. Civil construction income from operations before the impairment charge increased by $16.2 million, or 57.6%, from $28.1 million in 2008 to $44.3 million in 2009. Our civil operations have been favorably impacted by a full year of Tutor-Saliba operations and by an increase in mass transit projects acquired during 2009. In conjunction with the increase in revenues discussed above, management services contributed to our income from operations in 2009. Management services income from operations before the impairment charge increased by $11.9 million (or 28.7%), from $41.5 million in 2008 to $53.4 million in 2009, primarily reflecting an increase in volume of work in Guam due to a full year of Tutor-Saliba operations in 2009.
Overall income from construction operations was unfavorably impacted by a $19.6 million increase in corporate general and administrative expenses, from $22.1 million in 2008 to $41.7 million in 2009, due primarily to a full year of Tutor-Saliba general and administrative expenses, one time charges related to the acquisition of Keating, and the integration of Tutor-Saliba, net of other cost reduction activities in corporate services.
Other Income, Interest Expense and Provision for Income Taxes
|
Year Ended December 31,
|
||||||||||||||||
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(dollars in millions)
|
2009
|
2008
|
$ Change
|
% Change
|
||||||||||||
|
Other Income, net
|
$ | 1.1 | $ | 9.6 | $ | (8.5 | ) | (88.5 | )% | |||||||
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Interest Expense
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7.5 | 4.2 | 3.3 | 78.6 | % | |||||||||||
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Provision for Income Taxes
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68.1 | 55.3 | 12.8 | 23.1 | % | |||||||||||
Other income decreased by $8.5 million, from $9.6 million in 2008 to $1.1 million in 2009. This decrease was primarily due to less interest income, which decreased by $8.2 million as a result of lower average interest rates and a lower average investment balance during 2009.
Interest expense increased by $3.3 million, from $4.2 million in 2008 to $7.5 million in 2009. This increase was attributable to a temporary increase in borrowing under our revolving credit facility during 2009 and an increase in transportation equipment financing.
The provision for income taxes increased by $12.8 million, from $55.3 million in 2008 to $68.1 million in 2009, due primarily to the increase in pretax income. The effective tax rate for 2009 was 33.2% as compared to 37.6% in 2008. The decrease in the tax rate is a result of a favorable variance in permanent tax liability differences from current and prior years. In 2008, the effective tax rate of 37.6% was applied to pretax income, excluding the goodwill impairment charge of $166.9 million which is not tax deductible.
Potential Impact of Current Economic Conditions
Current economic and financial market conditions in the United States and overseas, including severe disruptions in the credit markets, have had an adverse affect on our results of operations. If there is a prolonged economic recession or depression or if government efforts to stabilize and revitalize credit markets and financial institutions are not effective, current economic and financial market conditions could continue to adversely affect our results of operations in future periods. The current instability in the financial markets has made it difficult for certain of our customers, including state and local governments, to access the credit markets to obtain financing or refinancing, as the case may be, to fund new construction projects on satisfactory terms or at all. State and local governments also are facing significant budget shortfalls as a result of declining tax and other revenues, which may cause them to defer or cancel planned infrastructure projects. This situation has contributed to lower revenues in 2010 and 2009. We may encounter increased levels of deferrals and delays related to new construction projects in the future. Difficulty in obtaining adequate financing due to the unprecedented disruption in the credit markets may increase the rate at which our customers defer, delay or cancel proposed new construction projects. Such deferrals, delays or cancellations could have an adverse impact on our future operating results.
Liquidity and Capital Resources
Cash and Working Capital
On October 20, 2010, we completed a private placement offering of $300 million in aggregate principal amount of 7.625% senior unsecured notes (the “Notes”), due November 1, 2018 to several initial purchasers. The Notes were priced at 99.258% of par, resulting in a yield to maturity of 7.75%. The private placement of the Notes resulted in net proceeds of approximately $297.8 million to the Company after deducting debt discount of $2.2 million. The Notes mature on November 1, 2018, and bear interest at a rate of 7.625% per annum, payable semi-annually in cash in arrears on May 1, and November 1 of each year, beginning on May 1, 2011. The Notes are senior unsecured obligations of the Company and are guaranteed by substantially all of our existing and future subsidiaries that guarantee obligations under our Amended Credit Agreement. We intend to use the net proceeds from the offering of the Notes for general corporate purposes, including acquisitions such as Fisk Electric and Superior Gunite, and stock repurchases.
On September 8, 2008, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, as Agent, which was amended by a Joinder Agreement dated February 13, 2009; by a First Amendment dated as of February 23, 2009; by a Second Amendment dated January 13, 2010; and by a Third Amendment dated October 4, 2010 (collectively the “Amended Credit Agreement”). For a description of the material terms of the Amended Credit Agreement, see Note 4 of Notes to Consolidated Financial Statements. The Amended Credit Agreement allows us to borrow up to $205 million on a revolving credit basis (the “Revolving Facility”), with a $50 million sublimit for letters of credit, and an additional $99.6 million at December 31, 2010 under a supplementary facility to the extent that the $205 million Revolving Facility has been fully drawn (the “Supplemental Facility”). The Amended Credit Agreement provides that the Supplemental Facility shall be reduced by the amount of any reduction in the principal amount of certain auction rate securities presently held by us. This Supplemental Facility provides us with access to a source of liquidity should the need arise. Subject to certain conditions, we have the option to increase the Revolving Facility by up to an additional $45 million. We borrowed under the Revolving Facilities during a brief period in 2009 and did not utilize the Revolving Facility during either 2010 or 2008, other than for letters of credit. There are no borrowings outstanding at December 31, 2010 and, accordingly we have $304.5 million available to borrow under the Amended Credit Agreement and the Supplemental Facility, including outstanding letters of credit.
Cash and cash equivalents consist of amounts held by us as well as our proportionate share of amounts held by construction joint ventures. Cash held by us is available for general corporate purposes, while cash held by construction joint ventures is available only for joint venture-related uses. Joint venture cash and cash equivalents are not restricted to specific uses within those entities; however, the terms of the joint venture agreements limit our ability to distribute those funds and use them for corporate purposes. Cash held by construction joint ventures is distributed from time to time to us and to the other joint venture participants in accordance with our respective percentage interest after the joint venture partners determine that a cash distribution is prudent. Cash distributions received by us from our construction joint ventures are then available for general corporate purposes. At December 31, 2010 and December 31, 2009, cash held by us and available for general corporate purposes was $455.5 and $323.9 million, respectively, and our proportionate share of cash held by joint ventures and available only for joint venture-related uses was $15.9 million and $24.4 million, respectively.
Billing procedures in the construction industry generally are based on the specific billing terms of a contract. For example, billings may be based on various measures of performance, such as cubic yards excavated, architect’s estimates of completion, costs incurred on cost-plus type contracts or weighted progress from a cost loaded construction time schedule. Billings are generally on a monthly basis and are reviewed and approved by the customer prior to submission. Therefore, once a bill is submitted, we are generally able to collect amounts owed to us in accordance with the payment terms of the contract. In addition, receivables of a contractor usually include retentions, or amounts that are held back until contracts are completed or until specified contract conditions or guarantees are met. Retentions are governed by contract provisions and are typically a fixed percentage (for example, 5% or 10%) of each billing. We generally follow the policy of paying our vendors and subcontractors after we receive payment from our customer.
A summary of cash flows for each of the years ended December 31, 2010, 2009 and 2008 is set forth below:
|
Year Ended December 31,
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
(In millions)
|
||||||||||||
|
Cash flows provided (used) by:
|
||||||||||||
|
Operating activities
|
$ | 26.3 | $ | (26.1 | ) | $ | 126.1 | |||||
|
Investing activities
|
(77.5 | ) | (40.9 | ) | (72.1 | ) | ||||||
|
Financing activities
|
174.3 | 29.1 | (127.0 | ) | ||||||||
|
Net (decrease) increase in cash
|
123.1 | (37.9 | ) | (73.0 | ) | |||||||
|
Cash at beginning of year
|
348.3 | 386.2 | 459.2 | |||||||||
|
Cash at end of year
|
$ | 471.4 | $ | 348.3 | $ | 386.2 | ||||||
During 2010, we generated $26.3 million in cash from operating activities. The increase in cash flow from operating activities is primarily due to an increase in operating cash flow from our civil segment which more than offset a decrease in operating cash flow from our building segment resulting from the timing of receivable collections on certain large projects, including receivables on the CityCenter project. We used $77.5 million in cash to fund investing activities, including $30.9 million to fund the acquisition of Superior Gunite; $6.7 million to fund the deferred purchase price of certain acquisitions made in prior years; $25.2 million to purchase construction equipment; and $23.6 million for restricted cash to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of utilizing letters of credit. We received $174.3 million from financing activities which primarily reflects proceeds of $297.8 million received in conjunction with our issuance of the Notes, net of the debt discount. Cash flow used for financing activities also includes $47.1 million for the payment of a special dividend on our common stock; $39.4 million for the repurchase of shares of our common stock in accordance with our previously announced share repurchase program; a net reduction in debt of $29.0 million; and $7.9 million for costs primarily associated with our issuance of the Notes.
During 2009, we used $26.1 million in cash flow from operating activities. The negative cash flow from operating activities is primarily due to the timing of receivables on certain large projects. We used $40.9 million in cash to fund investing activities, principally the purchase of property used in our building and management services segments, equipment to be used in our civil segment, and $44.8 million to fund the acquisition of Keating. We received $29.1 million in cash from financing activities, principally from a $35 million note collateralized by transportation equipment owned by us and two notes totaling $9.7 million to finance property acquisitions in Guam. Our cash balance decreased by $37.9 million during 2009 due to the use of cash in our operating and investing activities, which was primarily driven by an uncollected contract receivable related to the Fontainebleau project, as discussed in Note 8 of Notes to Consolidated Financial Statements, and timing related billings due to the start up of new projects and the cash disbursements associated with projects completing during the year.
During 2008, we generated $126.1 million in cash flow from operating activities. The positive cash flow from operating activities is primarily due to the substantial increase in our building segment revenues as well as favorable operating results in our civil and management services segments. We used $72.1 million in cash to fund investing activities, principally the purchase of auction rate securities, transportation and construction equipment to be used primarily in our civil construction operations, net of a $92.1 million cash balance recorded in connection with the merger with Tutor-Saliba because the consideration paid in the merger was equity and not cash. We used $127.0 million in cash to fund financing activities, principally $58.5 million for the repayment of shareholder notes payable assumed in the merger with Tutor-Saliba; $38.7 million for the repayment of debt; and $31.8 million for the purchase of common stock in connection with our common stock repurchase program which was instituted in November 2008. The debt repayments include $28.8 million of debt assumed in conjunction with the merger with Tutor-Saliba. Due to the use of cash for investing and financing activities, our cash balance decreased by $73.0 million during 2008.
Working capital increased, from $225.0 million at the end of 2008 to $592.9 million at December 31, 2010. The increase in working capital over the two-year period primarily reflects the cash proceeds received from the issuance of the Notes. Accordingly, the current ratio increased from 1.13x at December 31, 2008 to 1.61x at December 31, 2010.
Long-term Investments
At December 31, 2010, we had investments in auction rate securities of $88.1 million, which are reflected at fair value. These investments are considered to be “available for sale”, and are classified as long-term investments. Our investment policy is to manage our assets to achieve our goals of preserving principal, maintaining adequate liquidity at all times, and maximizing returns subject to our investment guidelines. The current overall liquidity concerns in capital markets have affected our ability to liquidate many of our investments in auction rate securities. Based on our ability to access our cash equivalent investments, our available credit facilities, and the $297.8 million in proceeds received from our offering of senior unsecured notes completed in October 2010, we do not expect the short-term lack of liquidity to affect our overall liquidity position or our ability to execute our current business plan. For a description of our accounting for auction rate securities, see Note 2 of Notes to Consolidated Financial Statements.
We hold a variety of interest bearing auction rate securities, the majority of which are rated AAA or AA, that generally represent interests in pools of either interest bearing student loans or municipal bond issues. These auction rate securities provide liquidity via an auction process that resets the applicable interest rate at predetermined intervals, typically every 7 or 28 days. In the event that such auctions are unsuccessful, the holder of the securities is not able to access these funds until a future auction of these investments is successful. An unsuccessful auction results in a lack of liquidity in the securities but does not signify a default by the issuer. Upon an unsuccessful auction, the interest rates do not reset at a market rate but instead reset based upon a formula contained in the security, which rate is generally higher than the current market rate. During the first quarter of 2008, we made substantial additional investments in auction rate securities. Since mid-February 2008, regularly scheduled auctions for these securities started to fail throughout the market at a significant rate. Since that time, we have been successful in liquidating at par value a significant portion of our investment in auction rate securities. During 2010, we determined that an impairment charge was appropriate and, accordingly, we recognized a $5.7 million impairment charge, which was deemed to be other-than-temporary, thereby resulting in a charge to income. During 2009, we determined that the carrying value of our auction rate securities reflected fair value and therefore did not recognize any impairment charge. During 2008, we determined that an impairment charge was appropriate and, accordingly, we recognized a $5.8 million impairment charge in 2008. Of the total $5.8 million impairment charge recorded, $2.6 million was deemed to be other-than-temporary, thereby resulting in a charge to income. The $3.2 million balance of the impairment charge was deemed to be temporary, thereby resulting in a charge to stockholders’ equity.
Off-Balance Sheet Arrangements
We do not have any financial partnerships with unconsolidated entities, such as entities often referred to as structured finance, special purpose entities or variable interest entities which are often established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships.
Long-term Debt
Long-term debt, excluding current maturities of $21.3 million, was $374.4 million at December 31, 2010, an increase of $289.6 million from December 31, 2009, due primarily to the issuance of the Notes. The remaining balance of our outstanding debt is generally secured by the underlying assets. Approximately $366.1 million of the $395.7 million in total debt outstanding at December 31, 2010 carries interest at a fixed rate. As a result of the issuance of the Notes due in 2018, the long-term debt to equity ratio increased to .29x at December 31, 2010, as compared to .07x at December 31, 2009.
Contractual Obligations
Our outstanding contractual obligations as of December 31, 2010 are summarized in the following table:
|
Payments Due by Period
|
||||||||||||||||||||
|
(In thousands)
|
||||||||||||||||||||
|
Less Than
|
More Than
|
|||||||||||||||||||
|
Total
|
1 Year
|
1-3 Years
|
3-5 Years
|
5 Years
|
||||||||||||||||
|
Total debt, excluding interest
|
$ | 395,684 | $ | 21,334 | $ | 19,525 | $ | 48,368 | $ | 306,457 | ||||||||||
|
Interest payments on debt
|
198,676 | 27,723 | 51,942 | 47,836 | 71,175 | |||||||||||||||
|
Operating leases, net
|
41,462 | 9,048 | 14,223 | 11,881 | 6,310 | |||||||||||||||
|
Purchase obligations
|
4,586 | 3,678 | 368 | 360 | 180 | |||||||||||||||
|
Acquisition related liabilities
|
8,733 | 2,566 | 4,967 | 1,200 | - | |||||||||||||||
|
Unfunded pension liability
|
26,444 | 4,211 | 10,949 | 10,949 | 335 | |||||||||||||||
|
Total contractual obligations
|
$ | 675,585 | $ | 68,560 | $ | 101,974 | $ | 120,594 | $ | 384,457 | ||||||||||
Stockholders' Equity
Our book value per common share was $27.88 at December 31, 2010, compared to $26.54 at December 31, 2009, and $23.56 at December 31, 2008. The major factors impacting stockholders’ equity during the three year period were the 23.0 million shares issued in conjunction with the merger with Tutor-Saliba in 2008; the net income (loss) recorded in all three years; the annual amortization of restricted stock compensation expense; common stock options exercised; the excess income tax benefit attributable to stock-based compensation; the repurchase of our common stock in 2008 and 2010 in conjunction with our share repurchase program; and the declaration of a special dividend on our common stock in 2010. Also, we were required to adjust our accrued pension liability by an increase of $4.9 million in 2010, a decrease of $2.0 million in 2009, and an increase of $24.0 million in 2008, respectively, and a cumulative increase of $17.5 million in prior years, with the offset to accumulated other comprehensive loss which resulted in an aggregate $44.4 million pretax accumulated other comprehensive loss reduction in stockholders’ equity at December 31, 2010 (see Note 7 of Notes to Consolidated Financial Statements.) Adjustments to the amount of this accrued pension liability will be recorded in future years based upon periodic re-evaluation of the funded status of our pension plans.
Dividends
On October 25, 2010, our Board of Directors declared a special dividend of $1.00 per share of common stock. The dividend was paid on November 12, 2010 to stockholders of record on November 4, 2010. There were no other cash dividends declared or paid on our outstanding common stock during the three years ended December 31, 2010.
Related Party Transactions
We are subject to certain related party transactions with our Chairman and Chief Executive Officer, Ronald N. Tutor, and the Vice Chairman of O&G Industries, Inc., one of our directors. For a more detailed description of these transactions and their effect on our financial statements, see Note 13 of Notes to Consolidated Financial Statements entitled “Related Party Transactions” in Part IV, Item 15 of this report.
New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (the “FASB”) issued a staff position amending existing guidance for fair value measurements and disclosures in both interim and annual financial statements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. It also requires a reconciliation of recurring Level 3 measurements and clarifies certain existing disclosure requirements for reporting fair value disaggregated by class of assets and liabilities rather than each major category of assets and liabilities. This update was effective for us with the interim and annual reporting period beginning January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will become effective for us with the interim and annual reporting period beginning January 1, 2011. We will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update has not and will not have a material effect on our consolidated financial statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our exposure to market risk for changes in interest rates relates primarily to borrowings under our credit agreement and our short-term and long-term investment portfolios. Our revolving credit agreement is available for us to borrow, when needed, for general corporate purposes, including working capital requirements and capital expenditures. Borrowings under our credit agreement bear interest at the applicable LIBOR or base rate, as defined, and therefore we are subject to fluctuations in interest rates. We did not borrow under our revolving credit facilities during 2010. Our outstanding debt at December 31, 2010 totaled $395.7 million, of which approximately $366.1 million carries interest at a fixed rate. Accordingly, we do not believe our liquidity or our operations are subject to significant market risk for changes in interest rates.
We hold a variety of interest bearing auction rate securities, the majority of which are rated AAA or AA, that generally represent interests in pools of either interest bearing student loans or municipal bond issues. These auction rate securities provide liquidity via an auction process that resets the applicable interest rate at predetermined intervals, typically every 7 or 28 days. In the event that such auctions are unsuccessful, the holder of the securities is not able to access these funds until a future auction of these investments is successful. An unsuccessful auction results in a lack of liquidity in the securities but does not signify a default by the issuer. Upon an unsuccessful auction, the interest rates do not reset at a market rate but instead reset based upon a formula contained in the security, which rate is generally higher than the current market rate. Since mid-February 2008, regularly scheduled auctions for these securities started to fail throughout the market at a significant rate. Since that time, we have been successful in liquidating at par value a significant portion of our investment in auction rate securities. At December 31, 2010, we had investments in auction rate securities of $88.1 million which are reflected at fair value after cumulative net fair value adjustments of $11.5 million. These investments are considered to be “available-for-sale” and are classified as long-term investments. Our investment policy is to manage our assets to achieve our goals of preserving principal, maintaining adequate liquidity at all times, and maximizing returns subject to our investment guidelines. The current overall liquidity concerns in capital markets have affected our ability to liquidate many of our investments in auction rate securities. Based on our ability to access our cash equivalent investments, our available Revolving Facility and our Supplemental Facility discussed above, and the $297.8 million in net proceeds received from our issuance of the Notes in October 2010, we do not expect that the short-term lack of liquidity of our auction rate security investments will materially affect our overall liquidity position or our ability to execute our current business plan.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Report of Independent Registered Public Accounting Firm, Consolidated Financial Statements, and Supplementary Schedules are set forth in Item 15 in this report and are hereby incorporated in this Item 8 by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures – As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as of December 31, 2010, we carried out an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating our disclosure controls and procedures, we recognize that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and our management necessarily was required to apply its judgment in evaluating and implementing possible controls and procedures. The effectiveness of our disclosure controls and procedures is necessarily limited by the staff and other resources available to us and, although we have designed our disclosure controls and procedures to address the geographic diversity of our operations, this diversity inherently may limit the effectiveness of those controls and procedures. Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that, as of December 31, 2010, our disclosure controls and procedures were effective, in that they provide reasonable assurance that information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and include controls and procedures designed to ensure that information we are required to disclose in such reports is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosures.
Changes in Internal Control Over Financial Reporting - There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
In connection with Rule 13a-15(b) under the Securities Exchange Act of 1934, we will continue to review and assess the adequacy of our disclosure controls and procedures, including our internal control over financial reporting, and may from time to time make changes aimed at enhancing their effectiveness and to ensure that our systems evolve with our business.
Management’s Report On Internal Control Over Financial Reporting - Our management, under the supervision of our Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining an adequate system of internal control over financial reporting as such term is defined in Exchange Act Rules 13a – 15(f). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. In making this assessment, management utilized the criteria set forth by the Committee of Sponsoring Organizations (COSO) of the Treadway Commission in Internal Control – Integrated Framework. Based on this assessment, management concluded that, as of December 31, 2010 our internal control over financial reporting is effective based on those criteria.
Deloitte & Touche, LLP, the independent registered public accounting firm that audited our consolidated financial statements included in this Annual Report on Form 10-K, has issued an attestation report on the Company’s internal control over financial reporting as of December 31, 2010. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2010, is included below in Item 9A under the heading “Report of Independent Registered Public Accounting Firm.”
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Tutor Perini Corporation
Sylmar, CA
We have audited the internal control over financial reporting of Tutor Perini Corporation and subsidiaries (the "Company") as of December 31, 2010, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements as of and for the year ended December 31, 2010 of the Company and our report dated March 4, 2011 expressed an unqualified opinion on those financial statements.
/s/ Deloitte & Touche, LLP
Los Angeles, California
March 4, 2011
ITEM 9B. OTHER INFORMATION
None.
PART III.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information relating to our directors is set forth in the sections entitled "Election of Directors" and “Corporate Governance” in the definitive proxy statement in connection with our Annual Meeting of Stockholders to be held on May 25, 2011 (the "Proxy Statement"), which sections are incorporated herein by reference. Information relating to our executive officers is set forth in Part I of this report under the caption “Executive Officers of the Registrant” and is hereby incorporated herein by reference.
We are also required under Item 405 of Regulation S-K to provide information concerning delinquent filers of reports under Section 16 of the Securities and Exchange Act of 1934, as amended. This information is listed under the caption “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement to be filed with the Securities and Exchange Commission no later than 120 days after the end of our fiscal year. This information is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information appearing under the captions “Compensation Discussion and Analysis” and “Compensation Committee Report” in the Proxy Statement is hereby incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information appearing under the caption “Ownership of Common Stock By Directors, Executive Officers and Principal Stockholders” in the Proxy Statement is hereby incorporated herein by reference.
The information required by Item 201(d) of Regulation S-K is set forth under the caption “Compensation Discussion and Analysis” in the Proxy Statement and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information appearing under the captions “Certain Relationships and Related Party Transactions”, “Director Independence” and “Corporate Governance” in the Proxy Statement is hereby incorporated herein by reference. For a detailed description of related party transactions, see Note 13 of Notes to Consolidated Financial Statements entitled “Related Party Transactions” in Part IV, Item 15 of this report.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information appearing under the caption “Fees Paid to Audit Firm” in the Proxy Statement is hereby incorporated herein by reference.
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
TUTOR PERINI CORPORATION AND SUBSIDIARIES
|
(a)1.
|
The following consolidated financial statements and supplementary financial information are filed as part of this report:
|
|
|
Pages
|
||
|
Consolidated Financial Statements of the Registrant
|
||
|
Consolidated Balance Sheets as of December 31, 2010 and 2009
|
52 – 53
|
|
|
Consolidated Statements of Operations for the years ended December 31, 2010, 2009 and 2008
|
54
|
|
|
Consolidated Statements of Stockholders' Equity for the years ended December 31, 2010, 2009 and 2008
|
55
|
|
|
Consolidated Statements of Cash Flows for the years ended December 31, 2010, 2009 and 2008
|
56 – 57
|
|
|
Notes to Consolidated Financial Statements
|
58 – 101
|
|
|
Report of Independent Registered Public Accounting Firm
|
102
|
|
|
(a)2.
|
All consolidated financial statement schedules are omitted because of the absence of the conditions under which they are required or because the required information is included in the Consolidated Financial Statements or in the Notes thereto.
|
|
|
(a)3.
|
Exhibits
|
|
|
The exhibits which are filed with this report or which are incorporated herein by reference are set forth in the Exhibit Index which appears on pages 103 through 105.
|
||
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
Tutor Perini Corporation
|
|
|
(Registrant)
|
|
|
Dated: March 4, 2011
|
By: /s/Robert Band
|
|
Robert Band
|
|
|
President
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
|
Signature
|
Title
|
Date
|
|||
|
·
|
Principal Executive Officer
|
||||
|
Ronald N. Tutor
|
Chairman and Chief Executive Officer
|
March 4, 2011
|
|||
|
By:
|
/s/Ronald N. Tutor
|
||||
|
Ronald N. Tutor
|
|||||
|
·
|
Principal Financial Officer
|
||||
|
Kenneth R. Burk
|
Executive Vice President and Chief Financial Officer
|
March 4, 2011
|
|||
|
By:
|
/s/Kenneth R. Burk
|
||||
|
Kenneth R. Burk
|
|||||
|
·
|
Principal Accounting Officer
|
||||
|
Steven M. Meilicke
|
Vice President and Controller
|
March 4, 2011
|
|||
|
By:
|
/s/Steven M. Meilicke
|
||||
|
Steven M. Meilicke
|
|||||
|
·
|
Directors
|
||||
|
Ronald N. Tutor
|
)
|
||||
|
Marilyn A. Alexander
|
)
|
||||
|
Peter Arkley
|
)
|
||||
|
Robert Band
|
)
|
||||
|
Willard W. Brittain, Jr
|
) /s/Robert Band
|
||||
|
Michael R. Klein
|
) Robert Band
|
||||
|
Robert L. Miller
|
) Attorney in Fact
|
||||
|
Raymond R. Oneglia
|
)
|
||||
|
Donald D. Snyder
|
) Dated: March 4, 2011
|
||||
Tutor Perini Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2010 and 2009
(In thousands, except share data)
|
Assets
|
||||||||
|
2010
|
2009
|
|||||||
|
CURRENT ASSETS:
|
||||||||
|
Cash, including cash equivalents of $127,879 and $294,807
|
$ | 471,378 | $ | 348,309 | ||||
|
Restricted cash
|
23,550 | - | ||||||
|
Accounts receivable, including retainage of $271,778 and $544,875
|
880,614 | 1,088,386 | ||||||
|
Costs and estimated earnings in excess of billings
|
139,449 | 145,678 | ||||||
|
Deferred tax asset
|
3,737 | 1,370 | ||||||
|
Other current assets
|
42,314 | 30,811 | ||||||
|
Total current assets
|
1,561,042 | 1,614,554 | ||||||
|
LONG-TERM INVESTMENTS
|
88,129 | 101,201 | ||||||
|
PROPERTY AND EQUIPMENT, at cost:
|
||||||||
|
Land
|
36,048 | 33,114 | ||||||
|
Buildings and improvements
|
89,281 | 85,830 | ||||||
|
Construction equipment
|
205,038 | 184,579 | ||||||
|
Other equipment
|
112,012 | 112,554 | ||||||
| 442,379 | 416,077 | |||||||
|
Less – Accumulated depreciation
|
79,942 | 67,256 | ||||||
|
Total property and equipment, net
|
362,437 | 348,821 | ||||||
|
GOODWILL
|
621,920 | 602,471 | ||||||
|
INTANGIBLE ASSETS, NET
|
132,551 | 134,327 | ||||||
|
OTHER ASSETS
|
13,141 | 19,280 | ||||||
| $ | 2,779,220 | $ | 2,820,654 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
Tutor Perini Corporation and Subsidiaries
Consolidated Balance Sheets (continued)
December 31, 2010 and 2009
(In thousands, except share data)
|
Liabilities and Stockholders’ Equity
|
||||||||
|
2010
|
2009
|
|||||||
|
CURRENT LIABILITIES:
|
||||||||
|
Current maturities of long-term debt
|
$ | 21,334 | $ | 31,334 | ||||
|
Accounts payable, including retainage of $280,867 and $396,928
|
653,542 | 990,551 | ||||||
|
Billings in excess of costs and estimated earnings
|
199,750 | 187,714 | ||||||
|
Accrued expenses
|
93,488 | 101,837 | ||||||
|
Total current liabilities
|
968,114 | 1,311,436 | ||||||
|
LONG-TERM DEBT, less current maturities included above
|
374,350 | 84,771 | ||||||
|
DEFERRED INCOME TAXES
|
79,082 | 78,977 | ||||||
|
OTHER LONG-TERM LIABILITIES
|
44,680 | 57,044 | ||||||
|
CONTINGENCIES AND COMMITMENTS (Note 8)
|
||||||||
|
STOCKHOLDERS’ EQUITY:
|
||||||||
|
Common stock, $1 par value:
|
||||||||
|
Authorized – 75,000,000 shares
|
||||||||
|
Issued and outstanding – 47,089,593 shares and 48,538,982 shares
|
47,090 | 48,539 | ||||||
|
Additional paid-in capital
|
985,413 | 1,012,983 | ||||||
|
Retained earnings
|
316,531 | 260,121 | ||||||
|
Accumulated other comprehensive loss
|
(36,040 | ) | (33,217 | ) | ||||
|
Total stockholders' equity
|
1,312,994 | 1,288,426 | ||||||
| $ | 2,779,220 | $ | 2,820,654 | |||||
The accompanying notes are an integral part of these consolidated financial statements.
Tutor Perini Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2010, 2009 and 2008
(In thousands, except per share data)
|
2010
|
2009
|
2008
|
||||||||||
|
Revenues
|
$ | 3,199,210 | $ | 5,151,966 | $ | 5,660,286 | ||||||
|
Cost of Operations
|
2,861,362 | 4,763,919 | 5,327,056 | |||||||||
|
Gross Profit
|
337,848 | 388,047 | 333,230 | |||||||||
|
General and Administrative Expenses
|
165,536 | 176,504 | 133,998 | |||||||||
|
Goodwill and Intangible Asset Impairment
|
- | - | 224,478 | |||||||||
|
INCOME (LOSS) FROM CONSTRUCTION OPERATIONS
|
172,312 | 211,543 | (25,246 | ) | ||||||||
|
Other Income (Expense), Net
|
(2,280 | ) | 1,098 | 9,559 | ||||||||
|
Interest Expense
|
(10,564 | ) | (7,501 | ) | (4,163 | ) | ||||||
|
Income (Loss) before Income Taxes
|
159,468 | 205,140 | (19,850 | ) | ||||||||
|
Provision for Income Taxes
|
(55,968 | ) | (68,079 | ) | (55,290 | ) | ||||||
|
NET INCOME (LOSS)
|
$ | 103,500 | $ | 137,061 | $ | (75,140 | ) | |||||
|
BASIC EARNINGS (LOSS) PER COMMON SHARE
|
$ | 2.15 | $ | 2.82 | $ | (2.19 | ) | |||||
|
DILUTED EARNINGS (LOSS) PER COMMON SHARE
|
$ | 2.13 | $ | 2.79 | $ | (2.19 | ) | |||||
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:
|
||||||||||||
|
BASIC
|
48,111 | 48,525 | 34,272 | |||||||||
|
Effect of Dilutive Stock Options and Restricted Stock Units
|
538 | 559 | - | |||||||||
|
DILUTED
|
48,649 | 49,084 | 34,272 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Tutor Perini Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2010, 2009 and 2008
(In thousands)
|
Common
Stock
|
Additional
Paid-In
Capital
|
Retained
Earnings
|
Accumulated
Other
Comprehensive
(Loss) Income
|
Total
|
||||||||||||||||
|
Balance - December 31, 2007
|
$ | 26,987 | $ | 160,664 | $ | 198,200 | $ | (17,517 | ) | $ | 368,334 | |||||||||
|
Net Loss
|
- | - | (75,140 | ) | - | (75,140 | ) | |||||||||||||
|
Other comprehensive loss:
|
||||||||||||||||||||
|
Change in pension benefit plans (net of tax benefit of $9,067)
|
- | - | - | (14,922 | ) | (14,922 | ) | |||||||||||||
|
Change in fair value of investments (net of tax benefit of $1,219)
|
- | - | - | (2,005 | ) | (2,005 | ) | |||||||||||||
|
Foreign currency translation
|
- | - | - | (101 | ) | (101 | ) | |||||||||||||
|
Total comprehensive loss
|
(92,168 | ) | ||||||||||||||||||
|
Common Stock issued in acquisition of
|
||||||||||||||||||||
|
Tutor-Saliba Corporation
|
22,987 | 858,476 | - | - | 881,463 | |||||||||||||||
|
Common Stock purchased under share repurchase program
|
(2,004 | ) | (29,793 | ) | - | - | (31,797 | ) | ||||||||||||
|
Excess income tax benefit from stock-based compensation
|
- | 533 | - | - | 533 | |||||||||||||||
|
Stock-based compensation expense
|
- | 12,145 | - | - | 12,145 | |||||||||||||||
|
Issuance of Common Stock, net
|
349 | (633 | ) | - | - | (284 | ) | |||||||||||||
|
Balance - December 31, 2008
|
$ | 48,319 | $ | 1,001,392 | $ | 123,060 | $ | (34,545 | ) | $ | 1,138,226 | |||||||||
|
Net Income
|
- | - | 137,061 | - | 137,061 | |||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||
|
Change in pension benefit plans (net of tax expense of $792)
|
- | - | - | 1,221 | 1,221 | |||||||||||||||
|
Foreign currency translation
|
- | - | - | 107 | 107 | |||||||||||||||
|
Total comprehensive income
|
138,389 | |||||||||||||||||||
|
Tax effect of stock-based compensation
|
- | (824 | ) | - | - | (824 | ) | |||||||||||||
|
Stock-based compensation expense
|
- | 12,462 | - | - | 12,462 | |||||||||||||||
|
Issuance of Common Stock, net
|
220 | (47 | ) | - | - | 173 | ||||||||||||||
|
Balance - December 31, 2009
|
$ | 48,539 | $ | 1,012,983 | $ | 260,121 | $ | (33,217 | ) | $ | 1,288,426 | |||||||||
|
Net Income
|
- | - | 103,500 | - | 103,500 | |||||||||||||||
|
Other comprehensive income:
|
||||||||||||||||||||
|
Change in pension benefit plans (net of tax benefit of $1,891)
|
- | - | - | (3,053 | ) | (3,053 | ) | |||||||||||||
|
Foreign currency translation
|
- | - | - | 230 | 230 | |||||||||||||||
|
Total comprehensive income
|
100,677 | |||||||||||||||||||
|
Common Stock purchased under share repurchase program
|
(2,165 | ) | (37,226 | ) | - | - | (39,391 | ) | ||||||||||||
|
Common Stock dividend declared ($1.00 per share)
|
- | - | (47,090 | ) | - | (47,090 | ) | |||||||||||||
|
Tax effect of stock-based compensation
|
- | (2,055 | ) | - | - | (2,055 | ) | |||||||||||||
|
Stock-based compensation expense
|
- | 12,752 | - | - | 12,752 | |||||||||||||||
|
Issuance of Common Stock, net
|
716 | (1,041 | ) | - | - | (325 | ) | |||||||||||||
|
Balance - December 31, 2010
|
$ | 47,090 | $ | 985,413 | $ | 316,531 | $ | (36,040 | ) | $ | 1,312,994 | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Tutor Perini Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2010, 2009 and 2008
(In thousands)
|
2010
|
2009
|
2008
|
||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||
|
Net income (loss)
|
$ | 103,500 | $ | 137,061 | $ | (75,140 | ) | |||||
|
Adjustments to reconcile net income (loss) to net cash from operating activities:
|
||||||||||||
|
Goodwill and intangible asset impairment
|
- | - | 224,478 | |||||||||
|
Depreciation
|
21,380 | 21,292 | 12,345 | |||||||||
|
Amortization of intangible assets and debt issuance costs
|
9,954 | 17,215 | 15,251 | |||||||||
|
Stock-based compensation expense
|
12,752 | 12,462 | 12,145 | |||||||||
|
Adjustment of investments to fair value
|
5,742 | (39 | ) | 2,721 | ||||||||
|
Excess income tax benefit from stock-based compensation
|
(218 | ) | (28 | ) | (533 | ) | ||||||
|
Deferred income taxes
|
(3,826 | ) | (10,541 | ) | (7,984 | ) | ||||||
|
Loss (gain) on sale of assets
|
1,274 | 964 | (1,068 | ) | ||||||||
|
Other assets
|
(86 | ) | - | - | ||||||||
|
Other long-term liabilities
|
(4,623 | ) | (36,284 | ) | 7,581 | |||||||
|
Cash from changes in other components of working capital:
|
||||||||||||
|
(Increase) decrease in:
|
||||||||||||
|
Accounts receivable
|
(22,054 | ) | 363,076 | (125,064 | ) | |||||||
|
Costs and estimated earnings in excess of billings
|
7,144 | (29,798 | ) | (12,032 | ) | |||||||
|
Other current assets
|
(4,690 | ) | (11,017 | ) | (3,936 | ) | ||||||
|
Increase (decrease) in:
|
||||||||||||
|
Accounts payable
|
(101,143 | ) | (449,370 | ) | 125,736 | |||||||
|
Billings in excess of costs and estimated earnings
|
11,957 | (8,928 | ) | (36,844 | ) | |||||||
|
Accrued expenses
|
(10,791 | ) | (32,112 | ) | (11,602 | ) | ||||||
|
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
26,272 | (26,047 | ) | 126,054 | ||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||
|
Acquisition of Superior Gunite, net of cash balance acquired
|
(30,924 | ) | - | - | ||||||||
|
Acquisition of Keating Building Company, net of cash balance acquired
|
- | (6,900 | ) | - | ||||||||
|
Business acquisition related payments
|
(6,734 | ) | - | - | ||||||||
|
Cash balance recorded in merger with Tutor-Saliba Corporation, net of transaction costs
|
- | - | 92,081 | |||||||||
|
Acquisition of property and equipment
|
(25,200 | ) | (37,005 | ) | (66,767 | ) | ||||||
|
Proceeds from sale of property and equipment
|
1,811 | 1,873 | 6,697 | |||||||||
|
Sales of land, net
|
- | 203 | (774 | ) | ||||||||
|
Investment in available-for-sale securities
|
- | - | (218,325 | ) | ||||||||
|
Proceeds from sale of available-for-sale securities
|
7,066 | 3,641 | 115,856 | |||||||||
|
Change in Restricted Cash
|
(23,550 | ) | - | - | ||||||||
|
Investment in other activities
|
- | (2,698 | ) | (840 | ) | |||||||
|
NET CASH USED BY INVESTING ACTIVITIES
|
(77,531 | ) | (40,886 | ) | (72,072 | ) | ||||||
Tutor Perini Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31, 2010, 2009 and 2008
(In thousands)
|
2010
|
2009
|
2008
|
||||||||||
|
Cash Flows from Financing Activities:
|
||||||||||||
|
Proceeds from issuance of senior unsecured notes, net of debt discount
|
$ | 297,774 | $ | - | $ | - | ||||||
|
Proceeds from other long-term debt
|
6,803 | 180,182 | 2,213 | |||||||||
|
Repayment of other long-term debt
|
(35,760 | ) | (150,625 | ) | (38,696 | ) | ||||||
|
Repayment of shareholder notes payable
|
- | - | (58,485 | ) | ||||||||
|
Purchase of common stock under share repurchase program
|
(39,391 | ) | - | (31,797 | ) | |||||||
|
Common stock dividend paid
|
(47,090 | ) | - | - | ||||||||
|
Excess income tax benefit from stock-based compensation
|
218 | 28 | 533 | |||||||||
|
Issuance of common stock and effect of cashless exercise
|
(325 | ) | 173 | (284 | ) | |||||||
|
Debt issuance costs
|
(7,901 | ) | (688 | ) | (482 | ) | ||||||
|
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
|
174,328 | 29,070 | (126,998 | ) | ||||||||
|
Net (Decrease) Increase in Cash and Cash Equivalents
|
123,069 | (37,863 | ) | (73,016 | ) | |||||||
|
Cash and Cash Equivalents at Beginning of Year
|
348,309 | 386,172 | 459,188 | |||||||||
|
Cash and Cash Equivalents at End of Year
|
$ | 471,378 | $ | 348,309 | $ | 386,172 | ||||||
|
Supplemental Disclosure of Cash Paid During the Year For:
|
||||||||||||
|
Interest
|
$ | 6,151 | $ | 7,804 | $ | 3,693 | ||||||
|
Income taxes
|
$ | 48,421 | $ | 83,747 | $ | 79,270 | ||||||
|
Supplemental Disclosure of Non-Cash Transactions:
|
||||||||||||
|
Grant date fair value of common stock issued for services
|
$ | 19,673 | $ | 7,411 | $ | 12,651 | ||||||
|
Assets acquired through financing arrangements
|
$ | 10,784 | $ | 5,734 | $ | 27,441 | ||||||
|
Common stock issued in merger with Tutor-Saliba Corporation
|
$ | - | $ | - | $ | 881,463 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
[1] Summary of Significant Accounting Policies
(a) Nature of Business
Tutor Perini Corporation, formerly known as Perini Corporation, was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. Tutor Perini Corporation and its wholly owned subsidiaries (the “Company”) provide diversified general contracting, construction management and design-build services to private clients and public agencies throughout the world. The Company’s construction business is conducted through three basic segments or operations: civil, building and management services. The civil segment focuses on public works construction primarily in the western, northeastern and mid-Atlantic United States including the repair, replacement and reconstruction of the public infrastructure such as highways, bridges, mass transit systems and wastewater treatment facilities. The building segment focuses on large, complex projects in the hospitality and gaming, transportation, healthcare, municipal offices, sports and entertainment, education, correctional facilities, biotech, pharmaceutical and high-tech markets, and electrical and mechanical, plumbing and HVAC services to both government and private non-residential customers. The management services segment provides diversified construction, design-build and maintenance services to the U.S. military and government agencies as well as surety companies and multi-national corporations in the United States and overseas.
The Company offers general contracting, pre-construction planning and comprehensive project management services, including planning and scheduling of the manpower, equipment, materials and subcontractors required for the timely completion of a project in accordance with the terms and specifications contained in a construction contract. The Company also offers self-performed construction services, including site work, concrete forming and placement, steel erection, electrical and mechanical, plumbing and HVAC. The Company provides these services by using traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus fee contracts and construction management or design-build contracting arrangements.
In an effort to leverage the Company’s expertise and limit its financial and/or operational risk on certain large or complex projects, the Company participates in construction joint ventures, often as the sponsor or manager of the project, for the purpose of bidding and, if awarded, providing the agreed upon construction services. Each participant usually agrees in advance to provide a predetermined percentage of capital, as required, and to share in the same percentage of profit or loss of the project.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Tutor Perini Corporation and its wholly owned subsidiaries. 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.
(c) Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company’s construction business involves making significant estimates and assumptions in the normal course of business relating to its contracts and joint venture contracts due to, among other things, the one-of-a-kind nature of most of its projects, the long-term duration of a contract cycle and the type of contract utilized. The most significant estimates with regard to these financial statements relate to the estimating of total forecasted construction contract revenues, costs and profits in accordance with accounting for long-term contracts (see Note 1(d) below) and estimating potential liabilities in conjunction with certain contingencies, including the outcome of pending or future litigation, arbitration or other dispute resolution proceedings relating to contract claims (see Note 8 below). Actual results could differ in the near term from these estimates and such differences could be material.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[1] Summary of Significant Accounting Policies (continued)
(d) Method of Accounting for Contracts
Revenues and profits from the Company’s contracts and construction joint venture contracts are recognized by applying percentages of completion for the period to the total estimated profits for the respective contracts. Percentage of completion is determined by relating the actual cost of the work performed to date to the current estimated total cost of the respective contracts. However, on construction management contracts, profit is generally recognized in accordance with the contract terms, usually on the as-billed method, which is generally consistent with the level of effort incurred over the contract period. When the estimate on a contract indicates a loss, the Company's policy is to record the entire loss during the accounting period in which it is estimable. In the ordinary course of business, at a minimum on a quarterly basis, the Company prepares updated estimates of the total forecasted revenue, cost and profit or loss for each contract. The cumulative effect of revisions in estimates of the total forecasted revenue and costs, including unapproved change orders and claims, during the course of the work is reflected in the accounting period in which the facts that caused the revision become known. The financial impact of these revisions to any one contract is a function of both the amount of the revision and the percentage of completion of the contract. An amount equal to the costs incurred which are attributable to unapproved change orders and claims is included in the total estimated revenue when realization is probable. Profit from unapproved change orders and claims is recorded in the period such amounts are resolved.
In accordance with normal practice in the construction industry, the Company includes in current assets and current liabilities amounts related to construction contracts realizable and payable over a period in excess of one year. Billings in excess of costs and estimated earnings represents the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method on certain contracts. Costs and estimated earnings in excess of billings represents the excess of contract costs and profits (or contract revenue) recognized to date on the percentage of completion accounting method over the amount of contract billings to date on the remaining contracts. Costs and estimated earnings in excess of billings results when (1) the appropriate contract revenue amount has been recognized in accordance with the percentage of completion accounting method, but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract and/or (2) costs, recorded at estimated realizable value, related to unapproved change orders or claims are incurred. Costs and estimated earnings in excess of billings related to the Company’s contracts and joint venture contracts at December 31, 2010 and 2009, consisted of the following (in thousands):
|
2010
|
2009
|
|||||||
|
Unbilled costs and profits incurred to date*
|
$ | 14,285 | $ | 44,637 | ||||
|
Unapproved change orders
|
49,949 | 32,683 | ||||||
|
Claims
|
75,215 | 68,358 | ||||||
| $ | 139,449 | $ | 145,678 | |||||
|
*
|
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 December 31, 2010 and December 31, 2009, approximately $74.1 million and $62.7 million, respectively, are amounts subject to pending litigation or dispute resolution proceedings as described in Note 8. 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. The amount of costs and estimated earnings in excess of billings at December 31, 2010 estimated by management to be collected beyond one year is approximately $53.8 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[1] Summary of Significant Accounting Policies (continued)
(e) Property and Equipment
Land, buildings and improvements, construction and computer-related equipment and other equipment are recorded at cost. Major renewals and betterments are capitalized and maintenance and repairs are charged to operations as incurred. Depreciation is calculated primarily using the straight-line method for all classifications of depreciable property. Construction equipment is depreciated over estimated useful lives ranging from five to twenty years after an allowance for salvage. The remaining depreciable property is depreciated over estimated useful lives ranging from three to forty years after an allowance for salvage.
(f) Long-Lived Assets
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Recoverability is evaluated by comparing the carrying value of the assets to the undiscounted associated cash flows. When this comparison indicates that the carrying value of the asset is greater than the undiscounted cash flows, a loss is recognized for the difference between the carrying value and estimated fair value. Fair value is determined based either on market quotes or appropriate valuation techniques.
(g) Goodwill and Intangible Assets
Goodwill and intangible assets with indefinite lives are not being amortized. Intangible assets with finite lives are amortized over their useful lives. Construction contract backlog is amortized on a weighted average basis over the corresponding contract period. Customer relationships are amortized on a straight-line basis over their estimated useful lives. The Company evaluates intangible assets that are not being amortized at the end of each reporting period to determine whether events and circumstances continue to support an indefinite useful life. Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable.
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 which suggest that the goodwill or intangible assets should be evaluated. The first step in the two step process is to compare the fair value of the reporting unit to its carrying value. If the carrying value of the reporting unit exceeds its fair value, a second step must be followed to calculate the goodwill impairment. The second step involves determining the fair value of the individual assets and liabilities of the reporting unit and calculating the implied fair value of goodwill. To determine the fair value of the Company and each of its reporting units, the Company primarily uses an income-based valuation approach, which is based on the cash flows that the reporting unit expects to generate in the future. This income valuation method 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. The Company also uses a market-based valuation approach to estimate the fair value of its reporting units by utilizing industry multiples of operating earnings. Impairment assessment inherently involves management judgments as to assumptions used to project these amounts and the impact of market conditions on those assumptions.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[1] Summary of Significant Accounting Policies (continued)
(g) Goodwill and Intangible Assets (continued)
An implied control premium for the Company is calculated based on the fair value and the market capitalization at the date of our fair value assessment. In evaluating whether our implied control premium is reasonable, the Company considers a number of factors including the following factors of greatest significance.
|
|
·
|
Market control premium: The Company compares its implied control premium to the average control premium paid in transactions of companies in the construction industry during the year of evaluation.
|
|
|
·
|
Sensitivity analysis: The Company performs a sensitivity analysis to determine the minimum control premium required to recover the book value of the Company at the testing date. The minimum control premium required is then compared to the average control premium paid in transactions of companies in the construction industry during the year of evaluation.
|
|
|
·
|
Impact of low public float and limited trading activity: A significant portion of the Company’s common stock is owned by the Company’s Chairman and CEO. As a result, the public float of the Company’s common stock, calculated as the percentage of shares of common stock freely traded by public investors divided by the Company’s total shares outstanding, is significantly lower than that of the Company’s publicly traded peers. This circumstance does not impact the fair value of the Company, however based on the Company’s evaluation of third party market data, the Company believes it does lead to an inherent marketability discount impacting the Company’s stock price.
|
On a quarterly basis we consider whether events or changes in circumstances indicate that assets, including goodwill and intangible assets not subject to amortization might be impaired. In conjunction with this analysis, we evaluate whether our current market capitalization is less than our stockholders’ equity and specifically consider (1) the duration and severity of any decline in market capitalization, (2) a reconciliation of the implied control premium to a current market control premium, (3) target price assessments by third party analysts and (4) how current market conditions impact our forecast of future cash flows. We also update our assessment of the fair value of each of our reporting units, considering whether our current forecast of future cash flows are in line with those used in our most recent annual impairment assessment and whether there are any significant changes in trends or any other material assumption used. As of December 31, 2010 we have concluded that we do not have an impairment indicator and that the estimated fair value of each reporting unit substantially exceeds its carrying value.
(h) Income Taxes
Deferred income tax assets and liabilities are recognized for the effects of temporary differences between the financial statement carrying amounts and the income tax basis of assets and liabilities using tax rates expected to be in effect when such differences reverse. In addition, future tax benefits, such as non-deductible accrued expenses, are recognized to the extent such benefits are more likely than not to be realized as an economic benefit in the form of a reduction of income taxes in future years. The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision.
(i) Earnings (Loss) Per Common Share
Basic earnings (loss) per common share was computed by dividing net income (loss) by the weighted average number of common shares outstanding. Diluted earnings (loss) per common share was similarly computed after giving consideration to the dilutive effect of outstanding stock options and restricted stock units.
The computation of diluted income per common share excludes 435,000 stock options and 610,000 stock options at December 31, 2010 and 2009, respectively, because they would have an antidilutive effect. There were 841,500 antidilutive stock options and 1,797,501 antidilutive restricted stock units excluded from the computation of diluted loss per common share at December 31, 2008.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[1] Summary of Significant Accounting Policies (continued)
(j) Cash, Cash Equivalents and Restricted Cash
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 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. Joint venture cash and cash equivalents are not restricted to specific uses within those entities; however, the terms of the joint venture agreements limit the ability to distribute those funds and use them for corporate purposes. Cash held by construction joint ventures is distributed from time to time to the Company and to the other joint venture participants in accordance with their percentage interest after the joint venture partners determine that a cash distribution is prudent. Cash distributions received by the Company from its construction joint ventures are then available for general corporate purposes.
At December 31, 2010 and 2009, cash and cash equivalents consisted of the following (in thousands):
|
2010
|
2009
|
|||||||
|
Corporate cash and cash equivalents (available for general corporate purposes)
|
$ | 455,464 | $ | 323,867 | ||||
|
Company's share of joint venture cash and cash equivalents (available only for joint venture purposes, including future distributions)
|
15,914 | 24,442 | ||||||
| $ | 471,378 | $ | 348,309 | |||||
|
Restricted Cash
|
$ | 23,550 | $ | - | ||||
Restricted cash is held to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of utilizing letters of credit.
(k) Long-term Investments
Investments, consisting of auction rate securities, are classified as available-for-sale securities based on the Company’s intentions. Investments are recorded at cost with unrealized gains and temporary unrealized losses recorded in accumulated other comprehensive income (loss), net of applicable taxes. Upon realization, those amounts are reclassified from accumulated other comprehensive income (loss) to other income, net. Unrealized losses that are other than temporary and due to a decline in expected cash flows are charged against income.
(l) Stock-Based Compensation
Compensation expense is measured based on the fair value of the award on the date of grant and is recognized as expense on a straight-line basis (net of estimated forfeitures) over the requisite service period. For awards which have a performance component, compensation cost is recognized as achievement of the performance objective appears probable.
(m) Insurance Liabilities
The Company typically utilizes third party insurance coverage subject to varying deductible or self insurance levels with aggregate caps on losses retained. The Company assumes the risk for the amount of the self-insured deductible portion of the losses and liabilities primarily associated with workers' compensation and general liability coverage. In addition, on certain projects, the Company assumes the risk for the amount of the self-insured deductible portion of losses that arise from any subcontractor defaults. Losses are accrued based upon the Company's estimates of the aggregate liability for claims incurred using historical experience and certain actuarial assumptions followed in the insurance industry. The estimate of insurance liability within the self-insured deductible limits includes an estimate of incurred but not reported claims based on data compiled from historical experience.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[1] Summary of Significant Accounting Policies (continued)
(n) Accumulated Other Comprehensive Income (Loss)
Comprehensive income (loss) is a more inclusive financial reporting method that includes disclosure of financial information that historically has not been recognized in the calculation of net income. The Company reports comprehensive income (loss) and accumulated other comprehensive income (loss), which encompasses net income (loss), cumulative translation adjustments, adjustments related to recognition of minimum pension liabilities and unrecognized net actuarial losses on the Company’s retirement benefit plans, and unrealized losses on investment in auction rate securities. The components of accumulated other comprehensive income (loss) are as follows (in thousands):
|
Cumulative Translation Adjustment
|
Unamortized Benefit Plan Costs, Net of Tax
|
Unrealized Loss on Investment in Auction Rate Securities, Net of Tax
|
Accumulated Other Comprehensive Income (Loss)
|
|||||||||||||
|
Balance at December 31, 2007
|
$ | - | $ | (17,517 | ) | $ | - | $ | (17,517 | ) | ||||||
|
Fiscal year change
|
(101 | ) | (14,922 | ) | (2,005 | ) | (17,028 | ) | ||||||||
|
Balance at December 31, 2008
|
(101 | ) | (32,439 | ) | (2,005 | ) | (34,545 | ) | ||||||||
|
Fiscal year change
|
107 | 1,221 | - | 1,328 | ||||||||||||
|
Balance at December 31, 2009
|
6 | (31,218 | ) | (2,005 | ) | (33,217 | ) | |||||||||
|
Fiscal year change
|
230 | (3,053 | ) | - | (2,823 | ) | ||||||||||
|
Balance at December 31, 2010
|
$ | 236 | $ | (34,271 | ) | $ | (2,005 | ) | $ | (36,040 | ) | |||||
(o) Fair Value of Financial Instruments
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 retentions, which may be settled beyond one year, is estimated to approximate fair value. See Note 2 for disclosure of the fair value of investments and Note 4 for disclosure of the fair value of long-term debt.
(p) Foreign Currency Translation
The functional currency for the Company’s foreign subsidiaries is the local currency. Accordingly, the assets and liabilities of those operations are translated into U.S. dollars using current exchange rates at the balance sheet date and operating statement items are translated at average exchange rates prevailing during the period. The resulting cumulative translation adjustment is recorded in the foreign currency translation adjustment account as part of accumulated other comprehensive income (loss) in shareholders’ equity. Foreign currency transaction gains and losses, if any, are included in operations as they occur.
(q) New Accounting Pronouncements
In January 2010, the Financial Accounting Standards Board (the “FASB”) issued a staff position amending existing guidance for fair value measurements and disclosures in both interim and annual financial statements. This update requires new disclosures on significant transfers of assets and liabilities between Level 1 and Level 2 of the fair value hierarchy (including the reasons for these transfers) and the reasons for any transfers in or out of Level 3. It also requires a reconciliation of recurring Level 3 measurements and clarifies certain existing disclosure requirements for reporting fair value disaggregated by class of assets and liabilities rather than each major category of assets and liabilities. This update was effective for the Company with the interim and annual reporting period beginning January 1, 2010, except for the requirement to provide the Level 3 activity of purchases, sales, issuances, and settlements on a gross basis, which will become effective for the Company with the interim and annual reporting period beginning January 1, 2011. The Company will not be required to provide the amended disclosures for any previous periods presented for comparative purposes. Other than requiring additional disclosures, adoption of this update has not and will not have a material effect on the Company's consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[2] Fair Value Measurements
Fair value guidance establishes a three-tier hierarchy for disclosure of investments at fair value. This hierarchy prioritizes the inputs used to measure fair value and expands disclosures about assets and liabilities measured at fair value. A financial asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. 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 following table provides the assets and liabilities carried at fair value measured on a recurring basis as of December 31, 2010 and 2009 (in thousands):
|
Fair Value Measurements at
Dec. 31, 2010 Using
|
||||||||||||||||
|
Total
Carrying
Value at
Dec. 31, 2010
|
Quoted prices
in active
markets
(Level 1)
|
Significant other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
|||||||||||||
|
Cash and cash equivalents
|
$ | 471,378 | $ | 471,378 | $ | - | $ | - | ||||||||
|
Restricted cash
|
23,550 | 23,550 | - | - | ||||||||||||
|
Short-term investments
|
28 | 28 | - | - | ||||||||||||
|
Auction rate securities
|
88,129 | - | - | 88,129 | ||||||||||||
|
TOTAL
|
$ | 583,085 | $ | 494,956 | $ | - | $ | 88,129 | ||||||||
|
Fair Value Measurements at
Dec. 31, 2009 Using
|
||||||||||||||||
|
Total
Carrying
Value at
Dec. 31, 2009
|
Quoted prices
in active
markets
(Level 1)
|
Significant other
observable
inputs
(Level 2)
|
Significant
unobservable
inputs
(Level 3)
|
|||||||||||||
|
Cash and cash equivalents
|
$ | 348,309 | $ | 348,309 | $ | - | $ | - | ||||||||
|
Restricted cash
|
- | - | - | - | ||||||||||||
|
Short-term investments
|
76 | 76 | - | - | ||||||||||||
|
Auction rate securities
|
101,201 | - | - | 101,201 | ||||||||||||
|
TOTAL
|
$ | 449,586 | $ | 348,385 | $ | - | $ | 101,201 | ||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[2] Fair Value Measurements (continued)
Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2010 and 2009 are as follows (in thousands):
|
Auction Rate
|
||||
|
Securities
|
||||
|
Balance at December 31, 2009
|
$ | 101,201 | ||
|
Purchases
|
- | |||
|
Settlements
|
(7,400 | ) | ||
|
Impairment charge included in Other Income (Expense), net
|
(5,746 | ) | ||
|
Reversal of impairment charges included in Other Income (Expense), net
|
74 | |||
|
Balance at December 31, 2010
|
$ | 88,129 | ||
|
Auction Rate
|
||||
|
Securities
|
||||
|
Balance at December 31, 2008
|
$ | 103,429 | ||
|
Purchases
|
- | |||
|
Settlements
|
(2,250 | ) | ||
|
Reversal of impairment charges included in Other Income (Expense), net
|
22 | |||
|
Balance at December 31, 2009
|
$ | 101,201 | ||
The Company’s investments primarily consist of cash and cash equivalents and auction rate securities (“ARS”). Cash and cash equivalents 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. Short-term investments consist of an S&P 500 index mutual fund for which fair value is determined through quoted market prices.
At December 31, 2010, the Company had $88.1 million invested in ARS which the Company considers available for sale. The majority of the ARS held at December 31, 2010, totaling $67.9 million, are securities collateralized by student loan portfolios, which are guaranteed by the United States government. Additional amounts totaling $12.2 million are invested in securities collateralized by student loan portfolios, which are privately insured. The remainder of the securities, totaling $8.0 million, is invested in tax-exempt bonds. Most of the Company’s ARS are rated AAA or AA. Due to the Company’s belief that the market for both government-backed and privately insured student loans, as well as for tax-exempt municipal bonds, may take in excess of twelve months to fully recover, the Company has classified its $88.1 million investment in these securities as non-current and this amount is included in Long-term Investments in the Consolidated Balance Sheets at December 31, 2010.
To estimate the fair value of its ARS, the Company utilized an income approach valuation model which considered, among other items, the following inputs: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions; and (iii) consideration of the probabilities of default or repurchase at par for each period. As a result of this analysis, the Company recorded an impairment charge of $5.7 million during 2010. This impairment charge was deemed to be other-than-temporary and was recorded as a charge against income.
The carrying value of cash and cash equivalents approximates fair value due to the short-term nature of these items. The carrying value of receivables, payables, long-term debt and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, is estimated to approximate fair value.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[3] Goodwill and Other Intangible Assets
During 2009, the Company completed a reorganization enabling the Company to realize greater operating efficiencies and take full advantage of the civil construction expertise acquired through the merger with Tutor-Saliba. As a result of the reorganization, the composition and number of reporting units changed. The Company reallocated goodwill between its reorganized reporting units based on the relative fair value of pre-reorganization reporting unit components distributed to post-reorganization reporting units. The number of reportable segments has not changed (see Note 12). Changes in the carrying amount of goodwill during 2010 and 2009 are as follows (in thousands):
|
Building
|
Civil
|
Management Services
|
Total
|
|||||||||||||
|
Gross goodwill at December 31, 2008
|
$ | 605,314 | $ | 83,163 | $ | 66,533 | $ | 755,010 | ||||||||
|
Accumulated impairment
|
(146,847 | ) | - | (20,051 | ) | (166,898 | ) | |||||||||
|
Balance at December 31, 2008
|
458,467 | 83,163 | 46,482 | 588,112 | ||||||||||||
|
Goodwill recorded in connection with the acquisition of Keating
|
14,359 | - | - | 14,359 | ||||||||||||
|
Subtotal
|
472,826 | 83,163 | 46,482 | 602,471 | ||||||||||||
|
Reallocation based on relative fair value
|
(217,929 | ) | 217,824 | 105 | - | |||||||||||
|
Balance at December 31, 2009
|
254,897 | 300,987 | 46,587 | 602,471 | ||||||||||||
|
Goodwill recorded in connection with the acquisition of Superior Gunite
|
- | 18,267 | - | 18,267 | ||||||||||||
|
Acquisition related adjustment
|
1,182 | - | - | 1,182 | ||||||||||||
|
Balance at December 31, 2010
|
$ | 256,079 | $ | 319,254 | $ | 46,587 | $ | 621,920 | ||||||||
In the fourth quarter of 2010, the Company performed its impairment evaluation of goodwill and other intangible assets. There was no change in the carrying amount of goodwill and other intangible assets as a result of this evaluation. As of the date of the most recent annual impairment analysis, the fair value of the Company substantially exceeded the carrying value of $1.3 billion and the market capitalization of $914 million. The implied control premium was within the range of market control premiums paid in transactions of companies in the construction industry during 2010.
In 2008, the Company recorded an impairment to goodwill of approximately $166.9 million. The Company also recorded impairment charges of $57.6 million ($35.9 million after taxes) related to the trade names and contractor license. These non-cash impairment charges relating to goodwill and the other indefinite-lived intangible assets do not affect the Company’s cash position, liquidity or have any impact on future operating results.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[3] Goodwill and Other Intangible Assets (continued)
Other intangible assets consist of the following (in thousands):
|
December 31, 2010
|
Weighted
|
||||||||||||||||
|
Accumulated
|
Average
|
||||||||||||||||
|
Accumulated
|
Impairment
|
Carrying
|
Amortization
|
||||||||||||||
|
Cost
|
Amortization
|
Charge
|
Value
|
Period
|
|||||||||||||
|
Trade names
|
$ | 158,150 | $ | - | $ | (56,900 | ) | $ | 101,250 |
Indefinite
|
|||||||
|
Contractor license
|
6,000 | - | (680 | ) | 5,320 |
Indefinite
|
|||||||||||
|
Customer relationships
|
31,700 | (7,113 | ) | - | 24,587 |
11.8 years
|
|||||||||||
|
Construction contract backlog
|
34,540 | (33,146 | ) | - | 1,394 |
2.4 years
|
|||||||||||
|
Non-compete agreements
|
2,400 | (2,400 | ) | - | - |
n.a.
|
|||||||||||
|
Total
|
$ | 232,790 | $ | (42,659 | ) | $ | (57,580 | ) | $ | 132,551 | |||||||
|
December 31, 2009
|
Weighted
|
||||||||||||||||
|
Cost
|
Accumulated
Amortization
|
Accumulated
Impairment
Charge
|
Carrying
Value
|
Average
Amortization
Period
|
|||||||||||||
|
Trade names
|
$ | 153,050 | $ | - | $ | (56,900 | ) | $ | 96,150 |
Indefinite
|
|||||||
|
Contractor license
|
6,000 | - | (680 | ) | 5,320 |
Indefinite
|
|||||||||||
|
Customer relationships
|
31,700 | (4,243 | ) | - | 27,457 |
11.8 years
|
|||||||||||
|
Construction contract backlog
|
33,340 | (28,300 | ) | - | 5,040 |
2.5 years
|
|||||||||||
|
Non-compete agreements
|
2,400 | (2,040 | ) | - | 360 |
5 years
|
|||||||||||
|
Total
|
$ | 226,490 | $ | (34,583 | ) | $ | (57,580 | ) | $ | 134,327 | |||||||
Amortization expense for the years ended December 31, 2010, 2009 and 2008 totaled $8.1 million, $16.7 million and $14.6 million, respectively. At December 31, 2010, amortization expense is estimated to be $4.3 million in 2011, $2.9 million in 2012, 2013 and 2014, $2.3 million in 2015 and $10.7 million thereafter.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[4] Financial Commitments
Long-term Debt
Long-term debt at December 31, 2010 and 2009 consists of the following (in thousands):
|
2010
|
2009
|
|||||||
|
Senior unsecured notes due November 1, 2018 at a rate of 7.625% interest payable in equal semi-annual installments beginning May 1, 2011 through November 1, 2018.
|
$ | 300,000 | $ | - | ||||
|
Less unamortized debt discount based on imputed interest rate of 7.75%
|
(2,186 | ) | - | |||||
|
Total amount less unamortized discount
|
297,814 | - | ||||||
|
Equipment financing at rates ranging from 4.25% to 7.95%
|
29,883 | 37,486 | ||||||
|
Loan on transportation equipment at a rate of 6.44% payable in equal monthly installments over a five- year period, with a balloon payment of $29.3 million in 2014
|
33,308 | 34,398 | ||||||
|
Loan on transportation equipment at a variable LIBOR-based rate plus 2.4% payable in equal monthly installments over a seven-year period, with a balloon payment of $12.0 million in 2015
|
15,426 | 16,044 | ||||||
|
Mortgages on land and office building, both at a variable LIBOR-based interest rate plus 2.0% with principal amortized at a fixed rate of 5.25% payable in equal monthly installments over seven and fifteen year periods, respectively. The seven-year mortgage includes a balloon payment of $3.0 million in 2016
|
8,892 | 9,383 | ||||||
|
Mortgage on office building at a variable rate of lender's prime rate less 1.0% (2.25% in 2010) payable in equal monthly installments over a ten-year period, with a balloon payment of $2.6 million in 2018
|
4,403 | 4,646 | ||||||
|
Mortgage on office building at a rate of 7.16% payable in equal monthly installments over a five-year period, with a balloon payment of $1.5 million in 2011
|
1,563 | 1,614 | ||||||
|
Mortgage on office building at a rate of 5.62% payable in equal monthly installments over a five-year period, with a balloon payment of $1.1 million in 2013
|
1,262 | 1,331 | ||||||
|
Mortgage on office building at a rate of 8.96% payable in equal monthly installments over a ten-year period, with a balloon payment of approximately $5.3 million in 2010
|
- | 5,560 | ||||||
|
Other Indebtedness
|
3,133 | 5,643 | ||||||
|
Total
|
395,684 | 116,105 | ||||||
|
Less – current maturities
|
21,334 | 31,334 | ||||||
|
Net long-term debt
|
$ | 374,350 | $ | 84,771 | ||||
Payments required under these obligations amount to approximately $21.3 million in 2011, $11.3 million in 2012, $8.2 million in 2013, $34.7 million in 2014, $13.6 million in 2015 and $306.6 million in 2016 and beyond.
7.625% Senior Notes due 2018
On October 20, 2010, the Company completed a private placement offering of $300 million in aggregate principal amount of its 7.625% senior unsecured notes due November 1, 2018 (the “Notes”). The Notes were priced at 99.258%, resulting in a yield to maturity of 7.75%. The Notes were made available in a private offering that is exempt from the registration requirements of the Securities Act of 1933, as amended (the “Securities Act”). The private placement of the Notes resulted in proceeds to the Company of approximately $293.2 million after debt discount of $2.2 million and debt issuance costs of $4.6 million. The Notes were issued pursuant to an indenture (the “Indenture”), dated as of October 20, 2010 by and among the Company, its subsidiary guarantors and Wilmington Trust FSB, as trustee (the “Trustee”).
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[4] Financial Commitments (continued)
The Notes mature on November 1, 2018, and bear interest at a rate of 7.625% per annum, payable semi-annually in cash in arrears on May 1 and November 1 of each year, beginning on May 1, 2011. The Notes are senior unsecured obligations of the Company and are guaranteed by substantially all of the Company’s existing and future subsidiaries that guarantee obligations under the Company’s Amended Credit Agreement.
The terms of the Indenture, among other things, limit the ability of the Company and its restricted subsidiaries to (i) incur additional indebtedness or issue certain preferred stock; (ii) pay dividends on, or make distributions in respect of, the Company’s capital stock or repurchase the Company’s capital stock; (iii) make certain investments or other restricted payments; (iv) sell certain assets; (v) create liens or use assets as security in other transactions; (vi) merge, consolidate or transfer or dispose of substantially all of the Company’s assets; and (vii) engage in certain transactions with affiliates.
The Notes are redeemable, in whole or in part, at any time on or after November 1, 2014, at the redemption prices specified in the Indenture, together with accrued and unpaid interest, if any, to the redemption date. At any time prior to November 1, 2013, the Company may redeem up to 35% of the aggregate principal amount of the Notes with the net cash proceeds from certain equity offerings at a redemption price equal to 107.625% of the principal amount thereof, together with accrued and unpaid interest, if any, to the redemption date. In addition, at any time prior to November 1, 2014, the Company may redeem the Notes, in whole or in part, at a redemption price equal to 100% of the principal amount of the Notes so redeemed, plus a “make whole” premium, together with accrued and unpaid interest, if any, to the redemption date.
Upon the occurrence of a change of control triggering event specified in the Indenture, the Company must offer to purchase the Notes at a redemption price equal to 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to the date of purchase.
The Indenture provides for customary events of default (subject in certain cases to customary grace and cure periods), which include nonpayment, breach of covenants in the Indenture, payment defaults or acceleration of other indebtedness, a failure to pay certain judgments and certain events of bankruptcy and insolvency. If an event of default occurs and is continuing, the Trustee or holders of at least 25% in principal amount of the outstanding Notes may declare the principal, accrued and unpaid interest, if any, on all the Notes to be due and payable.
On October 20, 2010, in connection with the private placement of the Notes, the Company, its subsidiary guarantors and the initial purchasers of the Notes entered into a Registration Rights Agreement (the “Registration Rights Agreement”). The terms of the Registration Rights Agreement require the Company and its subsidiary guarantors to (i) use their commercially reasonable efforts to file with the Securities and Exchange Commission and cause to become effective within 365 days after the date of the initial issuance of the Notes, a registration statement with respect to an offer to exchange the Notes for a new issue of debt securities registered under the Securities Act (the “Exchange Offer”), with terms substantially identical to those of the Notes, (except for provisions relating to the transfer restrictions and payment of additional interest); (ii) keep the Exchange Offer open for at least 30 business days (or longer if required by applicable law); and (iii) in certain circumstances, file a shelf registration statement for the resale of the Notes. If the Company and its subsidiary guarantors fail to satisfy their registration obligations under the Registration Rights Agreement, then the Company will be required to pay additional interest to the holders of the Notes, up to a maximum additional interest rate of 1.00% per annum.
Amended Credit Agreement
On September 8, 2008, the Company entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, N. A. The Credit Agreement has been amended by a Joinder Agreement dated February 13, 2009 executed by Daniel J. Keating Construction Company; by a First Amendment dated February 23, 2009; by a Second Amendment dated January 13, 2010; and by a Third Amendment dated October 4, 2010 (collectively, the “Amended Credit Agreement”). The Amended Credit Agreement allows the Company to borrow up to $205 million on a revolving credit basis (the “Revolving Facility”), with a $50 million sublimit for letters of credit, and an additional $99.6 million at December 31, 2010 under a supplemental facility to the extent that the $205 million base facility has been fully drawn (“Supplemental Facility”). Subject to certain conditions, the Company has the option to increase the base facility by up to an additional $45 million. Subsidiaries of the Company unconditionally guarantee the obligations of the Company under the Amended Credit Agreement. Certain companies not party to the Amended Credit Agreement have become subsidiaries of the Company as a result of the acquisitions of Superior Gunite on November 1, 2010 and Fisk Electric on January 3, 2011, and therefore will also become guarantors under the Amended Credit Agreement. The obligations under the Amended Credit Agreement are secured by a lien on all personal property and certain real property of the Company and its subsidiaries party thereto. Amounts outstanding under the Amended Credit Agreement bear interest at a rate equal to, at the Company's option, (a) the adjusted British Bankers Association LIBOR rate, as defined, plus 100 to 350 basis points (with a floor of 250 basis points for the $205 million base facility) based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA or (b) the higher of the Federal Funds Rate plus 50 basis points, or the prime rate announced by Bank of America, N.A., plus up to 250 basis points based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA. In addition, the Company has agreed to pay quarterly facility fees of 0.50% per annum of the unused portion of the base credit facility and ranging from 0.20% to 0.35% per annum of the unused portion of the supplementary facility. Any outstanding loans under the Revolving Facility and Supplemental Facility mature on February 22, 2012.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[4] Financial Commitments (continued)
The Amended Credit Agreement requires the Company to comply with certain financial and other covenants including minimum net worth, minimum fixed charge coverage and maximum leverage ratios. The Amended Credit Agreement also includes certain customary provisions for this type of facility, including operational covenants restricting liens, investments, indebtedness, fundamental changes in corporate organization, and dispositions of property, and events of default, certain of which include corresponding grace periods and notice requirements. The Company was in compliance with the covenants of the Amended Credit Agreement as of December 31, 2010. In addition, the Amended Credit Agreement provides that the Supplemental Facility shall be reduced by the amount of any reduction in the principal amount of certain auction rate securities presently held by the Company.
The Company borrowed under its available Revolving Facilities during a brief period in 2009 and did not utilize the Revolving Facility during either 2010 or 2008, other than for letters of credit. There are no borrowings outstanding at December 31, 2010. Accordingly, at December 31, 2010, the Company has $304.5 million available to borrow under the Amended Credit Agreement, including the Supplemental Facility.
Collateralized Loans
In March 2010, the Company obtained three loans totaling $9.4 million, which are collateralized by construction equipment owned by the Company. The terms of the loans include equal monthly installments inclusive of principal and interest at an interest rate of 4.25% payable over a five-year period, which began in April 2010. In April 2010, the Company obtained a loan for $2.1 million, which is collateralized by construction equipment. The terms of the loan include equal monthly installments inclusive of principal and interest at an interest rate of 4.25% payable over a five-year period, which began in May 2010. In June and October of 2010, the Company obtained loans for $6.3 million, collectively, which were used to finance certain insurance-related obligations. The terms of the loans include equal monthly installments inclusive of principal and interest at interest rates of 3.48% and 2.71% payable over a one-year period, which began in June and October of 2010.
In July 2009, the Company obtained a loan for $35 million from U.S. Bancorp Equipment Finance, Inc., which is collateralized by transportation equipment owned by the Company. The terms of the loan include equal monthly installments inclusive of principal and interest at an interest rate of 6.44% payable over a five-year period, which began in July 2009, with a balloon payment of $29.3 million in 2014. In addition, the Company obtained two loans during 2009 totaling $9.7 million from First Hawaiian Bank to finance building and land acquisition for operations in Guam. Both notes carry interest at a LIBOR-based rate and mature on February 12, 2016.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[4] Financial Commitments (continued)
Fair Value of Fixed and Variable Rate Debt
The fair value of variable rate debt approximated its carrying value at December 31, 2010 and 2009, of $29.6 million and $31.1 million, respectively. The fair value of the Company’s fixed rate Notes as of December 31, 2010 is $301 million, which approximates its carrying value of $297.8 million. The fair value of the Notes was estimated based on market quotations at December 31, 2010. For other fixed rate debt, fair value is determined based on discounted cash flows for the debt at the Company’s current incremental borrowing rate for similar types of debt. The estimated fair value of other fixed rate debt at December 31, 2010 and 2009 is $67.3 million and $87.0 million, respectively, compared to the carrying amount of $68.3 million and $85.0 million, respectively.
Leases
The Company leases certain construction equipment, vehicles and office space under non-cancelable operating leases. Future minimum rent payments under non-cancelable operating leases as of December 31, 2010 are as follows (in thousands):
|
Amount
|
||||
|
2011
|
$ | 9,155 | ||
|
2012
|
7,703 | |||
|
2013
|
6,748 | |||
|
2014
|
6,430 | |||
|
2015
|
5,698 | |||
|
Thereafter
|
7,018 | |||
|
Subtotal
|
42,752 | |||
|
Less - Sublease rental agreements
|
(1,290 | ) | ||
|
Total
|
$ | 41,462 | ||
Rental expense under operating leases of construction equipment, vehicles and office space was $10,546 in 2010, $13,199 in 2009 and $10,498 in 2008.
[5] Income Taxes
For the years ended December 31, 2010, 2009 and 2008, the income (loss) before taxes, consists of the following (in thousands):
|
U.S.
|
Foreign
|
|||||||||||
|
Operations
|
Operations
|
Total
|
||||||||||
|
2010
|
$ | 159,474 | $ | (6 | ) | $ | 159,468 | |||||
|
2009
|
$ | 196,088 | $ | 9,052 | $ | 205,140 | ||||||
|
2008
|
$ | (3,734 | ) | $ | (16,116 | ) | $ | (19,850 | ) | |||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[5] Income Taxes (continued)
The provision for income taxes consists of the following (in thousands):
|
Federal
|
State
|
Foreign
|
Total
|
|||||||||||||
|
2010
|
||||||||||||||||
|
Current
|
$ | 49,873 | $ | 9,528 | $ | 175 | $ | 59,576 | ||||||||
|
Deferred
|
(2,464 | ) | (983 | ) | (161 | ) | (3,608 | ) | ||||||||
| $ | 47,409 | $ | 8,545 | $ | 14 | $ | 55,968 | |||||||||
|
2009
|
||||||||||||||||
|
Current
|
$ | 65,822 | $ | 9,737 | $ | 3,061 | $ | 78,620 | ||||||||
|
Deferred
|
(11,139 | ) | 506 | 92 | (10,541 | ) | ||||||||||
| $ | 54,683 | $ | 10, 243 | $ | 3,153 | $ | 68,079 | |||||||||
|
2008
|
||||||||||||||||
|
Current
|
$ | 54,811 | $ | 7,174 | $ | 1,289 | $ | 63,274 | ||||||||
|
Deferred
|
(7,732 | ) | (479 | ) | 227 | (7,984 | ) | |||||||||
| $ | 47,079 | $ | 6,695 | $ | 1,516 | $ | 55,290 | |||||||||
The table below reconciles the difference between the statutory federal income tax rate and the effective rate provided for income (loss) before income taxes in the Consolidated Statements of Operations.
|
2010
|
2009
|
2008
|
||||||||||
|
Statutory federal income tax rate
|
35.0 | % | 35.0 | % | 35.0 | % | ||||||
|
State income taxes, net of federal tax benefit
|
3.2 | 3.2 | (24.0 | ) | ||||||||
|
Officer's compensation
|
0.3 | 0.3 | (6.6 | ) | ||||||||
|
Impairment of goodwill and other intangible assets
|
- | - | (294.3 | ) | ||||||||
|
Other
|
(3.4 | ) | (5.3 | ) | 11.4 | |||||||
|
Effective tax rate
|
35.1 | % | 33.2 | % | (278.5 | )% | ||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[5] Income Taxes (continued)
The following is a summary of the significant components of the deferred tax assets and liabilities as of December 31, 2010 and 2009 (in thousands):
|
2010
|
2009
|
|||||||
|
Deferred Tax Assets
|
||||||||
|
Timing of expense recognition
|
$ | 44,781 | $ | 43,312 | ||||
|
Other, net
|
- | (35 | ) | |||||
|
Deferred tax assets
|
44,781 | 43,277 | ||||||
|
Deferred Tax Liabilities
|
||||||||
|
Intangible assets, due primarily to purchase accounting
|
(52,454 | ) | (55,231 | ) | ||||
|
Fixed assets, due primarily to purchase accounting
|
(61,445 | ) | (51,125 | ) | ||||
|
Construction contract accounting
|
(7,333 | ) | (13,707 | ) | ||||
|
Joint ventures - construction
|
1,384 | (360 | ) | |||||
|
Other
|
(278 | ) | (461 | ) | ||||
|
Deferred tax liabilities
|
(120,126 | ) | (120,884 | ) | ||||
|
Net deferred tax liability
|
$ | (75,345 | ) | $ | (77,607 | ) | ||
The net deferred tax liability as of December 31, 2010 and 2009 is classified in the Consolidated Balance Sheets based on when the future benefit (expense) is expected to be realized as follows (in thousands):
|
2010
|
2009
|
|||||||
|
Current deferred tax asset
|
$ | 3,737 | $ | 1,370 | ||||
|
Long-term deferred tax liability
|
(79,082 | ) | (78,977 | ) | ||||
| $ | (75,345 | ) | $ | (77,607 | ) | |||
The Company recorded an immaterial valuation allowance against net operating losses generated in New York State and New York City. The Company will continue to assess the realizability of the New York net operating losses in the future.
In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. As of December 31, 2010, unremitted earnings of foreign subsidiaries, which have been or are intended to be permanently invested, aggregated approximately $15.8 million. It is not practical to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
The Company identified and reviewed potential tax uncertainties and determined that the exposure to those uncertainties did not have a material impact on the Company’s results of operations or financial condition as of December 31, 2010 and 2009.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[6] Other Assets, Other Long-term Liabilities and Other Income (Expense), Net
Other Assets, Other Long-term Liabilities and Other Income (Expense), Net consist of the following (in thousands):
|
Other Assets
|
||||||||
|
2010
|
2009
|
|||||||
|
Deferred costs
|
$ | 7,969 | $ | 1,903 | ||||
|
Mineral reserves
|
3,262 | 12,814 | ||||||
|
Deposits
|
375 | 3,090 | ||||||
|
Other long-term assets
|
1,535 | 1,473 | ||||||
| $ | 13,141 | $ | 19,280 | |||||
|
Other Long-term Liabilities
|
||||||||
|
2010
|
2009
|
|||||||
|
Pension liability
|
$ | 23,944 | $ | 20,590 | ||||
|
Acquisition related liabilities
|
8,733 | 11,200 | ||||||
|
Subcontractor insurance program
|
4,508 | 7,787 | ||||||
|
Employee benefit related liabilities
|
2,295 | 2,053 | ||||||
|
Mineral royalties payable
|
1,894 | 11,325 | ||||||
|
Deferred lease incentive
|
1,608 | 1,697 | ||||||
|
Other
|
1,698 | 2,392 | ||||||
| $ | 44,680 | $ | 57,044 | |||||
|
Other Income (Expense), Net
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
Interest income
|
$ | 4,458 | $ | 4,666 | $ | 12,898 | ||||||
|
Amortization of deferred costs
|
(1,745 | ) | (398 | ) | (290 | ) | ||||||
|
Bank fees
|
(1,618 | ) | (1,494 | ) | (1,093 | ) | ||||||
|
Adjustment of investments to fair value
|
(5,742 | ) | 39 | (2,721 | ) | |||||||
|
Realized loss on sale of investments, net
|
(312 | ) | - | - | ||||||||
|
Adjustment of business acquisition liabilities
|
3,333 | (1,500 | ) | - | ||||||||
|
Gain on sale of property used in operations
|
- | 157 | 1,617 | |||||||||
|
Loss from land sales, net
|
- | (340 | ) | (638 | ) | |||||||
|
Miscellaneous income (expense), net
|
(654 | ) | (32 | ) | (214 | ) | ||||||
| $ | (2,280 | ) | $ | 1,098 | $ | 9,559 | ||||||
[7] Employee Benefit Plans
The Company has a defined benefit pension plan that covers certain of its executive, professional, administrative and clerical employees, subject to certain specified service requirements. The plan is noncontributory and benefits are based on an employee's years of service and "final average earnings", as defined. The plan provides reduced benefits for early retirement and takes into account offsets for social security benefits. The Company also has an unfunded supplemental retirement plan (“Benefit Equalization Plan”) for certain employees whose benefits under the defined benefit pension plan were reduced because of compensation limitations under federal tax laws. Effective June 1, 2004, all benefit accruals under the Company’s pension plan and Benefit Equalization Plan were frozen; however, the current vested benefit was preserved. Pension disclosure as presented below includes aggregated amounts for both of the Company’s plans, except where otherwise indicated.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[7] Employee Benefit Plans (continued)
The Company historically has used the date of its fiscal year-end as its measurement date to determine the funded status of the plan.
Net periodic benefit cost for 2010, 2009 and 2008 is as follows (in thousands):
|
2010
|
2009
|
2008
|
||||||||||
|
Interest cost on projected benefit obligation
|
$ | 4,531 | $ | 4,676 | $ | 4,658 | ||||||
|
Expected return on plan assets
|
(4,960 | ) | (4,871 | ) | (4,799 | ) | ||||||
|
Amortization of net loss
|
2,818 | 1,776 | 1,468 | |||||||||
|
Net periodic benefit cost
|
$ | 2,389 | $ | 1,581 | $ | 1,327 | ||||||
|
Actuarial assumptions used to determine net cost:
|
||||||||||||
|
Discount rate
|
5.84 | % | 6.29 | % | 6.41 | % | ||||||
|
Expected return on assets
|
7.50 | % | 7.50 | % | 7.50 | % | ||||||
|
Rate of increase in compensation
|
n.a.
|
n.a.
|
n.a.
|
|||||||||
The expected long-term rate of return on assets assumption will remain at 7.50% for 2011. The expected long-term rate of return on assets assumption was developed considering forward looking capital market assumptions and historical return expectations for each asset class assuming the Company’s target asset allocation and full availability of invested assets.
The target asset allocation for the Company’s pension plan by asset category for 2011 and the actual asset allocation at December 31, 2010 and 2009 by asset category are as follows:
|
Percentage of Plan Assets at December 31,
|
||||||||||||
|
Asset Category
|
Target Allocation 2011
|
2010
|
2009
|
|||||||||
|
Equity securities:
|
||||||||||||
|
Domestic
|
60.0 | % | 60.2 | % | 58.6 | % | ||||||
|
International
|
15.0 | 14.2 | 14.2 | |||||||||
|
Fixed income securities
|
25.0 | 25.6 | 27.2 | |||||||||
|
Total
|
100.0 | % | 100.0 | % | 100.0 | % | ||||||
The target asset allocation was established to attempt to maximize returns with consideration of the long-term nature of the obligations and to reduce the level of overall market volatility through the allocation to fixed income investments. During the year, the asset allocation is reviewed for adherence to the target asset allocation and the portfolio of investments is rebalanced periodically.
International investments consist primarily of large capitalization equities for which fair value is determined using quoted market prices. During 2007, the domestic equity portfolio was transferred to funds of hedge funds, with the goal of generating returns in excess of traditional equity funds. As of December 31, 2010 and 2009, plan assets included approximately $36.6 million and $33.8 million, respectively, of investments in funds of hedge funds which do not have readily determinable fair values. The underlying holdings of the funds are comprised of a combination of assets for which the estimate of fair value is determined using information provided by fund managers. The fixed income allocation comprises a high yield mutual fund which invests primarily in corporate bonds with an average rating of B for which fair value is determined using quoted market prices.
The Company expects to contribute approximately $4.2 million to its defined benefit pension plan in 2011.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[7] Employee Benefit Plans (continued)
Future benefit payments under the plans are estimated as follows (in thousands):
|
Amount
|
||||
|
2011
|
$ | 5,207 | ||
|
2012
|
5,356 | |||
|
2013
|
5,525 | |||
|
2014
|
5,647 | |||
|
2015
|
5,824 | |||
|
2016 - 2020
|
30,384 | |||
The following tables provide a reconciliation of the changes in the fair value of plan assets and plan benefit obligations during the two-year period ended December 31, 2010, and a summary of the funded status as of December 31, 2010 and 2009 (in thousands):
|
2010
|
2009
|
|||||||
|
Change in Fair Value of Plan Assets
|
||||||||
|
Balance at beginning of year
|
$ | 57,715 | $ | 46,082 | ||||
|
Actual return on plan assets
|
5,215 | 9,247 | ||||||
|
Company contribution
|
3,766 | 6,949 | ||||||
|
Benefit payments
|
(4,994 | ) | (4,563 | ) | ||||
|
Balance at end of year
|
$ | 61,702 | $ | 57,715 | ||||
|
Change in Benefit Obligations
|
||||||||
|
Balance at beginning of year
|
$ | 80,597 | $ | 76,350 | ||||
|
Interest cost
|
4,531 | 4,676 | ||||||
|
Assumption change loss
|
8,478 | - | ||||||
|
Actuarial (gain) loss
|
(466 | ) | 4,134 | |||||
|
Benefit payments
|
(4,994 | ) | (4,563 | ) | ||||
|
Balance at end of year
|
$ | 88,146 | $ | 80,597 | ||||
|
Funded Status
|
||||||||
|
Funded status at December 31,
|
$ | (26,444 | ) | $ | (22,882 | ) | ||
|
Amounts recognized in Consolidated Balance Sheets consist of:
|
||||||||
|
Current liabilities
|
$ | (205 | ) | $ | (239 | ) | ||
|
Long-term liabilities
|
(26,239 | ) | (22,643 | ) | ||||
|
Net amount recognized in Consolidated Balance Sheets
|
$ | (26,444 | ) | $ | (22,882 | ) | ||
|
Amounts not yet reflected in net periodic benefit cost and included in accumulated other comprehensive loss:
|
||||||||
|
Net actuarial loss
|
$ | (44,428 | ) | $ | (39,488 | ) | ||
|
Accumulated other comprehensive loss
|
(44,428 | ) | (39,488 | ) | ||||
|
Cumulative Company contributions in excess of net periodic benefit cost
|
17,984 | 16,606 | ||||||
|
Net amount recognized in Consolidated Balance Sheets
|
$ | (26,444 | ) | $ | (22,882 | ) | ||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[7] Employee Benefit Plans (continued)
The estimated amount of the net accumulated loss that will be amortized from accumulated other comprehensive loss into net period benefit cost in 2011 is $4.0 million.
|
2010
|
2009
|
|||||||
|
Actuarial assumptions used to determine benefit obligation:
|
||||||||
|
Discount rate
|
5.18 | % | 5.84 | % | ||||
|
Rate of increase in compensation
|
n.a.
|
n.a.
|
||||||
|
Measurement date
|
December 31
|
December 31
|
||||||
The following table sets forth the plan assets at fair value as of December 31, 2010 and 2009 (in thousands) in accordance with the fair value hierarchy described in Note 2:
|
Quoted Prices in Active Markets for Identical Assets
|
Significant Observable Inputs
|
Significant Unobservable Inputs
|
Total Value as of
|
|||||||||||||
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Dec. 31, 2010
|
|||||||||||||
|
Cash and cash equivalents
|
$ | 443 | $ | - | $ | - | $ | 443 | ||||||||
|
Fixed Income
|
15,842 | - | - | 15,842 | ||||||||||||
|
International Mutual Funds
|
8,800 | - | - | 8,800 | ||||||||||||
|
Hedge Fund Investments:
|
||||||||||||||||
|
Cash
|
1,521 | - | - | 1,521 | ||||||||||||
|
Long-Short Equity Fund
|
- | - | 12,864 | 12,864 | ||||||||||||
|
Event Driven Fund
|
- | - | 8,444 | 8,444 | ||||||||||||
|
Distressed Credit
|
- | - | 9,447 | 9,447 | ||||||||||||
|
Multi-Strategy Fund
|
- | - | 4,341 | 4,341 | ||||||||||||
|
Total
|
$ | 26,606 | $ | - | $ | 35,096 | $ | 61,702 | ||||||||
|
Quoted Prices in Active Markets for Identical Assets
|
Significant Observable Inputs
|
Significant Unobservable Inputs
|
Total Value as of
|
|||||||||||||
|
(Level 1)
|
(Level 2)
|
(Level 3)
|
Dec. 31, 2009
|
|||||||||||||
|
Cash and cash equivalents
|
$ | 402 | $ | - | $ | - | $ | 402 | ||||||||
|
Fixed Income
|
15,269 | - | - | 15,269 | ||||||||||||
|
International Mutual Funds
|
8,219 | - | - | 8,219 | ||||||||||||
|
Hedge Fund Investments:
|
||||||||||||||||
|
Cash
|
2,469 | - | - | 2,469 | ||||||||||||
|
Long-Short Equity Fund
|
- | - | 14,574 | 14,574 | ||||||||||||
|
Event Driven Fund
|
- | - | 4,488 | 4,488 | ||||||||||||
|
Distressed Credit
|
- | - | 8,651 | 8,651 | ||||||||||||
|
Multi-Strategy Fund
|
- | - | 3,643 | 3,643 | ||||||||||||
|
Total
|
$ | 26,359 | $ | - | $ | 31,356 | $ | 57,715 | ||||||||
Fund strategies seek to capitalize on inefficiencies identified across different asset classes or markets. Hedge fund strategy types include long-short, event driven, multi-strategy and distressed credit.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[7] Employee Benefit Plans (continued)
The table below sets forth a summary of changes in the fair value of the Level 3 assets for the years ended December 31, 2010 and December 31, 2009 (in thousands):
|
Changes in Fair Value of Level 3 Assets
|
||||||||||||||||||||
|
Long-Short Equity Fund
|
Event Driven Fund
|
Distressed Credit
|
Multi-Strategy Fund
|
Total
|
||||||||||||||||
|
Balance, December 31, 2009
|
$ | 14,574 | $ | 4,488 | $ | 8,651 | $ | 3,643 | $ | 31,356 | ||||||||||
|
Realized gains (losses)
|
- | - | - | (21 | ) | (21 | ) | |||||||||||||
|
Unrealized gains (losses)
|
(2,128 | ) | 3,682 | 489 | 770 | 2,813 | ||||||||||||||
|
Purchases
|
418 | 274 | 307 | 141 | 1,140 | |||||||||||||||
|
Sales
|
- | - | - | (192 | ) | (192 | ) | |||||||||||||
|
Issuances
|
- | - | - | - | - | |||||||||||||||
|
Balance, December 31, 2010
|
$ | 12,864 | $ | 8,444 | $ | 9,447 | $ | 4,341 | $ | 35,096 | ||||||||||
|
Changes in Fair Value of Level 3 Assets
|
||||||||||||||||||||
|
Long-Short Equity Fund
|
Event Driven Fund
|
Distressed Credit
|
Multi-Strategy Fund
|
Total
|
||||||||||||||||
|
Balance, December 31, 2008
|
$ | 10,972 | $ | 5,288 | $ | 6,239 | $ | 2,527 | $ | 25,026 | ||||||||||
|
Realized gains (losses)
|
(407 | ) | (316 | ) | (173 | ) | (278 | ) | (1,174 | ) | ||||||||||
|
Unrealized gains (losses)
|
2,699 | (888 | ) | 1,808 | 1,066 | 4,685 | ||||||||||||||
|
Purchases
|
2,191 | 1,088 | 1,150 | 929 | 5,358 | |||||||||||||||
|
Sales
|
(881 | ) | (684 | ) | (373 | ) | (601 | ) | (2,539 | ) | ||||||||||
|
Issuances
|
- | - | - | - | - | |||||||||||||||
|
Balance, December 31, 2009
|
$ | 14,574 | $ | 4,488 | $ | 8,651 | $ | 3,643 | $ | 31,356 | ||||||||||
The net actuarial gain arising during the period, netted against the amortization of the previously existing actuarial loss during the period, resulted in net other comprehensive loss of $4.9 million in 2010, net other comprehensive income of $2.0 million in 2009 and a net other comprehensive loss of $24.0 million in 2008. Other comprehensive loss attributable to a change in the unfunded projected benefit obligation amounted to a net increase of $17.5 million recognized in prior years. The cumulative net amount of $44.4 million represents the excess of the projected benefit obligations of the Company’s pension plans over the fair value of the plans’ assets as of December 31, 2010, compared to an $18.0 million pension asset previously recognized. The net amount of $26.4 million is reflected as a liability as of December 31, 2010 (see above) with the offset being a reduction in stockholders’ equity. Adjustments to the amount of this pension liability will be recorded in future years, as required, based upon periodic re-evaluation of the funded status of the Company’s pension plans.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[7] Employee Benefit Plans (continued)
The Company’s plans have benefit obligations in excess of the fair value of the plans’ assets. The following table provides information relating to each of the plans’ benefit obligations compared to the fair value of its assets as of December 31, 2010 and 2009 (in thousands):
|
2010
|
2009
|
|||||||||||||||||||||||
|
Benefit
|
Benefit
|
|||||||||||||||||||||||
|
Pension
|
Equalization
|
Pension
|
Equalization
|
|||||||||||||||||||||
|
Plan
|
Plan
|
Total
|
Plan
|
Plan
|
Total
|
|||||||||||||||||||
|
Projected benefit obligation
|
$ | 84,952 | $ | 3,194 | $ | 88,146 | $ | 77,449 | $ | 3,148 | $ | 80,597 | ||||||||||||
|
Accumulated benefit obligation
|
84,952 | 3,194 | 88,146 | 77,449 | 3,148 | 80,597 | ||||||||||||||||||
|
Fair value of plan assets
|
61,702 | - | 61,702 | 57,715 | - | 57,715 | ||||||||||||||||||
|
Projected benefit obligation greater than fair value of plan assets
|
23,250 | 3,194 | 26,444 | 19,734 | 3,148 | 22,882 | ||||||||||||||||||
|
Accumulated benefit obligation greater than fair value of plan assets
|
$ | 23,250 | $ | 3,194 | $ | 26,444 | $ | 19,734 | $ | 3,148 | $ | 22,882 | ||||||||||||
The Company has a contributory Section 401(k) plan which covers its executive, professional, administrative and clerical employees, subject to certain specified service requirements. The 401(k) expense provision approximated $2.4 million in 2010, $4.3 million in 2009 and $4.8 million in 2008. The Company’s contribution is based on a non-discretionary match of employees’ contributions, as defined.
The Company has a cash-based and a stock-based incentive compensation plan for key employees which are generally based on the Company’s achievement of a certain level of profit. For information on the Company’s stock-based incentive compensation plan, see Note 10.
The Company also contributes to various multi-employer union retirement plans under collective bargaining agreements which provide retirement benefits for substantially all of its union employees. The aggregate amounts provided in accordance with the requirements of these plans were approximately $21.5 million in 2010, $26.0 million in 2009, and $30.6 million in 2008. The Multi-employer Pension Plan Amendments Act of 1980 defines certain employer obligations under multi-employer plans. Information regarding union retirement plans is not readily available from plan administrators to enable the Company to determine its share of any unfunded vested liabilities.
Under the Employee Retirement Income Security Act, a contributor to a multi-employer plan is liable, upon termination or withdrawal from a plan, for its proportionate share of a plan’s unfunded vested liability. The Company currently has no intention of withdrawing from any of the multi-employer pension plans in which it participates.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[8] 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 its 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. 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. In 1999, LAMTA countered with civil claims under the California False Claims Act (“CFCA”) against the Joint Venture, Tutor-Saliba and the Company jointly and severally (together, “TSP”).
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, the LAMTA dismissed its remaining claims and agreed to pay the entire amount of the Joint Venture’s remaining claims plus interest. On February 9, 2011, the Court entered judgment in favor of TSP and against LAMTA in the amount of $3 million. This amount is after deducting the amount of $0.5 million, representing the tunnel handrail verdict plus accrued interest against TSP. The parties will file post-trial motions for costs and fees and are expected to bring their respective appeals on a limited subset of previous court rulings, including TSP’s appeal of the false claims jury verdict on the tunnel handrail claim referenced above.
The Company does not expect this matter to have any material adverse effect on its consolidated financial statements.
Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter
Perini/Kiewit/Cashman Joint Venture (“PKC”) a joint venture in which the Company holds a 56% interest and is the managing partner, is currently pursuing a series of claims, instituted at different times over the course of the past ten years, for additional contract time and/or compensation against the Massachusetts Highway Department (“MHD”) for work performed by PKC on a portion of the Central Artery/Tunnel (“CA/T”) project in Boston, Massachusetts. During construction, MHD ordered PKC to perform changes to the work and issued related direct cost changes with an estimated value, excluding time delay and inefficiency costs, in excess of $100 million. In addition, PKC encountered a number of unforeseen conditions during construction that greatly increased PKC’s cost of performance. MHD has asserted counterclaims for liquidated damages.
Certain of PKC’s claims have been presented to a Disputes Review Board (“DRB”) which consists of three construction experts chosen by the parties. To date, four DRB panels have issued nine awards and several interim decisions in favor of PKC’s claims, amounting to total awards to PKC in excess of $122 million, of which $107 million were binding awards.
In December 2010, the Court granted MHD’s motion for summary judgment to vacate the Third DRB Panel’s award to PKC for approximately $55 million. The grounds on which the Court granted the motion was that it is the Court and not the arbitrators that has authority to decide whether particular claims are subject to the arbitration provision of the contract. The parties have submitted briefs to the Court on the issue of arbitrability of claims and is awaiting a decision. If the Court agrees with the Third DRB Panel that the arbitrated claims were in fact arbitrable under the Contract, PKC anticipates the DRB’s award to PKC will remain intact. PKC reserves rights to file a motion for reconsideration and appeal.
Subject to the results of further proceedings as a result of the Court’s decision with respect to the third DRB Panel’s award to PKC, it is PKC’s position that the remaining claims to be decided by the DRB on a binding and non-binding basis have an anticipated value of approximately $10 million, plus interest. Hearings before the DRB are scheduled to continue through 2011.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[8] Contingencies and Commitments (continued)
Management has made an estimate of the anticipated recovery on this project and it 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.
Long Island Expressway/Cross Island Parkway Matter
The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange (the “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 April 2009, the Company made a presentation of its position to the NYSDOT regarding additional relief it seeks from the NYSDOT. In June 2010, the Company requested that NYSDOT close-out the Project, after which the NYSDOT notified the Company that it will conduct an audit of the Company’s costs under the project. To date the parties have been unable to reach a settlement agreement.
The Company planned to file suit when NYSDOT closed out the Project. NYSDOT has not closed out the project as scheduled. The Company will file alternate legal proceedings. Upon determination of a final claim amount, said final claim will be submitted to NYSDOT and simultaneously filed with the Court. Subsequent to that filing the Company will seek to sever its final claim filed with the Court and seek judgment for the Company’s claim.
Management has made an estimate of the total anticipated recovery on this project and it 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.
Queensridge Matter
Perini Building Company, Inc. (“PBC”) was the general contractor for the construction of One Queensridge Place, a condominium project in Las Vegas, Nevada. The developer of the project, Queensridge Towers, LLC / Executive Home Builders, Inc. (“Queensridge”), has failed to pay PBC for work which PBC and its subcontractors performed on the project.
Subcontractors have brought claims against PBC and have outstanding liens on the property in the amount of approximately $19 million. PBC also has an outstanding lien on the property in the amount of approximately $24 million, representing unpaid contract balances and additional work; $19 million of PBC’s $24 million lien amount would be paid to subcontractors. Queensridge has alleged that PBC and its subcontractors are not due amounts sought and that it has back charges from incomplete and defective work. PBC filed an arbitration demand, asserting $35 million in claims against Queensridge, including $25 million for contract damages and $10 million for punitive damages.
The arbitration process is proceeding. Queensridge simultaneously filed a motion for reconsideration of the Supreme Court’s denial of Queensridge’s appeal relating to the resolved spoliation issue which is pending.
Management has made an estimate of the total anticipated recovery on this project and it 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[8] Contingencies and Commitments (continued)
Gaylord Hotel and Convention Center Matter
In 2005, Gaylord National, LLC (“Gaylord”), as Owner, and Perini Building Company, Inc. / Tompkins Builders, Joint Venture (“PTJV”), as Construction Manager, entered into a contract to construct the Gaylord National Resort and Convention Center (the “Project”) in Maryland. The Project is complete and as part of its settlement with Gaylord reached in November 2008, PTJV agreed to pay all subcontractors and defend all claims and lien actions by them relating to the Project. PTJV has closed out most subcontracts. Resolution of the issues with the remaining subcontractors may require mediation, arbitration and/or trial.
PTJV is pursuing an insurance claim for approximately $40 million related to work performed by Banker Steel Company, Inc. (“Banker Steel”), a subcontractor, including $11 million for business interruption costs incurred by Gaylord which have effectively been assigned to PTJV. In November 2009, PTJV filed suit against Factory Mutual Insurance Co. (“FM”) in the Maryland federal district court alleging FM breached the insurance contracts and for declaratory judgment with respect to the insurance coverage. Pursuant to a separate agreement with Banker Steel, PTJV will share in any net recovery resulting from Banker Steel’s lawsuit against its supplier which was filed in February 2010 and is pending in the Virginia federal court. In December 2010, PTJV filed suit against ACE American Insurance Company (“ACE”) in Maryland federal district court alleging ACE breached the general liability insurance contract, requesting a declaratory judgment with respect to the insurance coverage and for bad faith.
Management has made an estimate of the total anticipated recovery on this project and it 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.
UCLA Westwood Replacement Hospital Matter
This project, which was undertaken by the joint venture of Tutor-Saliba Corporation and Perini Corporation (“TSP”), involved the construction of a new hospital on the University of California, Los Angeles campus. The project owner is the University of California at Los Angeles (the “Owner”). The project has been completed.
TSP filed a lawsuit, in Los Angeles Superior Court, against the Owner on behalf of TSP and its subcontractors, seeking to recover costs for extra work required by the owner. Mediation was held in June 2010. The settlement reached with the Owner was approved by the Board of Regents in September 2010, subject to appropriate release language. Subsequently, the University agreed to the settlement agreement document; signatures have been obtained and the settlement funds of approximately $48 million have been received. In fourth quarter of 2010, the majority of the cases were formally dismissed and settlements with subcontractors were finalized.
The settlement of this matter did not have any material adverse effect on the Company’s consolidated financial statements.
Fontainebleau Matter
Desert Plumbing & Heating Co. (“DPH”), a wholly owned subsidiary of the Company, was the plumbing and mechanical subcontractor 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.
DPH filed liens in Nevada for approximately $42 million, representing its unreimbursed costs to date and lost profits, including anticipated profits. Other unaffiliated subcontractors have also filed liens. On June 17, 2009, DPH filed suit against Turnberry West Construction, Inc. (“Turnberry”), the general contractor, in the 8th Judicial District Court, Clark County, Nevada, seeking damages based on contract theories. On April 2, 2010, the court entered a default judgment in favor of DPH and against Turnberry for Turnberry’s failure to answer the DPH complaint and on May 27, 2010; the court entered an order on the default judgment in favor of DPH for approximately $45 million. DPH is uncertain as to Turnberry’s present financial condition.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[8] Contingencies and Commitments (continued)
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 is now approximately $125 million set aside from this sale and is available for distribution to satisfy the creditor claims based on seniority. The total estimated sustainable lien amount is approximately $350 million. The project lender filed suit against the mechanic’s lien claimants, including DPH, alleging that certain mechanic’s liens are invalid and that all mechanic’s liens are subordinate to the lender's claims against the property. Mediation efforts to resolve lien priority have been unsuccessful. The Nevada Supreme Court has agreed to hear the case and rule on the issue of lien priority, which once received will be referred to the Bankruptcy Court for further proceedings.
Management has made an estimate of the total anticipated recovery on this project and it 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.
MGM CityCenter Matter
Perini Building Company, Inc., a wholly owned subsidiary of the Company, contracted with MGM MIRAGE Design Group (“MGM”) on March 9, 2005 to construct the CityCenter project in Las Vegas, Nevada (the “Project”). The Project, which encompasses nineteen separate contracts, is a 66-acre urban mixed use development consisting of hotels, condominiums, retail space and a casino.
The Company achieved substantial completion of the Project on or about December 16, 2009, and MGM opened the Project to the public on the same date. On March 24, 2010, the Company filed suit against MGM and certain other property owners in the Clark County District Court alleging (1) breach of contract, (2) breach of the implied covenant of good faith and fair dealing, (3) tortious breach of the implied covenant of good faith and fair dealing, (4) unjust enrichment, (5) fraud and intentional misrepresentation, (6) foreclosure of mechanic’s lien, and (7) claim of priority. On March 29, 2010, the Company filed a $491 million mechanic’s lien against the Project.
In a Current Report on Form 8-K filed by MGM on March 12, 2010, and in subsequent communications issued, MGM has asserted that it believes it owes substantially less than the claimed amount and that it has claims for losses in connection with the construction of the Harmon Hotel and is entitled to unspecified offsets for other work on the Project. According to MGM, the total of the offsets and the Harmon Hotel claims exceed the amount claimed by the Company. MGM’s filing and subsequent communications do not specify in any detail the basis for MGM’s belief that it has such claims against the Company.
On May 14, 2010, MGM filed a counterclaim and third party complaint against the Company and its subsidiary Perini Building Company. On June 24, 2010, MGM filed its First Amended Third Party Complaint in which MGM removed certain causes of actions against the Company. On June 28, 2010, the court granted the Company and MGM’s joint motion to consolidate all subcontractor initiated actions into the main CityCenter lawsuit. Trial was scheduled for September 2011, but will likely be postponed since the Nevada Supreme Court stayed the case in November 2010, in response to MGM’s request after an adverse ruling against MGM to disqualify MGM’s local counsel.
In public statements, MGM asserted its intent to enter into settlement discussions directly with subcontractors under contract with the Company. As of December 31, 2010, MGM has reached agreements with subcontractors to settle at a discount $241 million of amounts previously billed to MGM. The Company has reduced amounts included in revenues, cost of construction operations, accounts receivable and accounts payable for the reduction in subcontractor pass-through billings. At December 31, 2010, the Company had approximately $249 million recorded as contract receivables for amounts due and owed to the Company and its subcontractors. Included in the Company’s receivables are pass-through subcontractor billings for contract work and retention, and other requests for equitable adjustment for additional work in the amount of $136 million. As pass-through subcontractor billings are settled, the Company will reduce its mechanic’s lien as appropriate. As of December 31, 2010, the Company’s mechanic’s lien has been reduced to
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[8] Contingencies and Commitments (continued)
$313 million. In the event MGM reaches additional settlements with subcontractors for amounts less than currently due and the settlement is agreed to by the Company, the Company will reduce amounts included in revenues, cost of construction operations, accounts receivable and accounts payable for the reduction in subcontractor pass-through billings, which we would not expect to have an impact on recorded profit.
With respect to alleged losses at the Harmon Hotel, the Company has contractual indemnities from the responsible subcontractor, as well as existing insurance coverage that it expects will be available and sufficient to cover any liability that may be associated with this matter. The Company is not aware of a basis for other claims that would amount to material offsets against what MGM owes to the Company. The Company does not expect this matter to have a material adverse effect on its consolidated financial statements.
Management has made an estimate of the total anticipated recovery on this project and it 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 (the “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 $8.75 million in claims from the City on behalf of itself and its subcontractors. In February 2010, the Company initiated a second action in the Supreme Court of the State of New York to recover an additional $0.7 million in claims against the City for unpaid retention. On March 18, 2010, the City filed counterclaims for $74.6 million and other relief, alleging fraud in connection with the DBE requirements for the Project. On May 18, 2010, the Company served the City with its response to the City’s counterclaims and affirmative defenses. Parties are discussing settlement possibilities. No trial date has been set.
The Company does not expect this matter to have any material adverse effect on its consolidated financial statements.
Westgate Planet Hollywood Matter
Tutor-Saliba Corporation, a wholly owned subsidiary of the Company, contracted to construct a time share development in Las Vegas (the “Project”) which was substantially completed on December 11, 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 on April 8, 2010 in the amount of $19.3 million, and filed its complaint on May 10, 2010 with the District Court, Clark County, Nevada. Included in the Company’s receivables are pass-through subcontractor billings for contract work and retention of approximately $12 million. 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 filed a cross-complaint alleging non-conforming and defective work for approximately $40 million, primarily related to alleged defects, misallocated costs, and liquidated damages. Some or all of the allegations will be defended by counsel appointed by Tutor-Saliba’s insurance carrier. Westgate has posted a mechanic’s lien release bond for $22.3 million. The Company does not expect this matter to have any material adverse effect on its consolidated financial statements.
Management has made an estimate of the total anticipated recovery on this project and it 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.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[8] Contingencies and Commitments (continued)
100th Street Bus Depot Matter
The Company constructed the 100th Street Bus Depot for the New York City Transit Authority (“NYCTA”) in New York. Prior to receiving notice of final acceptance from the NYCTA, this project experienced a failure of the brick façade on the building due to faulty subcontractor work. The Company has not yet received notice of final acceptance of
this project from the NYCTA. The Company contends defective structural installation by the Company’s steel subcontractor caused or was a causal factor of the brick façade failure.
The Company has tendered its claim to the NYCTA Owner Controlled Insurance Program (“OCIP”) and to Chartis Claims, Inc., its insurance carrier. Coverage was denied in January 2011. The OCIP and general liability carriers have filed a declaratory relief action against the Company seeking court determination that no coverage is afforded under their policies. The Company believes it has legal entitlement to recover costs under the policies and intends to defend its claim and to pursue a cross-complaint against the carriers for breach of contract and appropriate associated causes of action.
Management has made an estimate of the total anticipated recovery on this project and it 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.
[9] Capital Stock
(a) Common Stock
On September 8, 2008, the Company’s shareholders approved an increase in the number of authorized shares of common stock from 40 million shares to 75 million shares. On the same day, the Company acquired all of the outstanding shares of Tutor-Saliba in exchange for 22,987,293 shares of the Company’s common stock. These shares are subject to certain liquidation restrictions contained in a shareholders agreement between Mr. Tutor, the Company and other former Tutor-Saliba shareholders. As of December 31, 2010, Mr. Tutor had beneficial ownership of approximately 14.7 million shares of the Company’s common stock.
(b) Common Stock Repurchase Program
On March 19, 2010, the Company’s Board of Directors extended the common stock repurchase program put into place on November 13, 2008. The program allows the Company to repurchase up to $100 million of its common stock through March 31, 2011. Under the terms of the program, the Company may repurchase shares in open market purchases or through privately negotiated transactions. The timing and amount of any repurchase will be based on management’s evaluation of market conditions, business considerations and other factors. The Company expects to use cash on hand to fund any repurchases of its common stock. Stock repurchases will be conducted in compliance with the safe harbor provisions of Rule 10b-18 under the Securities Exchange Act of 1934, as amended. Repurchases also may be made under a 10b5-1 plan which permits common stock to be repurchased when the Company would otherwise be prohibited from doing so under insider trading laws. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of shares of its common stock, and the program may be extended, modified, suspended or discontinued at any time, at the Company’s discretion.
During 2010, the Company repurchased 2,164,840 shares under the program for an aggregate purchase price of $39.4 million. There were no repurchases made during 2009. During 2008, the Company repurchased 2,003,398 shares under the program for an aggregate purchase price of $31.8 million. Accordingly, there was $28.8 million remaining under the program as of December 31, 2010.
(c) Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock. At December 31, 2010 and 2009, there were no preferred shares issued and outstanding.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[10] Stock-Based Compensation
(a) 2004 Stock Option and Incentive Plan
The Company is authorized to grant up to 5,500,000 stock-based compensation awards to key executives, employees and directors of the Company under the 2004 Stock Option and 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 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 recognized total compensation expense of $12.8 million, $12.5 million and $12.1 million in 2010, 2009 and 2008, respectively, related to stock-based compensation awards which is included in “General and Administrative Expenses” in the Consolidated Statements of Operations. Income tax benefits of $4.5 million, $4.2 million and $4.6 million in 2010, 2009 and 2008, respectively, have been recognized relating to these awards. A total of 263,828 shares of common stock are available for future grant under the Plan at December 31, 2010.
Restricted Stock Awards
Restricted stock awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain pre-established pre-tax income performance targets. Upon vesting, each award is exchanged for one share of the Company’s common stock. As of December 31, 2010, the Compensation Committee has approved the grant of an aggregate of 3,952,500 restricted stock awards to eligible participants. During 2010, the Compensation Committee approved the award of 210,000 restricted stock units. Subject to the achievement of pre-tax income performance targets established by the Compensation Committee, the awards will vest in equal annual installments (or tranches). The 25,000 restricted stock units granted during the first quarter of 2010 will vest in three equal annual installments from 2011 through 2013. The 185,000 restricted stock units granted during the fourth quarter of 2010 will vest in three equal annual installments from 2012 through 2014. The Compensation Committee has established the pre-tax performance target for fiscal year 2010, but has not yet established pre-tax performance targets for the fiscal years 2011 through 2013. Therefore, the grant dates for the last two tranches of the awards granted in the first quarter and all three tranches of the awards granted in the fourth quarter, totaling an aggregate of 201,667 shares, have not been established for accounting purposes and, accordingly, the grant date fair values of these tranches cannot be determined currently. The grant dates for these tranches will be established in the future when the Compensation Committee establishes the respective pre-tax performance targets for each tranche. The grant date fair values of each tranche will be determined at that time and the related compensation expense for each tranche will be amortized over the separate requisite service period for each tranche.
During 2009, the Compensation Committee approved the award of 975,000 restricted stock units. Subject to the achievement of pre-tax income performance targets established by the Compensation Committee, the awards will vest in equal annual installments (or tranches). The 75,000 restricted stock units granted during the first quarter of 2009 vest in three equal annual installments from 2010 through 2012. The 750,000 restricted stock units granted during the second quarter of 2009 vest in five equal annual installments from 2010 through 2014. The 150,000 restricted stock units granted during the third quarter of 2009 vest in three equal annual installments from 2010 through 2012. The Compensation Committee has established the pre-tax performance target for fiscal year 2010, but has not yet established pre-tax performance targets for the fiscal years 2011 through 2013. Therefore, the grant dates for the last three tranches of the awards granted in the second quarter of 2009 and the last tranche of the awards granted in the third quarter of 2009, totaling an aggregate of 500,000 shares, have not been established for accounting purposes and, accordingly, the grant date fair values of these tranches cannot be determined currently. The grant dates for these tranches will be established in the future when the Compensation Committee establishes the respective pre-tax performance targets for each tranche. The grant date fair values of each tranche will be determined at that time and the related compensation expense for each tranche will be amortized over the separate requisite service period for each tranche.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[10] Stock-Based Compensation (continued)
(a) 2004 Stock Option and Incentive Plan (continued)
During 2008, the Company granted 1,122,500 restricted stock awards. The awards granted in 2010, 2009 and 2008 had a weighted-average grant date fair value of $20.44, $20.71, and $22.79, respectively.
The grant date fair value is determined based on the closing price of the Company’s common stock on the date of grant.
The Company recognized compensation expense of $9.5 million, $9.8 million and $11.6 million in 2010, 2009 and 2008, respectively, related to the restricted stock awards which is included in “General and Administrative Expenses”. As of December 31, 2010, there was $12.9 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 2.6 years.
A summary of restricted stock awards activity during the year ended December 31, 2010 is as follows:
|
Number of Shares
|
Weighted-Average Grant Date Fair Value
|
Aggregate Intrinsic Value
|
||||||||||
|
Unvested - January 1, 2010
|
1,717,501 | $ | 24.05 | $ | 31,052,418 | |||||||
|
Vested
|
(660,001 | ) | 27.84 | 12,916,969 | ||||||||
|
Granted
|
208,333 | 20.44 | 4,460,410 | |||||||||
|
Forfeited
|
(45,000 | ) | 20.12 | |||||||||
| 1,220,833 | 21.62 | 26,138,035 | ||||||||||
|
Approved for grant
|
701,667 |
(a)
|
15,022,690 | |||||||||
|
Unvested - December 31, 2010
|
1,922,500 |
n.a.
|
41,160,725 | |||||||||
|
|
(a)
|
Grant date fair value cannot be determined currently because the related performance targets for future years have not yet been established by the Compensation Committee.
|
The outstanding unvested awards at December 31, 2010 are scheduled to vest as follows, subject where applicable to the achievement of performance targets. As described above, certain performance targets have not yet been established.
|
Vesting Date
|
Number of Awards
|
|
|
2011
|
233,333
|
|
|
2012
|
294,998
|
|
|
2013
|
1,182,500
|
|
|
2014
|
211,669
|
|
|
Total
|
1,922,500
|
Approximately 100,000 of the unvested awards will vest based on the satisfaction of service requirements and 1,822,500 will vest based on the satisfaction of both service requirements and the achievement of pre-tax income performance targets. The aggregate fair value of restricted stock awards vested in 2009 and 2008 was $9.0 million and $11.8 million, respectively.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[10] Stock-Based Compensation (continued)
(a) 2004 Stock Option and Incentive Plan (continued)
Stock Options
During 2009, the Compensation Committee approved the award of 750,000 stock options. Subject to the achievement of pre-tax income performance targets established by the Compensation Committee, the awards will vest in five equal annual installments (or tranches) from 2010 through 2014. The Compensation Committee has established the pre-tax performance target for fiscal year 2010, but has not yet established pre-tax performance targets for the fiscal years 2011 through 2013. Therefore, the grant dates for the last three tranches of the awards granted in 2009, totaling an aggregate of 450,000 shares, have not been established for accounting purposes and, accordingly, the grant date fair values of these tranches cannot be determined currently. The grant dates for these tranches will be established in the future when the Compensation Committee establishes the respective pre-tax performance targets for each tranche. The grant date fair values of each tranche will be determined at that time and the related compensation expense for each tranche will be amortized over the separate requisite service period for each tranche.
During 2008, the Compensation Committee granted 805,000 stock options under the Plan to eligible participants. The options vest and become exercisable on the fifth anniversary of the grant date upon completion of a service requirement. The options expire ten years from the date of grant.
The exercise price of the options is equal to the closing price of the Company’s common stock on the date the awards were approved by the Compensation Committee. The options expire on May 28, 2019.
The Company recognized compensation expense of $3.3 million, $2.7 million and $0.5 million in 2010, 2009 and 2008, respectively, related to stock option grants which is included in “General and Administrative Expenses”. As of December 31, 2010, there was $5.1 million of unrecognized compensation cost related to the outstanding options which, absent significant forfeitures in the future, is expected to be recognized over a weighted-average period of approximately 2.7 years.
A summary of stock option activity under the Plan during the year ended December 31, 2010 is as follows:
|
Weighted Average
|
||||||||||||
|
Number
|
Grant Date
|
Exercise
|
||||||||||
|
of Shares
|
Fair Value
|
Price
|
||||||||||
|
Outstanding - January 1, 2010
|
935,000 | $ | 11.42 | $ | 20.51 | |||||||
|
Granted
|
150,000 | 9.79 | 20.33 | |||||||||
|
Forfeited
|
(45,000 | ) | 11.46 | 20.12 | ||||||||
|
Subtotal
|
1,040,000 | 11.18 | 20.50 | |||||||||
|
Approved for grant
|
450,000 |
(a)
|
20.33 | |||||||||
|
Outstanding - December 31, 2010
|
1,490,000 |
n.a.
|
20.45 | |||||||||
|
|
(a)
|
Grant date fair value cannot be determined currently because the related performance targets for future years have not yet been established by the Compensation Committee.
|
Approximately 740,000 of the outstanding options will vest based on the satisfaction of service requirements and 750,000 will vest based on the satisfaction of both service requirements and the achievement of pre-tax income performance targets.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[10] Stock-Based Compensation (continued)
(a) 2004 Stock Option and Incentive Plan (continued)
The outstanding options had an intrinsic value of approximately $3.0 million and a weighted-average remaining contractual life of 7.9 years at December 31, 2010. There were 150,000 outstanding options exercisable at December 31, 2010 at a weighted average exercise price of $20.33 per share.
During 2010, the Compensation Committee established the related performance target for the second tranche of the stock option awards approved in 2009. The fair value of the second tranche of the 2009 awards, amounting to 150,000 options, was determined using the Black-Scholes-Merton option pricing model using the following key assumptions:
|
Risk-free interest rates
|
2.65 | % | ||
|
Expected life of options
|
5.7 years
|
|||
|
Expected volatility of underlying stock
|
48.38 | % | ||
|
Expected quarterly dividends (per share)
|
$ | 0.00 | ||
During 2009, the Compensation Committee established the related performance target for the initial tranche of the stock option awards approved in 2009. The fair value of the initial tranche of the 2009 awards, amounting to 150,000 options, was determined using the Black-Scholes-Merton option pricing model using the following key assumptions:
|
Risk-free interest rates
|
2.65 | % | ||
|
Expected life of options
|
5.5 years
|
|||
|
Expected volatility of underlying stock
|
51.11 | % | ||
|
Expected quarterly dividends (per share)
|
$ | 0.00 | ||
(b) Special Equity Incentive Plan
The Company was authorized to grant up to 3,000,000 non-qualified stock options to key executives, employees and directors of the Company under the Special Equity Incentive Plan (the “Special Equity Plan”). No options were granted under the Special Equity Plan in 2010, 2009 or 2008. In accordance with its provisions, the Special Equity Plan terminated on May 25, 2010; however, it continued to govern any then outstanding unexercised and unexpired options. During 2010, 15,000 options were exercised with an intrinsic value of $0.2 million and a weighted average exercise price of $4.50 per share. During 2009, 7,500 stock options were exercised with an intrinsic value of $0.1 million and a weighted average exercise price of $4.50 per share. There were no options exercised in 2008. As of December 31, 2010, there were no outstanding options under the Special Equity Plan.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[11] Unaudited Quarterly Financial Data
The following table sets forth unaudited quarterly financial data for the years ended December 31, 2010 and 2009
(in thousands, except per share amounts):
|
2010 by Quarter
|
||||||||||||||||
|
1st
|
2nd
|
3rd
|
4th
|
|||||||||||||
|
Revenues
|
$ | 865,075 | $ | 914,376 | $ | 731,806 | $ | 687,953 | ||||||||
|
Gross profit
|
76,133 | 98,912 | 90,670 | 72,133 | ||||||||||||
|
Net income
|
20,933 | 32,725 | 30,933 | 18,909 | ||||||||||||
|
Basic earnings per common share
|
$ | 0.43 | $ | 0.67 | $ | 0.65 | $ | 0.40 | ||||||||
|
Diluted earnings per common share
|
$ | 0.42 | $ | 0.66 | $ | 0.65 | $ | 0.40 | ||||||||
|
2009 by Quarter
|
||||||||||||||||
|
1st
|
2nd
|
3rd
|
4th
|
|||||||||||||
|
Revenues
|
$ | 1,518,282 | $ | 1,382,748 | $ | 1,168,769 | $ | 1,082,167 | ||||||||
|
Gross profit
|
106,910 | 108,213 | 85,366 | 87,558 | ||||||||||||
|
Net income
|
38,981 | 38,897 | 26,684 | 32,499 | ||||||||||||
|
Basic earnings per common share
|
$ | 0.80 | $ | 0.80 | $ | 0.55 | $ | 0.67 | ||||||||
|
Diluted earnings per common share
|
$ | 0.80 | $ | 0.79 | $ | 0.54 | $ | 0.66 | ||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[12] Business Segments
During 2010, the Company’s chief operating decision maker was the Chairman and Chief Executive Officer who decides how to allocate resources and assess performance of the business segments. Generally, the Company evaluates performance of its operating segments on the basis of income from operations and cash flow.
During 2009, the Company completed a reorganization which resulted in the reallocation of goodwill between reportable segments. The following tables set forth certain business and geographic segment information relating to the Company’s operations for each of the three years in the period ended December 31, 2010 (in thousands).
|
Reportable Segments
|
||||||||||||||||||||||||
|
Management
|
Consolidated
|
|||||||||||||||||||||||
|
Building
|
Civil
|
Services
|
Totals
|
Corporate
|
Total
|
|||||||||||||||||||
|
2010
|
||||||||||||||||||||||||
|
Revenues
|
$ | 2,326,980 | $ | 667,704 | $ | 204,526 | $ | 3,199,210 | $ | - | $ | 3,199,210 | ||||||||||||
|
Income from Construction Operations
|
95,857 | 87,782 | 22,153 | 205,792 | (33,480 | ) (a) | 172,312 | |||||||||||||||||
|
Assets
|
1,192,399 | 660,201 | 147,921 | 2,000,521 | 778,699 | (b) | 2,779,220 | |||||||||||||||||
|
Capital Expenditures
|
4,074 | 25,741 | 1,997 | 31,812 | 1,108 | 32,920 | ||||||||||||||||||
|
2009
|
||||||||||||||||||||||||
|
Revenues
|
$ | 4,484,937 | $ | 361,677 | $ | 305,352 | $ | 5,151,966 | $ | - | $ | 5,151,966 | ||||||||||||
|
Income from Construction Operations
|
155,500 | 44,268 | 53,447 | 253,215 | (41,672 | ) (a) | 211,543 | |||||||||||||||||
|
Assets
|
1,580,735 | 562,728 | 293,177 | 2,436,640 | 384,014 | (b) | 2,820,654 | |||||||||||||||||
|
Capital Expenditures
|
19,671 | 13,624 | 5 | 33,300 | 9,439 | 42,739 | ||||||||||||||||||
|
2008
|
||||||||||||||||||||||||
|
Revenues
|
$ | 5,146,563 | $ | 310,722 | $ | 203,001 | $ | 5,660,286 | $ | - | $ | 5,660,286 | ||||||||||||
|
Income (loss) from
|
||||||||||||||||||||||||
|
Construction Operations:
|
||||||||||||||||||||||||
|
Before Impairment Charge
|
151,797 | 28,115 | 41,459 | 221,371 | (22,139 | ) (a) | 199,232 | |||||||||||||||||
|
Impairment Charge
|
(197,627 | ) | (6,000 | ) | (20,851 | ) | (224,478 | ) | - | (224,478 | ) | |||||||||||||
|
After Impairment Charge
|
(45,830 | ) | 22,115 | 20,608 | (3,107 | ) | (22,139 | ) | (25,246 | ) | ||||||||||||||
|
Assets
|
1,743,547 | 602,436 | 178,201 | 2,524,184 | 548,894 | (b) | 3,073,078 | |||||||||||||||||
|
Capital Expenditures
|
20,490 | 18,359 | 2,309 | 41,158 | 53,050 | 94,208 | ||||||||||||||||||
|
(a)
|
Consists of corporate general and administrative expenses.
|
|
(b)
|
Consists principally of cash and cash equivalents, corporate transportation equipment, net deferred tax asset, and other investments available for general corporate purposes.
|
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[12] Business Segments (continued)
Revenues from The Cosmopolitan project Las Vegas, Nevada for Deutsche Bank in the building segment totaled approximately $518 million (or 16% of total revenues) in 2010. Revenues from the McCarran Airport Terminal 3 project Las Vegas, Nevada for the Clark County Department of Aviation in the building segment totaled approximately $515 million (or 15% of total revenues) in 2010. Revenues from Project CityCenter in Las Vegas, Nevada for MGM MIRAGE in the building segment totaled approximately $1,968 million (or 38% of total revenues) in 2009 and $2,263 million (or 40% of total revenues) in 2008.
Information concerning principal geographic areas is as follows (in thousands):
|
Revenues
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
United States
|
$ | 3,037,940 | $ | 4,853,477 | $ | 5,464,944 | ||||||
|
Foreign and U.S. Territories
|
161,270 | 298,489 | 195,342 | |||||||||
|
Total
|
$ | 3,199,210 | $ | 5,151,966 | $ | 5,660,286 | ||||||
|
Income (Loss) from Construction Operations
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
United States
|
$ | 182,193 | $ | 202,852 | $ | 181,739 | ||||||
|
Foreign and U.S. Territories
|
23,599 | 50,363 | 39,632 | |||||||||
|
Corporate
|
(33,480 | ) | (41,672 | ) | (22,139 | ) | ||||||
|
Goodwill and intangible asset impairment
|
- | - | (224,478 | ) | ||||||||
|
Total
|
$ | 172,312 | $ | 211,543 | $ | (25,246 | ) | |||||
|
Assets
|
||||||||||||
|
2010
|
2009
|
2008
|
||||||||||
|
United States
|
$ | 2,610,848 | $ | 2,665,513 | $ | 2,934,381 | ||||||
|
Foreign and U.S. Territories
|
168,372 | 155,141 | 138,697 | |||||||||
|
Total
|
$ | 2,779,220 | $ | 2,820,654 | $ | 3,073,078 | ||||||
Income from construction operations has been allocated geographically based on the location of the job site.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[13] Related Party Transactions
The Company leases certain facilities from Ronald N. Tutor, the Company’s chairman and chief executive officer, and an affiliate owned by Mr. Tutor under non-cancelable operating lease agreements with monthly payments of $0.2 million, which increase at 3% per annum beginning August 1, 2009 and expire on July 31, 2016. Lease expense for these leases, recorded on a straight-line basis, was $2.3 million for each of the years ended December 31, 2010 and 2009.
The Vice Chairman of O&G Industries, Inc. (“O&G”) is a director of the Company. O&G occasionally participates in joint ventures with the Company. No revenues were earned from such joint ventures during 2010. The Company’s share of revenues related to these joint ventures amounted to $1.2 million (or less than 1%) and $6.1 million (or less than 1%)
of the Company’s consolidated revenues in 2009 and 2008, respectively. As of December 31, 2010, the Company has a 30% interest in a joint venture with O&G as the sponsor for a highway reconstruction project with an estimated total contract value of approximately $357 million. The Company’s participation in this joint venture was reviewed and approved by the Audit Committee of the Board of Directors of the Company in accordance with the Company’s policy. The cumulative holdings of O&G as of December 31, 2010, 2009 and 2008 was 600,000 shares, or 1.27% of total common shares outstanding at December 31, 2010.
On May 28, 2009, the Board of Directors of the Company approved a one-time cash payment of $3 million to Mr. Tutor, for his agreement to personally guarantee certain surety bond obligations related to a significant construction project awarded to the Company in July 2008. The Company made the payment in June 2009. Mr. Tutor was required by the surety companies to enter into this guaranty for the benefit of the Company in connection with the award of the project. Mr. Tutor has agreed to remain as guarantor until the project is completed. In determining the appropriate fee to pay Mr. Tutor for this guaranty, the Board of Directors considered information about market rates for third-party guaranty fees.
[14] Separate Financial Information of Subsidiary Guarantors of Indebtedness
As discussed in Note 4, the Company’s obligation to pay principal and interest on its 7.625% senior unsecured notes due November 1, 2018 (the “Notes”) is guaranteed on a joint and several basis by substantially all of the Company’s existing and future subsidiaries that guarantee obligations under the Company’s Amended Credit Agreement, with certain exceptions (the “Guarantors”). The guarantees are full and unconditional and the Guarantors are 100%-owned by the Company. The following supplemental condensed consolidating financial information reflects the summarized financial information of the Company, the Guarantors and the Company’s non-guarantor subsidiaries on a combined basis.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET - DECEMBER 31, 2010
(In Thousands)
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Cash and Cash Equivalents
|
$ | 222,156 | $ | 220,086 | $ | 29,136 | $ | - | $ | 471,378 | ||||||||||
|
Restricted Cash
|
23,550 | - | - | - | 23,550 | |||||||||||||||
|
Accounts Receivable
|
116,718 | 802,059 | 643 | (38,806 | ) | 880,614 | ||||||||||||||
|
Costs and Estimated Earnings in Excess of Billings
|
83,337 | 55,960 | 152 | - | 139,449 | |||||||||||||||
|
Deferred Income Taxes
|
3,515 | 222 | - | - | 3,737 | |||||||||||||||
|
Other Current Assets
|
9,833 | 22,784 | 9,993 | (296 | ) | 42,314 | ||||||||||||||
|
Total Current Assets
|
459,109 | 1,101,111 | 39,924 | (39,102 | ) | 1,561,042 | ||||||||||||||
|
Long-term Investments
|
88,129 | - | - | - | 88,129 | |||||||||||||||
|
Property and Equipment, net
|
44,065 | 312,965 | 5,407 | - | 362,437 | |||||||||||||||
|
Intercompany Notes and Receivables
|
(4,331 | ) | 565,701 | (5,196 | ) | (556,174 | ) | - | ||||||||||||
|
Other Assets:
|
||||||||||||||||||||
|
Goodwill
|
- | 621,920 | - | - | 621,920 | |||||||||||||||
|
Intangible Assets, net
|
- | 132,551 | - | - | 132,551 | |||||||||||||||
|
Investment in Subsidiaries
|
1,696,321 | - | - | (1,696,321 | ) | - | ||||||||||||||
|
Other
|
8,015 | 4,751 | 375 | - | 13,141 | |||||||||||||||
| $ | 2,291,308 | $ | 2,738,999 | $ | 40,510 | $ | (2,291,597 | ) | $ | 2,779,220 | ||||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||
|
Current Maturities of Long-term Debt
|
$ | 6,198 | $ | 15,136 | $ | - | $ | - | $ | 21,334 | ||||||||||
|
Accounts Payable
|
48,139 | 643,462 | 747 | (38,806 | ) | 653,542 | ||||||||||||||
|
Billings in Excess of Costs and Estimated Earnings
|
20,424 | 179,293 | 33 | - | 199,750 | |||||||||||||||
|
Accrued Expenses
|
17,880 | 60,267 | 15,637 | (296 | ) | 93,488 | ||||||||||||||
|
Total Current Liabilities
|
92,641 | 898,158 | 16,417 | (39,102 | ) | 968,114 | ||||||||||||||
|
Long-term Debt, less current maturities
|
316,113 | 58,237 | - | - | 374,350 | |||||||||||||||
|
Deferred Income Taxes
|
78,525 | 557 | - | - | 79,082 | |||||||||||||||
|
Other Long-term Liabilities
|
36,121 | 8,559 | - | - | 44,680 | |||||||||||||||
|
Contingencies and Commitments
|
||||||||||||||||||||
|
Intercompany Notes and Advances Payable
|
454,914 | 86,188 | 15,072 | (556,174 | ) | - | ||||||||||||||
|
Stockholders’ Equity:
|
||||||||||||||||||||
|
Common Stock
|
47,090 | 1,423 | 251 | (1,674 | ) | 47,090 | ||||||||||||||
|
Additional Paid-in Capital
|
985,413 | 205,232 | 100 | (205,332 | ) | 985,413 | ||||||||||||||
|
Retained Earnings
|
(288,745 | ) | 1,480,652 | 8,670 | (884,046 | ) | 316,531 | |||||||||||||
|
Equity in Retained Earnings of Subsidiaries Since Date of Acquisition
|
605,512 | - | - | (605,512 | ) | - | ||||||||||||||
|
Accumulated Other Comprehensive Loss
|
(36,276 | ) | (7 | ) | - | 243 | (36,040 | ) | ||||||||||||
|
Total Stockholders' Equity
|
1,312,994 | 1,687,300 | 9,021 | (1,696,321 | ) | 1,312,994 | ||||||||||||||
| $ | 2,291,308 | $ | 2,738,999 | $ | 40,510 | $ | (2,291,597 | ) | $ | 2,779,220 | ||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
CONDENSED CONSOLIDATING BALANCE SHEET - DECEMBER 31, 2009
(In Thousands)
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
ASSETS
|
||||||||||||||||||||
|
Cash and Cash Equivalents
|
$ | 266,171 | $ | 58,388 | $ | 23,750 | $ | - | $ | 348,309 | ||||||||||
|
Accounts Receivable
|
77,692 | 1,055,602 | 643 | (45,551 | ) | 1,088,386 | ||||||||||||||
|
Costs and Estimated Earnings in Excess of Billings
|
78,743 | 66,783 | 152 | - | 145,678 | |||||||||||||||
|
Deferred Income Taxes
|
1,224 | 146 | - | - | 1,370 | |||||||||||||||
|
Intercompany Notes and Receivables
|
- | 368,987 | - | (368,987 | ) | - | ||||||||||||||
|
Other Current Assets
|
13,264 | 16,320 | 1,227 | - | 30,811 | |||||||||||||||
|
Total Current Assets
|
437,094 | 1,566,226 | 25,772 | (414,538 | ) | 1,614,554 | ||||||||||||||
|
Long-term Investments
|
101,201 | - | - | - | 101,201 | |||||||||||||||
|
Property and Equipment, net
|
41,376 | 301,980 | 5,465 | - | 348,821 | |||||||||||||||
|
Intercompany Notes and Receivables
|
- | 467,748 | 147 | (467,895 | ) | - | ||||||||||||||
|
Other Assets:
|
||||||||||||||||||||
|
Goodwill
|
- | 602,471 | - | - | 602,471 | |||||||||||||||
|
Intangible Assets, net
|
- | 134,327 | - | - | 134,327 | |||||||||||||||
|
Investment in Subsidiaries
|
1,576,561 | - | - | (1,576,561 | ) | - | ||||||||||||||
|
Other
|
1,932 | 17,203 | 145 | 19,280 | ||||||||||||||||
| $ | 2,158,164 | $ | 3,089,955 | $ | 31,529 | $ | (2,458,994 | ) | $ | 2,820,654 | ||||||||||
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
||||||||||||||||||||
|
Current Maturities of Long-term Debt
|
$ | 9,899 | $ | 15,875 | $ | 5,560 | $ | - | $ | 31,334 | ||||||||||
|
Accounts Payable
|
25,607 | 1,010,211 | 284 | (45,551 | ) | 990,551 | ||||||||||||||
|
Billings in Excess of Costs and Estimated Earnings
|
4,507 | 183,173 | 34 | - | 187,714 | |||||||||||||||
|
Intercompany Notes and Advances Payable
|
368,987 | - | - | (368,987 | ) | - | ||||||||||||||
|
Accrued Expenses
|
1,314 | 84,649 | 15,874 | - | 101,837 | |||||||||||||||
|
Total Current Liabilities
|
410,314 | 1,293,908 | 21,752 | (414,538 | ) | 1,311,436 | ||||||||||||||
|
Long-term Debt, less current maturities
|
19,131 | 65,640 | - | - | 84,771 | |||||||||||||||
|
Deferred Income Taxes
|
78,336 | 641 | - | - | 78,977 | |||||||||||||||
|
Other Long-term Liabilities
|
31,719 | 25,325 | - | - | 57,044 | |||||||||||||||
|
Contingencies and Commitments
|
||||||||||||||||||||
|
Intercompany Notes and Advances Payable
|
330,238 | 134,016 | 3,641 | (467,895 | ) | - | ||||||||||||||
|
Stockholders’ Equity:
|
||||||||||||||||||||
|
Common Stock
|
48,539 | 2,082 | 251 | (2,333 | ) | 48,539 | ||||||||||||||
|
Additional Paid-in Capital
|
1,012,983 | 205,232 | 100 | (205,332 | ) | 1,012,983 | ||||||||||||||
|
Retained Earnings
|
(253,748 | ) | 1,364,006 | 5,785 | (855,922 | ) | 260,121 | |||||||||||||
|
Equity in Retained Earnings of Subsidiaries Since Date of Acquisition
|
513,875 | (658 | ) | - | (513,217 | ) | - | |||||||||||||
|
Accumulated Other Comprehensive Loss
|
(33,223 | ) | (237 | ) | - | 243 | (33,217 | ) | ||||||||||||
|
Total Stockholders' Equity
|
1,288,426 | 1,570,425 | 6,136 | (1,576,561 | ) | 1,288,426 | ||||||||||||||
| $ | 2,158,164 | $ | 3,089,955 | $ | 31,529 | $ | (2,458,994 | ) | $ | 2,820,654 | ||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2010
(In Thousands)
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
Revenues
|
$ | 467,259 | $ | 2,830,896 | $ | (1 | ) | $ | (98,944 | ) | $ | 3,199,210 | ||||||||
|
Cost of Operations
|
372,737 | 2,593,529 | (5,960 | ) | (98,944 | ) | 2,861,362 | |||||||||||||
|
Gross Profit
|
94,522 | 237,367 | 5,959 | - | 337,848 | |||||||||||||||
|
General and Administrative Expenses
|
50,020 | 114,383 | 1,133 | - | 165,536 | |||||||||||||||
|
INCOME FROM CONSTRUCTION OPERATIONS
|
44,502 | 122,984 | 4,826 | - | 172,312 | |||||||||||||||
|
Equity in Earnings of Subsidiaries
|
80,606 | - | - | (80,606 | ) | - | ||||||||||||||
|
Other Income (Expense), net
|
(1,544 | ) | (690 | ) | (46 | ) | - | (2,280 | ) | |||||||||||
|
Interest Expense
|
(7,727 | ) | (2,499 | ) | (338 | ) | - | (10,564 | ) | |||||||||||
|
Income before Income Taxes
|
115,837 | 119,795 | 4,442 | (80,606 | ) | 159,468 | ||||||||||||||
|
Provision for Income Taxes
|
(12,337 | ) | (42,072 | ) | (1,559 | ) | - | (55,968 | ) | |||||||||||
|
NET INCOME
|
$ | 103,500 | $ | 77,723 | $ | 2,883 | $ | (80,606 | ) | $ | 103,500 | |||||||||
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2009
(In Thousands)
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
Revenues
|
$ | 161,056 | $ | 5,200,108 | $ | - | $ | (209,198 | ) | $ | 5,151,966 | |||||||||
|
Cost of Operations
|
130,891 | 4,849,166 | (6,940 | ) | (209,198 | ) | 4,763,919 | |||||||||||||
|
Gross Profit
|
30,165 | 350,942 | 6,940 | - | 388,047 | |||||||||||||||
|
General and Administrative Expenses
|
52,999 | 123,064 | 441 | - | 176,504 | |||||||||||||||
|
INCOME (LOSS) FROM CONSTRUCTION OPERATIONS
|
(22,834 | ) | 227,878 | 6,499 | - | 211,543 | ||||||||||||||
|
Equity in Earnings of Subsidiaries
|
142,849 | - | - | (142,849 | ) | - | ||||||||||||||
|
Other Income (Expense), net
|
78 | 1,007 | 13 | - | 1,098 | |||||||||||||||
|
Interest Expense
|
(3,191 | ) | (3,798 | ) | (512 | ) | - | (7,501 | ) | |||||||||||
|
Income (Loss) before Income Taxes
|
116,902 | 225,087 | 6,000 | (142,849 | ) | 205,140 | ||||||||||||||
|
(Provision) Credit for Income Taxes
|
20,159 | (86,218 | ) | (2,020 | ) | - | (68,079 | ) | ||||||||||||
|
NET INCOME
|
$ | 137,061 | $ | 138,869 | $ | 3,980 | $ | (142,849 | ) | $ | 137,061 | |||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 2008
(In Thousands)
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non-Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
Revenues
|
$ | 152,495 | $ | 5,587,455 | $ | 708 | $ | (80,372 | ) | $ | 5,660,286 | |||||||||
|
Cost of Operations
|
135,433 | 5,274,646 | (2,651 | ) | (80,372 | ) | 5,327,056 | |||||||||||||
|
Gross Profit
|
17,062 | 312,809 | 3,359 | - | 333,230 | |||||||||||||||
|
General and Administrative Expenses
|
34,025 | 99,992 | (19 | ) | - | 133,998 | ||||||||||||||
|
Goodwill and Intangible Asset Impairment
|
- | 224,478 | - | - | 224,478 | |||||||||||||||
|
INCOME (LOSS) FROM CONSTRUCTION OPERATIONS
|
(16,963 | ) | (11,661 | ) | 3,378 | - | (25,246 | ) | ||||||||||||
|
Equity in Loss of Subsidiaries
|
(67,618 | ) | - | - | 67,618 | - | ||||||||||||||
|
Other Income (Expense), net
|
9,548 | (1 | ) | 12 | - | 9,559 | ||||||||||||||
|
Interest Expense
|
(1,270 | ) | (2,356 | ) | (537 | ) | - | (4,163 | ) | |||||||||||
|
Income (Loss) before Income Taxes
|
(76,303 | ) | (14,018 | ) | 2,853 | 67,618 | (19,850 | ) | ||||||||||||
|
(Provision) Credit for Income Taxes
|
1,163 | (55,522 | ) | (931 | ) | - | (55,290 | ) | ||||||||||||
|
NET INCOME (LOSS)
|
$ | (75,140 | ) | $ | (69,540 | ) | $ | 1,922 | $ | 67,618 | $ | (75,140 | ) | |||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2010
(In Thousands)
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non- Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||||||||||
|
Net income
|
$ | 103,500 | $ | 77,723 | $ | 2,883 | $ | (80,606 | ) | $ | 103,500 | |||||||||
|
Adjustments to reconcile net income to net cash from operating activities:
|
||||||||||||||||||||
|
Depreciation and amortization
|
5,281 | 25,761 | 292 | - | 31,334 | |||||||||||||||
|
Equity in earnings of subsidiaries
|
(80,606 | ) | - | - | 80,606 | - | ||||||||||||||
|
Stock-based compensation expense
|
12,752 | - | - | - | 12,752 | |||||||||||||||
|
Adjustment of investments to fair value
|
5,520 | 222 | - | - | 5,742 | |||||||||||||||
|
Excess income tax benefit from stock-based compensation
|
(218 | ) | - | - | - | (218 | ) | |||||||||||||
|
Deferred income taxes
|
(3,705 | ) | (121 | ) | - | - | (3,826 | ) | ||||||||||||
|
Loss on sale of assets, net
|
381 | 893 | - | - | 1,274 | |||||||||||||||
|
Other assets
|
(12 | ) | (74 | ) | - | - | (86 | ) | ||||||||||||
|
Other long-term liabilities
|
10,662 | (15,285 | ) | - | - | (4,623 | ) | |||||||||||||
|
Changes in other components of working capital
|
5,869 | (116,505 | ) | (8,941 | ) | - | (119,577 | ) | ||||||||||||
|
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
$ | 59,424 | $ | (27,386 | ) | $ | (5,766 | ) | $ | - | $ | 26,272 | ||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||||||||||
|
Acquisition of Superior Gunite, net of cash balance acquired
|
(30,924 | ) | - | - | - | (30,924 | ) | |||||||||||||
|
Business acquisition related payments
|
(3,000 | ) | (3,734 | ) | - | - | (6,734 | ) | ||||||||||||
|
Acquisition of property and equipment
|
(6,186 | ) | (18,781 | ) | (233 | ) | - | (25,200 | ) | |||||||||||
|
Proceeds from sale of property and equipment
|
2 | 1,809 | - | - | 1,811 | |||||||||||||||
|
Proceeds from sale of available-for-sale securities
|
7,066 | - | - | - | 7,066 | |||||||||||||||
|
Change in restricted cash
|
(23,550 | ) | - | - | - | (23,550 | ) | |||||||||||||
|
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
$ | (56,592 | ) | $ | (20,706 | ) | $ | (233 | ) | $ | - | $ | (77,531 | ) | ||||||
|
Cash Flows from Financing Activities:
|
||||||||||||||||||||
|
Proceeds from issuance of senior unsecured notes, net of debt discount
|
297,774 | - | - | - | 297,774 | |||||||||||||||
|
Proceeds from other debt
|
2,463 | 4,340 | - | - | 6,803 | |||||||||||||||
|
Repayment of other long-term debt
|
(13,126 | ) | (17,246 | ) | (5,388 | ) | - | (35,760 | ) | |||||||||||
|
Purchase of common stock under share repurchase program
|
(39,391 | ) | - | - | - | (39,391 | ) | |||||||||||||
|
Common stock dividend paid
|
(47,090 | ) | - | - | - | (47,090 | ) | |||||||||||||
|
Excess income tax benefit from stock-based compensation
|
218 | - | - | - | 218 | |||||||||||||||
|
Issuance of common stock and effect of cashless exercise
|
(325 | ) | - | - | - | (325 | ) | |||||||||||||
|
Debt issuance costs
|
(7,901 | ) | - | - | - | (7,901 | ) | |||||||||||||
|
Increase (decrease) in intercompany advances
|
(239,469 | ) | 222,696 | 16,773 | - | - | ||||||||||||||
|
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
|
$ | (46,847 | ) | $ | 209,790 | $ | 11,385 | $ | - | $ | 174,328 | |||||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
(44,015 | ) | 161,698 | 5,386 | - | 123,069 | ||||||||||||||
|
Cash and Cash Equivalents at Beginning of Year
|
266,171 | 58,388 | 23,750 | - | 348,309 | |||||||||||||||
|
Cash and Cash Equivalents at End of Year
|
$ | 222,156 | $ | 220,086 | $ | 29,136 | $ | - | $ | 471,378 | ||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2009
(In Thousands)
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non- Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||||||||||
|
Net income
|
$ | 137,061 | $ | 138,869 | $ | 3,980 | $ | (142,849 | ) | $ | 137,061 | |||||||||
|
Adjustments to reconcile net income (loss) to net cash from operating activities:
|
||||||||||||||||||||
|
Depreciation and amortization
|
4,890 | 33,292 | 325 | - | 38,507 | |||||||||||||||
|
Equity in earnings of subsidiaries
|
(142,849 | ) | - | - | 142,849 | - | ||||||||||||||
|
Stock-based compensation expense
|
12,462 | - | - | - | 12,462 | |||||||||||||||
|
Adjustment of investments to fair value
|
(22 | ) | (17 | ) | - | - | (39 | ) | ||||||||||||
|
Excess income tax benefit from stock-based compensation
|
(28 | ) | - | - | - | (28 | ) | |||||||||||||
|
Deferred income taxes
|
(9,697 | ) | (844 | ) | - | - | (10,541 | ) | ||||||||||||
|
Loss on sale of assets, net
|
6 | 958 | - | - | 964 | |||||||||||||||
|
Other long-term liabilities
|
(3,482 | ) | (32,802 | ) | - | - | (36,284 | ) | ||||||||||||
|
Distributions greater (less) than earnings of joint ventures
|
(15,314 | ) | (731 | ) | - | 16,045 | - | |||||||||||||
|
Changes in other components of working capital
|
(69,489 | ) | (105,473 | ) | 10,220 | (3,407 | ) | (168,149 | ) | |||||||||||
|
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
$ | (86,462 | ) | $ | 33,252 | $ | 14,525 | $ | 12,638 | $ | (26,047 | ) | ||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||||||||||
|
Acquisition of Keating Building Co., net of cash balance acquired
|
(6,900 | ) | - | - | - | (6,900 | ) | |||||||||||||
|
Acquisition of property and equipment
|
(7,804 | ) | (29,201 | ) | - | - | (37,005 | ) | ||||||||||||
|
Proceeds from sale of property and equipment
|
11 | 1,862 | - | - | 1,873 | |||||||||||||||
|
Proceeds from sale of land held for sale, net
|
- | 203 | - | - | 203 | |||||||||||||||
|
Proceeds from sale of available-for-sale securities
|
3,600 | 41 | - | - | 3,641 | |||||||||||||||
|
Capital contributions from joint ventures
|
11,977 | 1,592 | - | (13,569 | ) | - | ||||||||||||||
|
Investment in other activities
|
(299 | ) | (2,274 | ) | (125 | ) | - | (2,698 | ) | |||||||||||
|
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
$ | 585 | $ | (27,777 | ) | $ | (125 | ) | $ | (13,569 | ) | $ | (40,886 | ) | ||||||
|
Cash Flows from Financing Activities:
|
||||||||||||||||||||
|
Proceeds from long-term debt
|
135,482 | 44,700 | - | - | 180,182 | |||||||||||||||
|
Repayment of long-term debt
|
(134,733 | ) | (15,598 | ) | (294 | ) | - | (150,625 | ) | |||||||||||
|
Proceeds from exercise of common stock options and stock purchase warrants
|
34 | - | - | - | 34 | |||||||||||||||
|
Excess income tax benefit from stock-based compensation
|
28 | - | - | - | 28 | |||||||||||||||
|
Issuance of common stock and effect of cashless exercise
|
139 | - | - | - | 139 | |||||||||||||||
|
Deferred debt costs
|
(688 | ) | - | - | - | (688 | ) | |||||||||||||
|
Increase (decrease) in intercompany advances
|
152,112 | (154,786 | ) | 1,743 | 931 | - | ||||||||||||||
|
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
|
$ | 152,374 | $ | (125,684 | ) | $ | 1,449 | $ | 931 | $ | 29,070 | |||||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
66,497 | (120,209 | ) | 15,849 | - | (37,863 | ) | |||||||||||||
|
Cash and Cash Equivalents at Beginning of Year
|
199,674 | 178,597 | 7,901 | - | 386,172 | |||||||||||||||
|
Cash and Cash Equivalents at End of Year
|
$ | 266,171 | $ | 58,388 | $ | 23,750 | $ | - | $ | 348,309 | ||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 2008
|
Tutor Perini Corporation
|
Guarantor Subsidiaries
|
Non- Guarantor Subsidiaries
|
Eliminations
|
Total Consolidated
|
||||||||||||||||
|
Cash Flows from Operating Activities:
|
||||||||||||||||||||
|
Net income (loss)
|
$ | (75,140 | ) | $ | (69,540 | ) | $ | 1,922 | $ | 67,618 | $ | (75,140 | ) | |||||||
|
Adjustments to reconcile net income (loss) to net cash from operating activities:
|
||||||||||||||||||||
|
Goodwill and intangible asset Impairment
|
- | 224,478 | - | - | 224,478 | |||||||||||||||
|
Equity in loss of subsidiaries
|
67,618 | - | - | (67,618 | ) | - | ||||||||||||||
|
Depreciation and amortization
|
1,489 | 25,772 | 335 | - | 27,596 | |||||||||||||||
|
Stock-based compensation expense
|
12,145 | - | - | - | 12,145 | |||||||||||||||
|
Adjustment of investments to fair value
|
2,623 | 98 | - | - | 2,721 | |||||||||||||||
|
Excess income tax benefit from stock-based compensation
|
(533 | ) | - | - | - | (533 | ) | |||||||||||||
|
Deferred income taxes
|
(8,206 | ) | 222 | - | - | (7,984 | ) | |||||||||||||
|
(Gain) loss on sale of assets, net
|
(2,182 | ) | 1,114 | - | - | (1,068 | ) | |||||||||||||
|
Increase in other long-term liabilities
|
(1,676 | ) | 9,257 | - | - | 7,581 | ||||||||||||||
|
Distributions greater (less) than earnings of joint ventures
|
11,211 | 4,320 | - | (15,531 | ) | - | ||||||||||||||
|
Changes in other components of working capital
|
(16,260 | ) | (63,338 | ) | 4,787 | 11,069 | (63,742 | ) | ||||||||||||
|
NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES
|
$ | (8,911 | ) | $ | 132,383 | $ | 7,044 | $ | (4,462 | ) | $ | 126,054 | ||||||||
|
Cash Flows from Investing Activities:
|
||||||||||||||||||||
|
Cash balance recorded in merger with Tutor-Saliba Corporation, net of transaction costs
|
92,081 | - | - | - | 92,081 | |||||||||||||||
|
Acquisition of property and equipment
|
(2,357 | ) | (64,282 | ) | (128 | ) | - | (66,767 | ) | |||||||||||
|
Proceeds from sale of property and equipment
|
2,597 | 4,100 | - | - | 6,697 | |||||||||||||||
|
Investment in available-for-sale securities
|
(218,482 | ) | 157 | - | - | (218,325 | ) | |||||||||||||
|
Proceeds from sale of available-for-sale securities
|
115,856 | - | - | - | 115,856 | |||||||||||||||
|
Capital contributions (to) from joint ventures
|
(4,913 | ) | 450 | - | 4,463 | - | ||||||||||||||
|
Investment in other activities
|
(1,033 | ) | (581 | ) | - | - | (1,614 | ) | ||||||||||||
|
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES
|
$ | (16,251 | ) | $ | (60,156 | ) | $ | (128 | ) | $ | 4,463 | $ | (72,072 | ) | ||||||
|
Cash Flows from Financing Activities:
|
||||||||||||||||||||
|
Proceeds from long-term debt
|
2,213 | - | - | - | 2,213 | |||||||||||||||
|
Repayment of long-term debt
|
(3,525 | ) | (34,901 | ) | (270 | ) | - | (38,696 | ) | |||||||||||
|
Repayment of shareholder notes payable
|
- | (58,485 | ) | - | - | (58,485 | ) | |||||||||||||
|
Purchase of common stock under repurchase program
|
(31,797 | ) | - | - | - | (31,797 | ) | |||||||||||||
|
Excess income tax benefit from stock-based compensation
|
533 | - | - | - | 533 | |||||||||||||||
|
Issuance of common stock and effect of cashless exercise
|
(634 | ) | - | 350 | - | (284 | ) | |||||||||||||
|
Deferred debt costs
|
(482 | ) | - | - | - | (482 | ) | |||||||||||||
|
Increase (decrease) in intercompany advances
|
(81,625 | ) | (24,013 | ) | 646 | 104,992 | - | |||||||||||||
|
NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES
|
$ | (115,317 | ) | $ | (117,399 | ) | $ | 726 | $ | 104,992 | $ | (126,998 | ) | |||||||
|
Net Increase (Decrease) in Cash and Cash Equivalents
|
(140,479 | ) | (45,172 | ) | 7,642 | 104,993 | (73,016 | ) | ||||||||||||
|
Cash and Cash Equivalents at Beginning of Year
|
378,002 | 185,919 | 260 | (104,993 | ) | 459,188 | ||||||||||||||
|
Cash and Cash Equivalents at End of Year
|
$ | 237,523 | $ | 140,747 | $ | 7,902 | $ | - | $ | 386,172 | ||||||||||
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2010, 2009 and 2008
(Continued)
[15] Acquisitions
On November 1, 2010, the Company completed the acquisition of Superior Gunite, a California-based privately held construction company specializing in pneumatically placed structural concrete and certain related companies (collectively, “Superior”). Under the terms of the transaction, the Company acquired 100% of the stock of Superior for a purchase price of $35.8 million in cash, including a post-closing adjustment based on the net worth of Superior at closing, plus additional consideration in the form of an earn-out based on Superior’s fiscal 2011 through 2013 operating results. The Company believes that the acquisition of Superior will provide it with a strong strategic fit, enabling the Company to achieve greater vertical integration by increasing the percentage of self-performed work. Goodwill of $18.3 million was recorded in conjunction with this acquisition. The acquisition of Superior did not have a material effect on the Company’s results of operations, financial condition or cash flows.
On January 15, 2009, the Company completed its acquisition of all of the outstanding capital stock of Daniel J. Keating Construction Company, d/b/a Keating Building Company (“Keating”), for total consideration of $51.1 million. Keating provides building construction general contracting services to both government agencies and private non-residential customers. Keating primarily operates in the northeast and mid-Atlantic regions of the United States and has a history of successfully completed projects in the commercial office building, corporate campus, gaming, hospitality, education, pharmaceutical and institutional building construction markets. Goodwill of $15.5 million was recorded in conjunction with this acquisition.
[16] Subsequent Event
On January 3, 2011, the Company completed the acquisition of Fisk Electric Company ("Fisk"), a privately held electrical construction company based in Houston, Texas. Under the terms of the transaction, the Company acquired 100% of Fisk's stock for $105 million in cash, subject to a post-closing adjustment based on the net worth of Fisk at closing, plus an amount to be determined based upon Fisk's operating results for 2011 through 2013. The transaction was financed using proceeds from the offering of senior unsecured notes which was completed in October 2010 (see Note 4).
Based in Houston, Texas, Fisk covers many of the major commercial and industrial electrical construction markets in Southwest and Southeast locations with abilities to cover other attractive markets nationwide. Fisk's expertise in the design development of electrical and technology systems for major projects spans a broad variety of project types including: commercial office buildings, sports arenas, hospitals, research laboratories, hospitality and casinos, convention centers, and industrial facilities.
Fisk was acquired because the Company believes that Fisk is a strong strategic fit enabling the Company to expand its nationwide electrical construction capabilities and to realize significant synergies and opportunities in support of the Company’s non-residential building and civil operations.
The transaction was accounted for using the acquisition method. The Company has not yet completed the final allocation of the purchase price to the tangible and intangible assets of Fisk.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Tutor Perini Corporation
Sylmar, CA
We have audited the accompanying consolidated balance sheets of Tutor Perini Corporation and subsidiaries (the "Company") as of December 31, 2010 and 2009, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2010. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Tutor Perini Corporation as of December 31, 2010 and 2009, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2010, based on the criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 4, 2011 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/ Deloitte & Touche, LLP
Los Angeles, California
March 4, 2011
Exhibit Index
The following designated exhibits are, as indicated below, either filed herewith or have heretofore been filed with the Securities and Exchange Commission under the Securities Act of 1933 or the Securities Act of 1934 and are referred to and incorporated herein by reference to such filings.
|
Exhibit 2.
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Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession
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|
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2.1
|
Agreement and Plan of Merger, dated as of April 2, 2008, by and among Tutor Perini Corporation, Trifecta Acquisition LLC, Tutor-Saliba Corporation, Ronald N. Tutor and shareholders of Tutor-Saliba Corporation signatory thereto (incorporated by reference to Exhibit 2.1 to Form 8-K filed on April 7, 2008).
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|
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2.2
|
Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 28, 2008, by and among Tutor Perini Corporation, Trifecta Acquisition LLC, Tutor-Saliba Corporation, Ronald N. Tutor and shareholders of Tutor-Saliba Corporation signatory thereto (incorporated by reference to Exhibit 2.2 to Form 10-Q filed on August 8, 2008).
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|
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Exhibit 3.
|
Articles of Incorporation and By-laws
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|
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3.1
|
Restated Articles of Organization (incorporated by reference to Exhibit 4 to Form
S-2 (File No. 33-28401) filed on April 28, 1989).
|
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3.2
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Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.2 to Form S-1 (File No. 333-111338) filed on December 19, 2003).
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|
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3.3
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Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on April 12, 2000).
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|
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3.4
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Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on September 11, 2008).
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|
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3.5
|
Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.5 to Form 10-Q filed on August 10, 2009).
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|
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3.6
|
Second Amended and Restated By-laws of Tutor Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 24, 2009).
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|
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Exhibit 4.
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Instruments Defining the Rights of Security Holders, Including Indentures
|
|
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4.1
|
Shareholders Agreement, dated April 2, 2008, by and among Tutor Perini Corporation, Ronald N. Tutor and the shareholders of Tutor-Saliba Corporation signatory thereto (incorporated by reference to Exhibit 4.1 to Form 8-K filed on April 7, 2008).
|
|
|
4.2
|
Amendment No. 1 to the Shareholders Agreement, dated as of September 17, 2010, by and between Tutor Perini Corporation and Ronald N. Tutor, as shareholder representative (incorporated by reference to Exhibit 4.1 to Form 8-K filed on September 20, 2010).
|
|
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4.3
|
Indenture, dated October 20, 2010, by and among Tutor Perini Corporation, certain subsidiary guarantors named therein and Wilmington Trust FSB, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed on October 21, 2010).
|
|
Exhibit Index
(Continued)
|
4.4
|
Registration Rights Agreement dated October 20, 2010, by and among Tutor Perini Corporation, certain subsidiary guarantors named therein and the initial purchasers named therein (incorporated by reference to Exhibit 4.2 to Form 8-K filed on October 21, 2010).
|
|
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Exhibit 10.
|
Material Contracts
|
|
|
10.1*
|
Amendment No. 1 dated March 20, 2009 to the Amended and Restated Employment Agreement dated December 23, 2008, by and between Perini Corporation and Ronald N. Tutor (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on May 8, 2009).
|
|
|
10.2*
|
Tutor Perini Corporation Amended and Restated (2004) Construction Business Unit Incentive Compensation Plan (incorporated by reference to Exhibit 10.2 to Amendment No. 2 to Form S-1 (File No. 333-111338) filed on March 8, 2004).
|
|
|
10.3*
|
Tutor Perini Corporation 2004 Stock Option and Incentive Plan (incorporated by reference to Annex A to the Company’s Definitive Proxy Statement on Form DEF 14A filed on April 17, 2009).
|
|
|
10.4*
|
Form of Director and Officer Indemnification Agreement (incorporated by reference to Exhibit 10.19 to Amendment No. 1 to Form S-1 (File No. 333-111338) filed on February 10, 2004).
|
|
|
10.5*
|
Form of Restricted Stock Unit Award Agreement under the Tutor Perini Corporation 2004 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.24 to Tutor Perini Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 4, 2005).
|
|
|
10.6*
|
Restricted Stock Unit Award Agreement under the Tutor Perini Corporation 2004 Stock Option and Incentive Plan dated as of September 26, 2007 between the Company and Kenneth R. Burk (incorporated by reference to Exhibit 10.1 to Form 10-Q filed on November 9, 2007).
|
|
|
10.7*
|
Amended and Restated Employment Agreement dated December 23, 2008, by and between Tutor Perini Corporation and Ronald N. Tutor (incorporated by reference to Exhibit 10.1 to Form 8-K filed on December 23, 2008).
|
|
|
10.8
|
Third Amended and Restated Credit Agreement dated as of September 8, 2008 among Tutor Perini Corporation, the subsidiaries of Tutor Perini identified therein, and Bank of America, N.A. and the other lenders that are parties thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed on September 12, 2008).
|
|
|
10.9
|
First Amendment dated February 23, 2009 to the Third Amended and Restated Credit Agreement among Tutor Perini Corporation, the subsidiaries of Tutor Perini identified therein, and Bank of America, N.A. and the other lenders that are parties thereto (incorporated by reference to Exhibit 10.13 to Form 10-K filed on February 27, 2009).
|
|
Exhibit Index
(Continued)
|
10.10
|
Second Amendment dated January 13, 2010 to the Third Amended and Restated Credit Agreement among Tutor Perini Corporation, the subsidiaries of Tutor Perini identified therein, and Bank of America, N.A., and the other lenders that are parties thereto (incorporated by reference to Exhibit 10.1 to Form 8-K filed on January 21, 2010).
|
|
|
10.11
|
Extension of Supplemental Facility, dated July 16, 2010, to the Third Amended and Restated Credit Agreement among Tutor Perini Corporation, the subsidiaries of Tutor Perini identified therein, and Bank of America, N.A., and the other lenders that are parties thereto (incorporated by reference to Exhibit 10.2 to Form 10-Q filed on August 6, 2010).
|
|
|
10.12
|
Purchase Agreement, dated October 15, 2010, by and among Tutor Perini Corporation, certain subsidiary guarantors named therein and Deutsche Bank Securities Inc., as representatives of the several initial purchasers (incorporated by reference to Exhibit 10.1 to Form 8-K filed on October 21, 2010).
|
|
|
10.13
|
Third Amendment dated October 4, 2010, effective October 20, 2010 to the Third Amended and Restated Credit Agreement among Tutor Perini Corporation, the subsidiaries of Tutor Perini identified therein, and Bank of America, N.A., and the other lenders that are parties thereto (incorporated by reference to Exhibit 10.2 to Form 8-K filed on October 21, 2010).
|
|
|
10.14*
|
2009 General Incentive Compensation Plan (incorporated by reference to Annex B to the Company’s Definitive Proxy Statement on Form DEF 14A filed on April 17, 2009).
|
|
|
Subsidiaries of Tutor Perini Corporation - filed herewith.
|
||
|
Consent of Independent Registered Public Accounting Firm - filed herewith.
|
||
|
Power of Attorney - filed herewith.
|
||
|
Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – filed herewith.
|
||
|
Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – filed herewith.
|
||
|
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.
|
||
|
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 – filed herewith.
|
||
* Management contract or compensatory arrangement required to be filed as an exhibit pursuant to Item 15(a)(3) of Form 10-K.
105