former procurement manager in the civil division. Both of these employees left the Company nearly two years ago, and neither is currently associated with Perini.
The Company recorded a charge in 2007 with respect to this matter which materially affected the operating results of the civil segment. Since this matter has not been settled, the potential for a further charge (or credit) exists; however, management believes that the amount of such further charge or credit, if any, will not be material to the operating results of the Company or to the civil segment.
The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange for the New York State Department of Transportation (the “NYSDOT”). The $130 million project (the “Project”) included the complete reconstruction and/or new construction of fourteen bridges and numerous retaining and barrier walls; reconfiguration of the existing interchange with the addition of three flyover bridges; widening and resurfacing of three miles of highway; and a substantial amount of related work. The Company substantially completed the Project in January 2004, and its work on the Project was accepted by the NYSDOT as finally complete in February 2006.
Because of 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, the Company suffered impacts involving every structure. As a result, the Company incurred significant additional costs in completing its work and suffered a significantly extended Project schedule.
The initial Project schedule contemplated substantial completion in 28 months from the Project commencement in September 2000. Ultimately, the time for substantial completion was extended by the NYSDOT by 460 days. While the Project was under construction, the NYSDOT made $8.5 million of payments to the Company as additional compensation for its extended overhead costs.
The Company sought approximately $33 million of additional relief from the NYSDOT for the delay and extra work it experienced. The NYSDOT, however, declined to grant the Company any further relief. Moreover, the NYSDOT stated it will take an adjustment of approximately $2.5 million of the $8.5 million it previously paid to the Company for its extended overhead costs. Since the NYSDOT has accepted the Company’s work as complete, it must close out the Project contract. The Company is actively pursuing the closeout of this Contract with NYSDOT and hopes to achieve the same within the next few months.
After the closeout of the Project contract by the NYSDOT, the Company had intended to file a formal claim with the NYSDOT for the delay and extra work it experienced, as well as for appropriate portions of the adjustment taken by the NYSDOT to the amounts previously paid to the Company for its extended overhead costs, as a condition precedent to filing an action in the New York Court of Claims. However, as a result of a meeting with the NYSDOT on January 26, 2009, the NYSDOT has indicated a willingness to engage in settlement negotiations to resolve all claims.
Management has made an estimate of the total anticipated cost recovery on the Project and it is included in revenue recorded to date. To the extent new facts become known or the final cost recovery included in the claim settlement varies from this estimate, the impact of the change will be reflected in the financial statements at that time.
The Company is engaged in the construction of the Cosmopolitan Resort and Casino, a mixed-use casino/hotel development project in Las Vegas, Nevada, (the “Project”). On January 16, 2008, Deutsche Bank AG (the “Bank”) delivered a notice of loan default to Cosmo, Senior Borrower LLC (“Cosmo”), then the Owner/Developer of the Project. Subsequently, the Bank foreclosed against the property and, as of August 29, 2008, Nevada Property 1 LLC (“NP1”) acquired title to the Project. Subsequently, NP1 notified the Company that it elected to have the Company continue with the performance of the work, and that it assumed the obligations of Cosmo under the construction contract for the Project.
The Company has an interim commitment from the Bank under which the Bank continues to pay the Company
for performing construction work on the Project on a monthly basis while NP1 finalizes its financing for future payments. The Bank has continued to renew its commitment monthly.
Construction work continues on the Project and all current amounts due the Company have been paid pursuant to the terms of the construction contract.
On August 14, 2008, the parties executed an amendment to the Project contract increasing the contract value and setting the guaranteed maximum price at approximately $2.3 billion for the Project. The Project currently is expected to be completed in 2010. As of December 31, 2008, approximately $915 million of work remained to be performed by the Company under the construction contract.
The ultimate financial impact of this matter, if any, is not yet determinable. Therefore, no provision for loss or contract profit reduction, if any, has been recorded in the financial statements.
Queensridge
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. The subcontractors have brought claims against PBC and have filed liens on the property in the amount of approximately $25 million. PBC has also filed a lien on the property in the amount of $24 million, representing unpaid contract balances and additional work, which is subordinate to a pre-existing security interest of the lender as to all amounts over $11.2 million. Queensridge has alleged that Perini and the subcontractors are not due the amounts which were sought and that it has backcharges from incomplete and defective work. Through an action in the Clark County District Court in Nevada, PBC has asked the court to consolidate all of the claims into one proceeding and to compel Queensridge and the subcontractors to participate in binding arbitration of all of those claims per the requirements of the contract. The court has advised that it will not act on the Motion to Compel Arbitration until it rules on several other pending motions, including cross motions for spoliation. To date, efforts by the parties to settle the matter have not been successful.
Management has made an estimate of the total anticipated recovery on this project and it is included in revenues recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from this estimate, the impact of the change will be reflected in the financial statements at that time.
Gaylord Hotel and Convention Center
In 2005, Gaylord National, LLC (“Gaylord”), as Owner, and Perini Building Company, Inc. (“PBC”) /Tompkins Builders, Joint Venture (“PTJV”), as Construction Manager, entered into a contract (“Contract”) to construct the Gaylord National Resort and Convention Center (the “Project”) in Maryland. PBC is the managing partner of the joint venture. The Project included 2000 hotel rooms, a spa, swimming pool, restaurants, a convention center and other meeting space, surface and structural parking, site work, a central utility plant and various other elements.
PTJV requested payments it alleged were due by Gaylord. Gaylord disputed payment of such amounts and set forth certain claims against PTJV.
On September 18, 2008, PTJV filed suit against Gaylord and a petition for a lien in the Circuit Court for Prince George’s County Maryland. On October 10, 2008, Gaylord filed a separate suit in the same court against PTJV seeking damages. Effective November 26, 2008, the parties reached a settlement. Gaylord agreed to pay PTJV $42 million to settle all claims of each party against the other as of the settlement date. PTJV agreed to perform additional punchlist and related work valued at $3 million. PTJV also agreed to pay all subcontractors and defend all claims and lien actions by them relating to the Project.
PTJV expects to close out most subcontracts in the first quarter of 2009. Resolution of the issues remaining with six subcontractors, including PTJV’s claim of approximately $3.8 million against Banker Steel Company, LLC, may require mediation and/or arbitration. A mediation with Pierce Associates, Inc. is scheduled for March, 2009 with
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an arbitration, if necessary, to be held in September of 2009.
Management has made an estimate of the total net anticipated recovery on this project and it is included in revenues recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from this 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 project has been completed.
The project experienced significant delays, impacts and inefficiencies which TSP maintains were the result of Owner caused delays and design deficiencies. TSP has submitted a claim to the Owner that includes a delay claim which, under the Contract between TSP and the Owner, is compensable at the rate of $25,000 per day, and a labor and material escalation claim in the amount of $800,000.
In addition, TSP’s subcontractors have submitted various claims, which TSP forwarded to the Owner as pass-through claims to the Owner. Some Subcontractors have filed lawsuits to enforce bond, stop notice and contract rights. Other Subcontractors are anticipated to file lawsuits before expiration of applicable statutes of limitation. With respect to Subcontractor lawsuits, TSP has in turn, filed indemnity claims against the Owner. Pursuant to the provisions of TSP’s Subcontract Agreements with its Subcontractors, TSP is not responsible to pay Subcontractors for Owner-caused damages.
The Owner currently is auditing the books and records of TSP and its Subcontractors. Global claims negotiations are now scheduled for May 2009.
Shareholder Litigation
Weitman v. Tutor, et al Matter
On June 19, 2008, an individual named Nina Weitman filed a lawsuit in Superior Court of Middlesex County, Massachusetts, (Weitman v. Tutor, et al., (Massachusetts Superior Court, Middlesex County, No. 08-2351) allegedly on behalf of herself and other shareholders of Perini Corporation (“Perini”), against Ronald N. Tutor, Robert Band, Raymond R. Oneglia, Michael R. Klein, William W. Brittain, Jr., Robert A. Kennedy, Peter Arkley and Robert L. Miller (collectively, the “Individual Defendants”); Perini Corporation itself; and Tutor-Saliba Corporation (“Tutor-Saliba”). Ms. Weitman reportedly owns seventeen (17) shares of Perini Corporation common stock. The complaint alleged generally that the Individual Defendants breached their fiduciary duties to Perini by agreeing to enter into the Merger Agreement with Tutor-Saliba. Specifically, the complaint alleged: that the proxy statement related to, among other things, the meeting of the Perini shareholders to approve the merger, did not provide shareholders with enough information regarding the merger; that the exchange ratio in the Merger Agreement was not fair to the Perini shareholders; and that Perini’s board of directors allegedly breached its fiduciary duties by, among other things, allegedly failing to examine strategic alternatives to the merger. The complaint sought, among other forms of relief, certification of the case as a class action, injunctive relief to enjoin the proposed merger, rescission in the event that the merger is consummated before a judgment in the case is entered, and damages.
The plaintiff had filed a motion seeking expedited procedures for its lawsuit. On August 13, 2008, the Superior Court issued an order denying Plaintiff’s motion for expedited procedures. Plaintiff did not file a motion to enjoin the Merger, which was completed on September 8, 2008.
In the Superior Court, Perini had moved to dismiss the complaint as to Perini and Tutor-Saliba. On July 31, 2008, rather than responding to Perini’s and Tutor-Saliba’s motions to dismiss, plaintiff filed an Amended Complaint alleging new claims for aiding and abetting breach of fiduciary duties and conspiracy, and naming Trifecta Acquisition LLC as a new defendant. The defendants subsequently removed the case to the United States District Court for the District of Massachusetts. Plaintiff moved to remand the case to Massachusetts Superior Court, and the defendants filed
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cross motions to dismiss that they initially filed in that Court. On December 3, 2008, the District Court remanded the case to Middlesex County Superior Court. Defendants have renewed their motions to dismiss, and the court has scheduled a hearing on these motions for February 27, 2009.
Isham and Rollman Securities Litigation Matters
Two putative class actions have been filed in the U.S. District Court for the District of Massachusetts on behalf of individuals who purchased Perini stock between November 2, 2006 and January 17, 2008, alleging securities fraud violations against Perini and company executives Ronald N. Tutor, Robert Band, Michael E. Ciskey and Kenneth R. Burk (collectively, the “Isham/Rollman Individual Defendants”). The first lawsuit was filed on August 18, 2008, by an individual named William B. Isham. On September 11, 2008, an individual named Marion Rollman filed the second lawsuit.
In both cases, the plaintiffs claim that Perini and the Isham/Rollman Individual Defendants violated sections 10(b) and 20(a) of the 1934 Exchange Act, as well as the SEC's Rule 10b-5. The complaints allege generally that the defendants purportedly made material misrepresentations or omissions in press releases and SEC filings regarding the future prospects for Las Vegas construction projects. The plaintiffs claim that the alleged misrepresentations or omissions had the effect of artificially inflating the value of Perini's stock. Plaintiffs further allege that stock sales by the Isham/Rollman Individual Defendants prior to disclosures related to the developer of one of the Las Vegas projects support the claims that the defendants misrepresented or omitted material facts regarding the future prospects of these projects. Plaintiffs seek certification of the matter as a class action, and damages allegedly incurred by Perini shareholders who had purchased stock during the putative class period. Scheduling orders have not yet been entered in these cases. On October 20, 2008, two pension funds, the Iron Workers District Council, Southern Ohio & Vicinity Pension Trust and the Operating Engineers Construction Industry and Miscellaneous Pension Fund, moved to consolidate the two cases and to be appointed lead plaintiff under the Private Securities Litigation Reform Act (PSLRA). The court granted that motion on December 10, 2008. The parties agreed to a stipulated scheduling order, which provides that plaintiffs are to file a consolidated amended complaint by February 9, 2009 and Defendants are to file any motions to dismiss by March 26, 2009. The consolidated amended complaint repeats the allegations and counts from the initial complaints, while adding additional factual allegations regarding financial difficulties with The Cosmopolitan Resort and Casino project in Las Vegas.
Adams Derivative Lawsuit
On October 7, 2008, an individual named Kathy Adams, allegedly derivatively on behalf of Perini Corporation, filed a suit in Middlesex County, Massachusetts, Superior Court (Adams v. Tutor, et al., (Massachusetts Superior Court, Middlesex County, No. 08-3740)), against defendants Ronald N. Tutor, Willard W. Brittain, Jr., Michael Klein, Robert A. Kennedy, Raymond R. Oneglia, Robert L. Miller, Peter Arkley, Robert Band and C.L. Max Nikias, (collectively, the “Adams Individual Defendants”) as well as Perini itself as a nominal defendant. Adams did not make a demand on the Board of Directors before filing this derivative lawsuit. On November 14, 2008, Adams voluntarily dismissed her case without prejudice. Adams then sent Perini’s board of directors a letter demanding that the board commence an investigation of potential claims against the defendants for alleged breaches of their fiduciary duties owed to Perini resulting from alleged failures to disclose purported problems with the company’s Las Vegas construction projects. The board is considering this claim.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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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 – 68 | 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, President and Chief Operating Officer – 61 | He has served as a Director since May 1999. He has also served as our President since May 1999 and as Chief Operating Officer since March 2000. 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. |
| |
Kenneth R. Burk, Senior Vice President and Chief Financial
Officer – 49 | He was appointed to his current position in September 2007. 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. |
| |
Craig W. Shaw, Chairman and Chief Executive Officer, Perini Building Company – 54 | He was appointed to his current position in May 2007, which entails overall responsibility for Perini Building Company’s operations. Prior to that, he served as President of Perini Building Company from October 1999 until May 2007. From April 1995 until October 1999, he served as President, Perini Building Company, Western U.S. Division; from January 1994 to April 1995 he served as Senior Vice President, Construction for Perini Building Company’s Western U.S. Division; and from 1986 to January 1994 he served as Vice President, Construction for Perini Building Company’s Western U.S. Division. Previously, he served in various project management capacities with Perini since 1978. |
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.
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PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Our common stock is traded on the New York Stock Exchange under the symbol "PCR". The quarterly market high and low sales prices for our common stock in 2008 and 2007 are summarized below:
| 2008 | | 2007 |
| High | | Low | | High | | Low |
Market Price Range per Common Share: | | | | | | | |
Quarter Ended | | | | | | | |
March 31 | $ 42.24 | | $ 25.08 | | $ 39.01 | | $ 28.00 |
June 30 | 44.80 | | 32.08 | | 64.71 | | 36.00 |
September 30 | 32.85 | | 21.42 | | 75.43 | | 45.00 |
December 31 | 26.20 | | 11.50 | | 66.75 | | 41.03 |
Dividends
We have not paid any cash dividends on our common stock since 1990. For the foreseeable future, we intend to retain any earnings in our business and we do not anticipate paying any cash dividends. Whether or not to declare any dividends will be at the discretion of our Board of Directors, considering then existing conditions, including our financial condition and results of operations, capital requirements, bonding prospects, contractual restrictions, acquisition prospects, business prospects and other factors that our Board of Directors considers relevant.
Holders
At February 17, 2009, there were 794 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 (a)
Quarter Ended December 31, 2008
| | | | | | Total Number of | | Approximate Dollar |
| | Total | | | | Shares Purchased | | Value of Shares that |
| | Number | | Average | | as Part of Publicly | | May Yet Be Purchased |
| | of Shares | | Price Paid | | Announced Plans | | Under the Plans or |
Period | | Purchased | | Per Share | | or Programs | | Programs |
October 1, 2008 – October 31, 2008 | | None | | | | | | None |
November 1, 2008 – November 30, 2008 | | 1,251,408 | | $ 13.78 | | 1,251,408 | | $ 82,755,508 |
December 1, 2008 – December 31, 2008 | | 751,990 | | $ 19.35 | | 751,990 | | $ 68,203,997 |
TOTAL | | 2,003,398 | | $ 15.87 | | 2,003,398 | | $ 68,203,997 |
(a) On November 13, 2008, the Board of Directors authorized a program to repurchase up to $100.0 million of the Company’s common stock over the then following 12 months. The timing and amount of any repurchase will be based on the Company’s evaluation of market conditions, business considerations and other factors. 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. |
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Performance Graph
The following graph compares the cumulative 5-year total return to shareholders on the Company’s common stock relative to the cumulative total returns of the New York Stock Exchange Market Value Index (“NYSE”) and a Construction Peer Group. The thirteen companies included in the Construction Peer Group were selected by the appropriate construction-related Standard Industrial Classification Codes (or SIC Codes). 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, 2004, in each of our common stock, the NYSE and the Construction Peer Group, 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 PERINI CORPORATION,
NYSE MARKET VALUE INDEX AND SELECTED CONSTRUCTION PEER GROUP
| Fiscal Year Ending |
| 12/31/2003 | | 12/31/2004 | | 12/31/2005 | | 12/31/2006 | | 12/31/2007 | | 12/31/2008 |
| | | | | | | | | | | |
Perini Corporation | 100.00 | | 182.40 | | 263.93 | | 336.39 | | 452.68 | | 255.52 |
NYSE | 100.00 | | 112.92 | | 122.25 | | 143.23 | | 150.88 | | 94.76 |
Construction Peer Group | 100.00 | | 144.26 | | 210.48 | | 261.08 | | 433.30 | | 222.21 |
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.
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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 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.
| Year Ended December 31, |
| 2008 (1) | | 2007 | | 2006 | | 2005 (2) | | 2004 |
| (In thousands, except per share data) |
OPERATING SUMMARY | | | | | | | | | |
Revenues: | | | | | | | | | |
Building | $ 5,146,563 | | $ 4,248,814 | | $ 2,515,051 | | $ 1,181,103 | | $ 1,298,771 |
Civil | 310,722 | | 234,778 | | 281,137 | | 275,584 | | 138,095 |
Management Services | 203,001 | | 144,766 | | 246,651 | | 276,790 | | 405,449 |
Total | 5,660,286 | | 4,628,358 | | 3,042,839 | | 1,733,477 | | 1,842,315 |
| | | | | | | | | |
Cost of Operations | 5,327,056 | | 4,379,464 | | 2,873,444 | | 1,663,773 | | 1,750,549 |
| | | | | | | | | |
Gross Profit | 333,230 | | 248,894 | | 169,395 | | 69,704 | | 91,766 |
G&A Expense | 133,998 | | 107,913 | | 98,516 | | 61,751 | | 43,049 |
Goodwill and Intangible Asset Impairment (3) | 224,478 | | - | | - | | - | | - |
(Loss) Income From Construction Operations | (25,246) | | 140,981 | | 70,879 | | 7,953 | | 48,717 |
Other Income (Expense), Net | 9,559 | | 15,361 | | 2,581 | | 971 | | (3,087) |
Interest Expense | (4,163) | | (1,947) | | (3,771) | | (2,003) | | (704) |
(Loss) Income Before Income Taxes | (19,850) | | 154,395 | | 69,689 | | 6,921 | | 44,926 |
Provision for Income Taxes | (55,290) | | (57,281) | | (28,153) | | (2,872) | | (8,919) |
Net (Loss) Income | $ (75,140) | | $ 97,114 | | $ 41,536 | | $ 4,049 (5) | | $ 36,007 |
| | | | | | | | | |
(Loss) Income Available for Common | | | | | | | | | |
Stockholders (4) | $ (75,140) | | $ 97,114 | | $ 41,117 | | $ 5,330 | | $ 34,819 |
| | | | | | | | | |
Per Share of Common Stock: | | | | | | | | | |
Basic (Loss) Earnings | $ (2.19) | | $ 3.62 | | $ 1.56 | | $ 0.21 | | $ 1.47 |
Diluted (Loss) Earnings | $ (2.19) | | $ 3.54 | | $ 1.54 | | $ 0.20 | | $ 1.39 |
| | | | | | | | | |
Cash Dividend Declared | $ - | | $ - | | $ - | | $ - | | $ - |
Book Value | $ 23.56 | | $ 13.65 | | $ 9.18 | | $ 6.86 | | $ 6.34 |
| | | | | | | | | |
Weighted Average Common | | | | | | | | | |
Shares Outstanding: | | | | | | | | | |
Basic | 34,272 | | 26,819 | | 26,308 | | 25,518 | | 23,724 |
Diluted | 34,272 | | 27,419 | | 26,758 | | 26,150 | | 25,061 |
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| Year Ended December 31, |
| 2008 (1) | | 2007 | | 2006 | | 2005 (2) | | 2004 |
| (In thousands, except ratios) |
FINANCIAL POSITION SUMMARY | | | | | | | | | |
| | | | | | | | | |
Working Capital | $ 225,049 | | $ 293,521 | | $ 193,952 | | $ 153,335 | | $ 178,029 |
| | | | | | | | | |
Current Ratio | 1.13x | | 1.24x | | 1.22x | | 1.23x | | 1.41x |
| | | | | | | | | |
Long-term Debt, less current maturities | 61,580 | | 13,358 | | 34,135 | | 39,969 | | 8,608 |
| | | | | | | | | |
Stockholders’ Equity | 1,138,226 | | 368,334 | | 243,859 | | 183,175 | | 174,034 |
| | | | | | | | | |
Ratio of Long-term Debt to Equity | .05x | | .04x | | .14x | | .22x | | .05x |
| | | | | | | | | |
Total Assets | $ 3,073,078 | | $ 1,654,115 | | $ 1,195,992 | | $ 915,256 | | $ 654,265 |
| | | | | | | | | |
OTHER DATA | | | | | | | | | |
| | | | | | | | | |
Backlog at Year End (6) | $ 6,675,903 | | $ 7,567,665 | | $ 8,451,381 | | $ 7,897,784 | | $ 1,151,475 |
| | | | | | | | | |
New Business Awarded (7) | $ 4,768,524 | | $ 3,744,642 | | $ 3,596,436 | | $ 8,479,786 | | $ 1,327,326 |
| (1) | Includes the results of Tutor-Saliba, acquired effective September 8, 2008. See Note 2 of Notes to Consolidated Financial Statements. |
| (2) | Includes the results of Cherry Hill acquired effective January 1, 2005 and Rudolph and Sletten acquired October 3, 2005. |
| (3) | 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 4 of Notes to Consolidated Financial Statements. |
| (4) | (Loss) income available for common stockholders includes adjustments to net income for (a) accrued dividends on our $21.25 Preferred Stock, or $2.125 Depositary Shares, (b) the reversal of previously accrued and unpaid dividends in the amount of approximately $2.3 million applicable to 374,185 of the $2.125 Depositary Shares purchased and retired by us in November 2005, and (c) the $0.3 million excess of fair value over carrying value upon redemption of the remaining outstanding $2.125 Depositary Shares in May 2006. |
| (5) | Includes a $23.6 million after-tax charge related to an adverse judgment received in the Washington Metropolitan Area Transit Authority (“WMATA”) matter. |
| (6) | A construction project is included 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. 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. |
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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: building, civil and management services. Our building segment has significant experience providing services to a number of specialized building markets, including the hospitality and gaming, healthcare, municipal offices, sports and entertainment, educational, transportation, corrections, biotech, pharmaceutical and high-tech markets, and electrical and mechanical, plumbing and HVAC 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 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. We have been chosen by the federal government for significant projects related to defense and reconstruction in Iraq and Afghanistan.
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, 2008, we achieved record revenues of $5.66 billion. It was the third consecutive year that we have achieved record revenues. Due to recognition of a $224.5 million pretax impairment charge relating to goodwill and other intangible assets, we recorded a loss from construction operations of $25.2 million and a net loss of $75.1 million. Had we not been required to record the impairment charge in 2008, we would have achieved a record for income from construction operations and net income for the third consecutive year. We received significant new contract awards, as well as additions to contracts in place, during 2008 and ended the year with a contract backlog of $6.7 billion. On September 8, 2008, we completed a merger with Tutor-Saliba which added $470.5 million to our 2008 revenues. At December 31, 2008, we had working capital of $225.0 million, a ratio of current assets to current liabilities of 1.13 to 1.00, and a ratio of long-term debt to equity of 0.05 to 1.00. Our stockholders’ equity increased to $1.14 billion as of December 31, 2008, reflecting the issuance of approximately 23 million shares of common stock in connection with the merger with Tutor-Saliba and the outstanding operating results achieved in 2008, offset by the goodwill and intangible asset impairment charge recognized.
Recent Developments
Acquisition of Keating Building Company
On January 15, 2009, we completed the acquisition of Keating Building Company, a Philadelphia-based privately held construction, construction management and design-build company, with anticipated fiscal year 2008 revenues of approximately $425 million and a backlog of $860 million. Under the terms of the transaction, we acquired 100% of Keating’s common stock for $43.0 million in cash plus an amount to be determined based on fiscal 2009 through 2011 operating results, not to exceed $9.0 million. Keating is licensed to provide construction services in a
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number of states, mostly in the mid-Atlantic region. We believe that the acquisition of Keating is a strong strategic fit that will enable us to expand our building construction market presence in the eastern half of the United States, including the important northeast and mid-Atlantic regions, and to realize significant synergies from the acquisition by deploying Keating’s resources in the regional gaming, hospitality and public works building markets in the eastern United States. The results of operations for Keating will be included in our financial statements beginning in the first quarter of 2009.
Common Stock Repurchase Program
On November 13, 2008, our Board of Directors authorized a program to repurchase up to $100 million of our common stock over the ensuing twelve months. Under the terms of the program, we may repurchase shares in open market purchases or through privately negotiated transactions. 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. The timing and amount of any repurchase will be based on our evaluation of market conditions, business considerations and other factors. 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 2008, we repurchased 2,003,398 shares for an aggregate purchase price of $31.8 million under the program.
Merger With Tutor-Saliba Corporation
On September 8, 2008, we completed a merger with Tutor-Saliba pursuant to an agreement and plan of merger between us, Tutor-Saliba, Ronald N. Tutor and shareholders of Tutor-Saliba. In connection with the merger, we issued 22,987,293 shares of our common stock to the shareholders of Tutor-Saliba in exchange for 100% of the outstanding capital stock of Tutor-Saliba. We merged with Tutor-Saliba because we believe it is a strong strategic fit, providing us with enhanced opportunities for growth not available to us on a stand-alone basis through increased size, scale and management capabilities, complementary assets and expertise, particularly Tutor-Saliba’s expertise in civil projects, immediate access to multiple geographic regions, and increased ability to compete for larger numbers of projects particularly in the civil construction segment due to an increased bonding capacity. The merger enabled Mr. Tutor to focus his management efforts entirely on the growth and development of the Company. As a result of the merger, the financial interests in construction joint ventures held individually by Perini and Tutor-Saliba prior to the merger are now owned 100% by us. Our operating results for the year ended December 31, 2008 include the operating results of Tutor-Saliba from the date of acquisition – see Note 2 of Notes to Consolidated Financial Statements for additional information.
Amended Credit Facility
Effective September 8, 2008, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America. The Credit Agreement allows us to borrow up to $155 million on a revolving credit basis, with a $50 million sublimit for letters of credit, and an additional $110.6 million at December 31, 2008 under a supplementary facility (the “Supplementary Facility”) to the extent that the $155 million base facility has been fully drawn. Subject to certain conditions, we have the option to increase the base facility by up to an additional $45 million. The total amount available to borrow under the Supplementary Facility reduces upon the sale of all or any portion of the $111.7 million face value of auction rate securities held in our investment portfolio as of September 8, 2008. Subsequent to September 8, 2008, we have sold auction rate securities with a face value in the amount of $1.1 million. This Supplementary Facility provides us with access to an additional source of liquidity. On February 23, 2009, the Credit Agreement was amended, effective December 31, 2008, to modify certain financial covenants to accommodate the impact of the $224.5 million impairment charge recorded in 2008 and to extend the maturity date of the Supplementary Facility to December 31, 2010. For a description of additional material terms of the Credit Agreement, see Note 5 of Notes to Consolidated Financial Statements.
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Grant of Restricted Stock Units and Stock Options
During 2008, the Compensation Committee of our Board of Directors approved the grant of 1,122,500 restricted stock units and 805,000 nonqualified stock options to certain employees and directors under our 2004 Stock Option and Incentive Plan. We recognized total stock-based compensation expense of $12.1 million, $14.4 million and $17.1 million in 2008, 2007 and 2006, respectively, relating to stock-based compensation awards. We had approximately $35.4 million of unrecognized compensation cost related to unvested awards at December 31, 2008 which, absent significant forfeitures, is expected to be recognized over a weighted-average period of approximately 4.3 years.
Backlog Analysis for 2008
Our backlog of uncompleted construction work at December 31, 2008 was approximately $6.7 billion, as compared to the $7.6 billion at December 31, 2007. The new business awarded in 2008 amount includes approximately $1.2 billion of backlog, before elimination of intercompany amounts, added due to the merger with Tutor-Saliba. The following table provides an analysis of our backlog by business segment for the year ended December 31, 2008.
| Backlog at | | New Business | | Revenue | | Backlog at |
| December 31, 2007 | | Awarded (1) | | Recognized | | December 31, 2008 |
| (in millions) |
Building | $ 6,981.7 | | $ 3,896.9 | | $ (5,146.6) | | $ 5,732.0 |
Civil | 457.9 | | 380.8 | | (310.7) | | 528.0 |
Management Services | 128.1 | | 490.8 | | (203.0) | | 415.9 |
Total | $ 7,567.7 | | $ 4,768.5 | | $ (5,660.3) | | $ 6,675.9 |
| (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 9 of Notes to Consolidated Financial Statements). Actual results could differ from these estimates and such differences could be material.
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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, 2008 and 2007 is summarized below:
| December 31, |
| 2008 | | 2007 |
| (in thousands) |
| | | |
Unapproved Change Orders | $ 16,401 | | $ 9,313 |
Claims | 68,682 | | 56,102 |
| $ 85,083 | | $ 65,415 |
Of the balance of unapproved change orders and claims included in costs and estimated earnings in excess of billings at December 31, 2008 and December 31, 2007, approximately $56.6 million and $45.3 million respectively, are amounts subject to pending litigation or dispute resolution proceedings as described in Item 3, “Legal Proceedings” and Note 9, “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
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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 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 9, “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, 2008 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.
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 by the income valuation method to the carrying value. The impairment charge equals the excess of the carrying value of the asset, if any, over its fair value. In the fourth quarter of 2008, we recorded goodwill and intangible asset pretax impairment charges totaling $224.5 million ($202.8 million after taxes). The impairment charges were due to degradation in the timing of cash flows caused by delays, postponements and reduction in scope of certain projects that we were anticipating to enter into backlog in 2008 or 2009, exacerbated by the global economic conditions experienced in the fourth quarter of 2008. No impairment charges were recorded in 2007 and 2006.
Fair Value Measurements – We adopted the provisions of SFAS No. 157 – Fair Value Measurements (“SFAS 157”) effective January 1, 2008 relating to financial instruments. We determined that we utilize unobservable (Level 3) inputs in determining the fair value of our investments in auction rate securities, valued at $103.4 million as of December 31, 2008. All of these instruments are classified as available for sale securities as of December 31, 2008. We have determined the estimated fair values of these securities utilizing a discounted cash flow analysis as of
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December 31, 2008. In addition, we obtained an independent valuation of most 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, 2008, we recorded a $5.8 million pretax impairment charge in 2008. Of this $5.8 million impairment charge, $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. See Note 3 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 compensation expense for all share-based payments granted after June 30, 2005 in accordance with SFAS No. 123R – Share-Based Payment (“SFAS 123R”). Under the fair value recognition provisions of SFAS 123R, 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 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, SFAS 123R requires us to estimate the expected forfeiture rate and only recognize expense for those shares expected to vest. If the actual forfeiture rate is materially different from the estimate, share-based compensation expense could be significantly different from what has been recorded through December 31, 2008.
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 and general liability coverage. 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. 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 and general liability coverage is generally $1.0 million per occurrence and our maximum self-insured deductible limit for subcontractor default on projects covered under our program is $1.5 million per occurrence.
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 6, “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.
In June 2006, the Financial Accounting Standards Board issued Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), an interpretation of Statement of Financial Accounting Standards No.109. FIN 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. We
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adopted the provisions of FIN 48 on January 1, 2007. There was no impact on our total liabilities or stockholders’ equity. We identified and reviewed potential tax uncertainties in accordance with FIN 48 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, 2008.
Defined Benefit Retirement Plan – The status of our defined benefit pension plan obligations, related plan assets and cost is presented in Note 8 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 6.41% used for purposes of computing the 2008 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 2009 annual pension expense to 6.29% 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 2009 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, 2008, 2007, and 2006. Accordingly, we adjusted our accrued pension liability by an increase of $24.0 million in 2008, and by decreases of $6.2 million in 2007 and $5.9 million in 2006, with the offset to accumulated other comprehensive income (loss), an increase (reduction) in 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 $1.3 million in 2008 to $1.7 million in 2009. Cash contributions to our defined benefit pension plan are anticipated to be approximately $7.0 million in 2009. Cash contributions may vary significantly in the future depending upon asset performance and the interest rate environment.
Results of Operations -
2008 Compared to 2007
In 2008, revenues increased by $1,031.9 million to a record $5,660.3 million and gross profit increased by $84.3 million. Income from construction operations decreased by $166.2 million, from a profit of $141.0 million to a loss of $25.2 million, and net income decreased by $172.2 million, from a profit of $97.1 million to a loss of $75.1 million, due to the recognition of a $224.5 million pretax non-cash impairment charge relating to goodwill and other intangible assets. Had we not had to record the impairment charge in 2008, we would have achieved a record for income from construction operations and net income for the third consecutive year. Excluding the non-cash impairment charge, our strong performance in 2008 was led by our building and management services segments. In addition, our civil segment returned to profitability in 2008. The increase in revenues and profit (before the impairment charge) primarily reflects the conversion of our substantial building segment backlog into revenues and profit as expected and the impact of the merger with Tutor-Saliba.
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| Revenues for the | | | | |
| Year Ended December 31, | | | | % |
| 2008 | | 2007 | | Increase | | Change |
| (In millions) | | |
| | | | | | | |
Building | $ 5,146.6 | | $ 4,248.8 | | $ 897.8 | | 21.1% |
Civil | 310.7 | | 234.8 | | 75.9 | | 32.3% |
Management Services | 203.0 | | 144.8 | | 58.2 | | 40.2% |
Total | $ 5,660.3 | | $ 4,628.4 | | $ 1,031.9 | | 22.3% |
Overall revenues increased by $1,031.9 million (or 22.3%), from $4,628.4 million in 2007 to $5,660.3 million in 2008. This increase was due primarily to an increase in building construction revenues of $897.8 million (or 21.1%), from $4,248.8 million in 2007 to $5,146.6 million in 2008, primarily as a result of the conversion of our substantial building segment backlog into revenues as expected, led by an increased volume of work in the hospitality and gaming, healthcare and office building markets in Las Vegas and California. The addition of Tutor-Saliba in September 2008 resulted in an increase of $405.6 million in building construction revenues in 2008. Civil construction revenues increased by $75.9 million (or 32.3%), from $234.8 million to $310.7 million in 2008, due primarily to the addition of Tutor-Saliba. Management services revenues increased by $58.2 million (or 40.2%), from $144.8 million in 2007 to $203.0 million in 2008, due to the addition of Tutor-Saliba’s Black Construction operation in Guam and a slightly higher volume of work in Iraq.
Impact of Impairment Charge in 2008
Our 2008 income from construction operations was materially impacted by a $224.5 million pretax impairment charge. This impairment charge reflects the write-down to fair value of goodwill and certain other indefinite-lived intangible assets initially recorded in connection with our merger with Tutor-Saliba in September 2008. The pretax impairment charge related to the indefinite-lived intangible assets, excluding goodwill, amounted to a total of $57.6 million, of which $50.8 million related to the building segment, $6.0 million related to the civil segment, and $0.8 million related to the management services segment. These indefinite-lived intangible assets consist of trade names and various contractors’ licenses. The pretax impairment charge related to goodwill amounted to a total of $166.9 million, of which $146.8 million related to the building segment and $20.1 million related to the management services segment. We performed our annual impairment test of goodwill and other indefinite-lived intangible in the fourth quarter of 2008 in accordance with the requirements of SFAS No. 142, “Goodwill and Other Intangible Assets.” In performing this test, we used the income method to estimate the fair value of the reporting units. Due to the global financial crisis and significant global economic conditions experienced during the fourth quarter of 2008, we have experienced delays, postponements and reductions in scope of certain construction projects that we were anticipating to enter backlog in 2008 or 2009. As a result of these delays, postponements and reductions in scope, the projected cash flows of the Tutor-Saliba reporting units have decreased considerably from those initially anticipated prior to the completion of the merger, thereby resulting in a lower fair value of the Tutor-Saliba reporting units and a corresponding impairment in the amount of goodwill and indefinite-lived intangible assets recorded in connection with the merger. These impairment charges relating to goodwill and indefinite-lived intangible assets are non-cash and therefore do not affect our cash position, liquidity or have any impact on future operating results.
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 | | Increase | | |
| Year Ended December 31, | | (Decrease) | | % |
| 2008 | | 2007 | | In Income | | Change |
| (In millions) | | |
| | | | | | | |
Building before impairment charge | $ 151.8 | | $ 127.5 | | $ 24.3 | | 19.1% |
Impairment charge | (197.6) | | - | | (197.6) | | |
Building, net | (45.8) | | 127.5 | | (173.3) | | (135.9)% |
| | | | | | | |
Civil before impairment charge | 28.1 | | (13.0) | | 41.1 | | |
Impairment charge | (6.0) | | - | | (6.0) | | |
Civil, net | 22.1 | | (13.0) | | 35.1 | | |
| | | | | | | |
Management Services before
impairment charge | 41.5 | | 49.4 | | (7.9) | | (16.0)% |
Impairment charge | (20.9) | | - | | (20.9) | | |
Management Services, net | 20.6 | | 49.4 | | (28.8) | | (58.3)% |
| | | | | | | |
Subtotal before impairment charge | 221.4 | | 163.9 | | 57.5 | | 35.1% |
Impairment charge | (224.5) | | - | | (224.5) | | |
Subtotal, net of impairment charge | (3.1) | | 163.9 | | (167.0) | | (101.9)% |
| | | | | | | |
Less: Corporate | (22.1) | | (22.9) | | 0.8 | | (3.5)% |
| | | | | | | |
Total, before impairment charge | 199.3 | | 141.0 | | 58.3 | | 41.3% |
Impairment charge | (224.5) | | - | | (224.5) | | |
Total, net of impairment charge | $ (25.2) | | $ 141.0 | | $ (166.2) | | (117.9)% |
Income (Loss) from Construction Operations, before Impairment Charge
The following discussion of income from construction operations in 2008 and 2007 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 2008 and 2007 operating results in more meaningful to users when prepared on a pre-impairment charge basis.
Building construction income from operations before the impairment charge increased by $24.3 million (or 19.1%), from $127.5 million in 2007 to $151.8 million in 2008, due primarily to the significant increase in revenues discussed above, including the addition of Tutor-Saliba. Building construction income from operations was reduced by an $21.0 million increase in building construction-related general and administrative expenses, due primarily to increases driven by changes in revenue volume and a $12.2 million increase resulting from the addition of Tutor-Saliba. In addition, the increase in building construction-related general and administrative expenses included a $1.5 million increase due to marketing and preconstruction efforts relating to potential projects in Dubai, and a $1.1 million increase in amortization of stock-based compensation.
Civil construction income from operations before the impairment charge increased by $41.1 million, from a loss of $13.0 million in 2007 to a profit of $28.1 million in 2008. The addition of Tutor-Saliba made a significant positive impact on the 2008 civil construction income from operations along with improved operating results from both our New York Civil and Cherry Hill operations. The loss in 2007 was due primarily to recording a charge with respect to the matter discussed in Note 9(c) of Notes to Consolidated Financial Statements. Had that charge in 2007 not been
45
recorded, the civil construction segment would still have experienced a loss from operations of approximately $3.0 million due primarily to (i) downward profit adjustments recorded on a bridge rehabilitation project and on two mass transit projects in metropolitan New York, and (ii) an increase in civil construction-related general and administrative expenses, due primarily to a decrease in the number of active projects, as well as an increase in legal fees relating to open legal matters. The matter discussed in Note 9(c) of Notes to Consolidated Financial Statements has not been settled. As a result, the potential for a further charge (or credit) exists; however, management believes that the amount of such further charge or credit, if any, will not be material to the financial results of the Company or of the civil segment.
In conjunction with the increase in revenues discussed above, management services contributed significantly to our income from operations in 2008. However, management services income from operations before the impairment charge decreased by $7.9 million (or 16.0%), from $49.4 million in 2007 to $41.5 million in 2008, primarily reflecting the extraordinary operating results recorded in 2007 due to favorable performance on work in Iraq.
Overall income from construction operations was favorably impacted by a $0.8 million decrease in corporate general and administrative expenses, from $22.9 million in 2007 to $22.1 million in 2008, due primarily to a $4.2 million decrease in corporate stock-based compensation expense resulting from certain restricted stock units granted in 2006 through 2008. Largely offsetting this decrease were increases in certain outside professional fees related to the audit of our financial statements and an increase in legal fees related to the matters discussed in Note 9(i) of Notes to Consolidated Financial Statements.
Other income decreased by $5.8 million, from $15.4 million in 2007 to $9.6 million in 2008, due primarily to the recognition of a $2.6 million loss due to the adjustment of certain of our investments in auction rate securities to fair value in 2008, and a net loss of $0.6 million in 2008, as compared to a $0.6 million net gain in 2007, from the sale of certain parcels of developed land held for sale. In addition, interest income decreased by $0.9 million as a result of lower interest rates available on short-term cash investments during 2008.
Interest expense increased by $2.2 million, from $2.0 million in 2007 to $4.2 million in 2008. A reduction in interest expense due to the February 2007 repayment of our term loan in full was more than offset by increases in interest expense due to more extensive equipment financing in 2008 and to the $39.8 million of outstanding debt assumed in conjunction with the merger with Tutor-Saliba.
The provision for income taxes decreased by $2.0 million, from $57.3 million in 2007 to $55.3 million in 2008. For 2008, an effective tax rate of 37.6% was applied to pretax operating income, excluding the goodwill impairment charge of $166.9 million which is not tax deductible. The effective tax rate in 2007 was 37.1%.
Results of Operations –
2007 Compared to 2006
In 2007, revenues increased by $1,585.6 million to a record $4,628.4 million, gross profit increased by $79.5 million, income from construction operations increased by $70.1 million, and net income increased by $55.6 million (or 134.0%) to a record $97.1 million. Our strong performance in 2007 was led by our building and management services segments. The increase in revenues and profit primarily reflects the conversion of our substantial building segment backlog into revenues and profit as expected. In addition, our management services segment also made a significant contribution to our 2007 operating results.
| Revenues for the | | | | |
| Year Ended December 31, | | Increase | | % |
| 2007 | | 2006 | | (Decrease) | | Change |
| (In millions) | | |
| | | | | | | |
Building | $ 4,248.8 | | $ 2,515.1 | | $ 1,733.7 | | 68.9 % |
Civil | 234.8 | | 281.1 | | (46.3) | | (16.5)% |
Management Services | 144.8 | | 246.6 | | (101.8) | | (41.3)% |
Total | $ 4,628.4 | | $ 3,042.8 | | $ 1,585.6 | | 52.1 % |
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Overall revenues increased by $1,585.6 million (or 52.1%), from $3,042.8 million in 2006 to $4,628.4 million in 2007. This increase was due primarily to an increase in building construction revenues of $1,733.7 million (or 68.9%), from $2,515.1 million in 2006 to $4,248.8 million in 2007, primarily as a result of the conversion of our substantial building segment backlog into revenues as expected, led by an increased volume of work in the hospitality and gaming market as a result of the significant new contract awards we received in the latter half of 2005 and in 2006. Civil construction revenues decreased by $46.3 million (or 16.5%), from $281.1 million in 2006 to $234.8 million in 2007, due primarily to the timing of the start-up of new work. Management services revenues decreased by $101.8 million (or 41.3%), from $246.6 million in 2006 to $144.8 million in 2007, due primarily to the completion of our nuclear power plant maintenance and modification contract with Exelon as of December 31, 2006 and to a lower volume of work in Iraq.
| Income (Loss) from Construction | | | | |
| Operations for the | | Increase | | |
| Year Ended December 31, | | (Decrease) | | % |
| 2007 | | 2006 | | In Income | | Change |
| (In millions) | | |
| | | | | | | |
Building | $ 127.5 | | $ 59.3 | | $ 68.2 | | 115.0% |
Civil | (13.0) | | 1.8 | | (14.8) | | |
Management Services | 49.4 | | 34.3 | | 15.1 | | 44.0% |
Subtotal | 163.9 | | 95.4 | | 68.5 | | 71.8% |
| | | | | | | |
Less: Corporate | (22.9) | | (24.5) | | 1.6 | | 6.5% |
Total | $ 141.0 | | $ 70.9 | | $ 70.1 | | 98.9% |
Building construction income from operations increased by $68.2 million (or 115.0%), from $59.3 million in 2006 to $127.5 million in 2007, due primarily to the significant increase in revenues discussed above. Partly offsetting the increase in gross profit resulting from the increase in revenues was an $8.3 million increase in building construction-related general and administrative expenses related to the significant increase in the volume of work put in place, as well as to a $1.7 million increased provision for incentive compensation due to the significantly improved building construction operating results, and a $1.5 million increased charge related to stock-based compensation expense resulting from certain restricted stock units granted in the second quarter of 2006.
Civil construction income from operations decreased by $14.8 million, from a profit of $1.8 million in 2006 to a loss of $13.0 million in 2007. Civil construction income from operations in 2006 reflected downward profit adjustments recorded on several projects in the mid-Atlantic and southeast regions, including a roadway project in Maryland, while the loss in 2007 was due primarily to recording a charge with respect to the matter discussed in Note 9(c) of Notes to Consolidated Financial Statements. Had that charge in 2007 not been recorded, the civil construction segment would still have experienced a loss from operations of approximately $3.0 million due primarily to (i) downward profit adjustments recorded on a bridge rehabilitation project and on two mass transit projects in metropolitan New York, and (ii) an increase in civil construction-related general and administrative expenses, due primarily to a decrease in the number of active projects, as well as an increase in legal fees relating to open legal matters.
Despite the decrease in revenues discussed above, management services income from operations increased by $15.1 million (or 44.0%), from $34.3 million in 2006 to $49.4 million in 2007, due primarily to favorable performance on work in Iraq which more than offset the decreased profit contribution resulting from the completion of our contract with Exelon as of December 31, 2006.
Overall income from construction operations was favorably impacted by a $1.6 million decrease in corporate general and administrative expenses, from $24.5 million in 2006 to $22.9 million in 2007, due primarily to a $3.5 million decrease in corporate stock-based compensation expense resulting from certain restricted stock units granted in 2007, 2006 and 2004. Partly offsetting this decrease were increases in certain outside consulting fees and a $1.2 million increase in the provision for corporate incentive compensation due to the significantly improved operating results.
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Other income increased by $12.8 million, from $2.6 million in 2006 to $15.4 million in 2007, due primarily to a $9.5 million increase in interest income as a result of the positive cash flow we generated from operating activities in the latter half of 2006 and throughout 2007. Also, we realized a gain of $1.6 million in 2007 resulting from the sale of a parcel of land used in operations. In addition, the net gain on sales of parcels of developed land held for sale increased by $1.0 million in 2007 due to higher sales activity. Based on our limited remaining inventory of developed land held for sale and the anticipated selling prices for those parcels, we believe that the net gain recorded in 2007 is not indicative of future results.
Interest expense decreased by $1.9 million, from $3.8 million in 2006 to $1.9 million in 2007, due primarily to the February 22, 2007 repayment of our term loan in full.
The provision for income taxes increased by $29.1 million, from $28.2 million in 2006 to $57.3 million in 2007, due primarily to the increase in pretax income in 2007. The effective tax rate for the year ended December 31, 2007 was 37.1%, as compared to 40.4% for the year ended December 31, 2006. The reduction in the effective tax rate is due primarily to a decrease in disallowed tax deductions.
Potential Impact of Current Economic Conditions
Current instability of the financial markets in the United States and overseas 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 potentially significant budget shortfalls as a result of declining tax and other revenues, which may cause them to defer or cancel planned infrastructure projects. Our backlog has decreased in 2008 as we have encountered increased levels of deferrals and delays related to anticipated new construction projects, primarily during the fourth quarter of 2008. Difficulty in obtaining adequate financing due to the unprecedented disruption in the credit markets may continue to maintain or increase the rate at which our customers defer, delay, cancel or reduce the scope of proposed new construction projects.
Liquidity and Capital Resources
Cash and Working Capital
Effective September 8, 2008, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”) with Bank of America, as Agent. The Credit Agreement amends and replaces in its entirety a previously existing credit agreement dated February 25, 2007, as amended on May 7, 2008, and allows us to borrow up to $155 million on a revolving credit basis (the “Revolving Facility”), with a $50 million sublimit for letters of credit, and an additional $110.6 million under a supplementary facility (the “Supplementary Facility”) to the extent that the $155 million base facility has been fully drawn. The total amount available to borrow under the Supplementary Facility reduces upon the sale of all or any portion of the $111.7 million face value of auction rate securities held in our investment portfolio as of September 8, 2008. Subsequent to September 8, 2008, we have sold auction rate securities with a face value in the amount of $1.1 million. This Supplementary Facility provides us with access to a source of liquidity should the need arise. On February 23, 2009, the Credit Agreement was amended, effective December 31, 2008, to modify certain financial covenants to accommodate the impact of the $224.5 million impairment charge recorded in 2008 and to extend the maturity date of the Supplementary Facility to December 31, 2010. The termination date of the Revolving Facility is February 22, 2012. We did not borrow under the Revolving Facility during 2007 or 2008. We had $247.7 million available to borrow under the Credit Agreement at December 31, 2008, including outstanding letters of credit. For a description of additional material terms of the Credit Agreement, see Note 5 of Notes to Consolidated Financial Statements.
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
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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, 2008 and December 31, 2007, cash held by us and available for general corporate purposes was $342.3 million and $426.8 million, respectively, and our proportionate share of cash held by joint ventures and available only for joint venture-related uses was $43.9 million and $32.4 million, respectively. At December 31, 2008 and December 31, 2007, our cash balance included $6.0 million and $25.0 million, respectively, which represents an advance received from a project owner to be used to fund subcontract work on a specific project under certain circumstances. We have included these amounts in our contract billings and they are included as a component of “billings in excess of costs and estimated earnings” in the Consolidated Balance Sheets at December 31, 2008 and December 31, 2007.
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 on a particular project after we receive payment from our customer.
A summary of cash flows for each of the years ended December 31, 2008, 2007 and 2006 is set forth below:
| Year Ended December 31, |
| 2008 | | 2007 | | 2006 |
| (In millions) |
Cash flows provided (used) by: | | | | | |
Operating activities | $ 126.1 | | $ 281.5 | | $ 116.9 |
Investing activities | (72.1) | | (25.6) | | (18.0) |
Financing activities | (127.0) | | (22.2) | | (13.2) |
Net (decrease) increase in cash | (73.0) | | 233.7 | | 85.7 |
Cash at beginning of year | 459.2 | | 225.5 | | 139.8 |
Cash at end of year | $ 386.2 | | $ 459.2 | | $ 225.5 |
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, corporate aircraft 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 our 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 connection with the merger with Tutor-Saliba. Due to the use of cash in our investing and financing activities, our cash balance deceased by $73.0 million during 2008.
During 2007, we generated $281.5 million in cash flow from operating activities. The substantial increase in cash flow from operating activities compared to 2006 is primarily due to the substantial increase in our building segment revenues as well as favorable operating results in our management services segment. Cash flow from operating activities was partly used to fund $22.2 million in financing activities, primarily to pay in full the remaining $22.5 million balance outstanding on our term loan in conjunction with the closing of our new revolving credit facility in February 2007, and to pay down debt assumed in conjunction with the acquisition of Cherry Hill; and to partly fund $25.6 million in investing activities, principally for the purchase of construction equipment and property to be used in support of our building construction operations, and to purchase a net $8.0 million of auction rate securities for short-
49
term investment purposes. As a result, we increased our cash balance by $233.7 million during 2007.
During 2006, we generated $116.9 million in cash flow from operating activities. The substantial increase in cash flow from operating activities compared to 2005 was primarily due to the substantial increase in our building segment revenues, including the acquisition of Rudolph and Sletten, as well as favorable operating results in our management services segment. Cash flow from operating activities increased substantially even though 2006 included payment of the $40.4 million WMATA judgment recorded in 2005. Cash flow from operating activities was partly used to fund $18.0 million in investing activities, principally to fund the purchase of construction equipment to support our substantial backlog and property to be used in support of our building construction operations; and to fund $13.2 million in financing activities, primarily to redeem the remaining outstanding shares of our $21.25 Preferred Stock, and to pay down debt assumed in conjunction with the acquisition of Cherry Hill. As a result, we increased our cash balance by $85.7 million during 2006.
Working capital increased, from $194.0 million at the end of 2006 to $225.0 million at December 31, 2008. The amount of working capital would have been substantially higher at December 31, 2008; however, due to the current overall liquidity concerns in capital markets and our likely inability to liquidate our investments in auction rate securities in the near term, we classified $104.8 million of these investments as long-term at December 31, 2008. For a description of our accounting for auction rate securities, see Note 3 of Notes to Consolidated Financial Statements. Accordingly, the current ratio decreased from 1.22x at December 31, 2006 to 1.13x at December 31, 2008.
Long-term Investments
We hold a variety of highly rated (primarily AAA or AA) interest bearing auction rate securities 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. At December 31, 2007, we had $8.0 million invested in auction rate securities. 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. At that time, we had $181.9 million invested in auction rate securities. Since then, we have been successful in liquidating at par value a significant portion of our investment in auction rate securities. At December 31, 2008, we had investments in auction rate securities of $104.8 million which are reflected at fair value after recognition of a $5.8 million pretax impairment charge in 2008. Of this $5.8 million impairment charge, $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. 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 anticipated operating cash flows, and our available Revolving Facility and our Supplemental Facility discussed above, 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.
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.
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Long-term Debt
Long-term debt, excluding current maturities of $18.7 million, was $61.6 million at December 31, 2008, an increase of $48.2 million from December 31, 2007, due primarily to long-term debt we assumed in conjunction with the merger with Tutor-Saliba, as well as the financing of construction and transportation equipment purchases. Our outstanding debt is secured by the underlying assets. Approximately $75.5 million of the $80.3 million in debt outstanding at December 31, 2008 carries interest at a fixed rate. Due to an increase in stockholders’ equity as a result of the 23 million shares of common stock issued in the merger with Tutor-Saliba, the long-term debt to equity ratio was .05x at December 31, 2008, compared to .04x at December 31, 2007.
Contractual Obligations
| Our outstanding contractual obligations as of December 31, 2008 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 | $ 80,254 | (a) | $ 18,674 | | $ 35,643 | | $ 7,888 | | $ 18,049 |
Interest payments on debt | 14,934 | | 4,587 | | 5,246 | | 2,814 | | 2,287 |
Operating leases, net | 49,739 | | 12,795 | | 15,413 | | 9,235 | | 12,296 |
Purchase obligations | 191 | | 191 | | - | | - | | - |
Unfunded pension liability | 30,268 | | 7,215 | | 14,430 | (b) | 8,623 | (b) | - |
| | | | | | | | | |
Total contractual obligations | $ 175,386 | | $ 43,462 | | $ 70,732 | | $ 28,560 | | $ 32,632 |
| (a) | Includes capital leases in the amount of $389. |
| (b) | Assumes annual pension fund contributions equal to the contribution amount anticipated in 2009. |
Stockholders' Equity
Our book value per common share was $23.56 at December 31, 2008, compared to $13.65 at December 31, 2007, and $9.18 at December 31, 2006. 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; the net income (loss) recorded in all three years; the annual amortization of restricted stock compensation expense; common stock options and stock purchase warrants exercised; the income tax benefit attributable to stock-based compensation; the redemption of the remaining outstanding shares of $21.25 Preferred Stock in May 2006; and preferred stock dividends accrued in 2006 prior to redemption. Also, we were required to adjust our accrued pension liability by an increase of $24.0 million in 2008, decreases of $6.2 million and $5.9 million in 2007 and 2006, respectively, and a cumulative increase of $29.6 million in prior years, with the offset to accumulated other comprehensive loss, in accordance with SFAS 87, which resulted in an aggregate $41.5 million pretax accumulated other comprehensive loss reduction in stockholders’ equity at December 31, 2008 (see Note 8 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
Common Stock
There were no cash dividends declared or paid on our outstanding common stock during the three years ended December 31, 2008.
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Related Party Transactions
Prior to our merger with Tutor-Saliba, we were party to an agreement with Tutor-Saliba and Ronald N. Tutor, Chief Executive Officer and primary beneficial owner of Tutor-Saliba, to provide certain management services. Mr. Tutor has been our Chairman and Chief Executive Officer since March 2000. Tutor-Saliba participated in joint ventures with us before the merger. Our share of revenue from these joint ventures amounted to $61.3 million, $70.6 million and $41.4 million in 2008 prior to our merger with Tutor-Saliba, 2007 and 2006, respectively. In addition, in January 2008, Tutor-Saliba acquired a plumbing contractor which had subcontracts with the Company totaling approximately $63.7 million.
We lease certain facilities from Mr. Tutor and an affiliate owned by Mr. Tutor under non-cancelable operating lease agreements with monthly payments of $140,000, which increase at 3% per annum beginning July 1, 2007 and expiring in July 31, 2016. Lease expense for these leases recorded on a straight-line basis was $0.7 million for the four months ended December 31, 2008.
We participate in joint ventures with O&G Industries, a Connecticut-based construction company of which Raymond R. Oneglia is the Vice Chairman and a major shareholder. O&G Industries owned approximately 1.2% of our outstanding common stock as of December 31, 2008 and Mr. Oneglia is a member of our Board of Directors, including being a member of the Audit Committee. Our share of revenues from these joint ventures amounted to $0.3 million, $3.1 million and $37.9 million in 2008, 2007 and 2006, respectively.
For details of compensation to Mr. Tutor, arrangements with O&G Industries, and other information on related party transactions, see Note 14 of Notes to Consolidated Financial Statements.
New Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards 157, “Fair Value Measurements,” (“SFAS 157”) which clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. SFAS 157 applies under other accounting pronouncements that currently require or permit fair value measurements. We adopted SFAS 157 on January 1, 2008, as required. In February 2008, the FASB issued FASB Staff Position No. SFAS 157-2, “Effective Date of FASB Statement No. 157,” which amends SFAS 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, the application of SFAS 157 relating to our non-financial assets and non-financial liabilities will be adopted prospectively beginning January 1, 2009.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an Amendment of SFAS No. 115,” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. We adopted SFAS 159 on January 1, 2008, as required. We did not elect the fair value measurement option for any of our financial assets or liabilities. Therefore, the adoption of SFAS 159 had no impact on the Company’s financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for us beginning January 1, 2009 and we will apply the provisions of SFAS 141(R) prospectively to any business combinations for which the acquisition date is on or after January 1, 2009.
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of Accounting Research Bulletin No. 51,” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for us beginning January 1, 2009 and we will apply the provisions of SFAS 160
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prospectively as of that date. We do not expect the adoption of SFAS 160 to have a material impact on our consolidated financial statements and related disclosures.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities – An Amendment of SFAS No. 133,” (“SFAS 161”). SFAS 161 is effective for us beginning January 1, 2009. SFAS 161 applies only to financial statement disclosures, and we do not expect the adoption of SFAS 161 to have a material impact on our consolidated financial statements and related disclosures.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This statement will be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." We do not expect the adoption of SFAS 162 to have a material impact 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- 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. During 2008 and 2007, we did not borrow under our revolving credit facility and the $22.5 million balance outstanding on a $30 million term loan was repaid in February, 2007. Our outstanding debt at December 31, 2008 totaled $80.3 million, of which approximately $75.5 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 highly rated (primarily AAA or AA) interest bearing auction rate securities 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. At December 31, 2007, we had $8.0 million invested in auction rate securities. 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. At that time, we had $181.9 million invested in auction rate securities. Since then, we have been successful in liquidating at par value a significant portion of our investment in auction rate securities. At December 31, 2008, we had investments in auction rate securities of $104.8 million which are reflected at fair value after recognition of a $5.8 million pretax impairment charge in 2008. Of this $5.8 million impairment charge, $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. 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 anticipated operating cash flows, and our available Revolving Facility and our Supplemental Facility discussed above, 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.
53
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
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, 2008, 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, 2008, 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 making our assessment of changes in internal control over financial reporting as of December 31, 2008, we have excluded the impact of the merger with Tutor-Saliba because this company was acquired in a merger on September 8, 2008. As part of our integration of Tutor-Saliba, we are in the process of incorporating our controls and procedures into the operations of Tutor-Saliba.
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. The Company completed the acquisition of Tutor-Saliba on September 8, 2008. Due to the timing of the acquisition, management has excluded Tutor-Saliba from our evaluation of effectiveness of internal control over financial reporting. The assets and revenues of Tutor-Saliba included in our financial statements as of and for the four months ended December 31, 2008 represent approximately 20% and 8% respectively, of our consolidated assets and
54
revenues as of and for the year ended December 31, 2008. 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, 2008, 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, 2008. The report, which expresses an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting as of December 31, 2008, is included below in Item 9A under the heading “Report of Independent Registered Public Accounting Firm.”
55
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Perini Corporation
Framingham, Massachusetts
We have audited the internal control over financial reporting of Perini Corporation (the “Company”) as of December 31, 2008, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As described in Management’s Report on Internal Control Over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Tutor-Saliba Corporation (“TSC”), which was acquired on September 5, 2008 and whose financial statements reflect total assets and revenues constituting 20% and 8% respectively, of the related consolidated financial statement amounts as of and for the year ended December 31, 2008. Accordingly, our audit did not include the internal control over financial reporting at TSC. 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, 2008, based on the criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.
56
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, 2008 of the Company and our report dated February 27, 2009 expressed an unqualified opinion on those financial statements.
/s/Deloitte & Touche LLP
Boston, Massachusetts
February 27, 2009
ITEM 9B. OTHER INFORMATION
57
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 28, 2009 (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
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.
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.
58
PART IV.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
| 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, 2008 and 2007 | 61 – 62 |
| | |
| Consolidated Statements of Operations for the years ended December 31, 2008, 2007 and 2006 | 63 |
| | |
| Consolidated Statements of Stockholders' Equity for the years ended December 31, 2008, 2007 and 2006 |
64 – 65
|
| | |
| Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007 and 2006 | 66 – 67 |
| | |
| Notes to Consolidated Financial Statements | 68 – 105 |
| | |
| Report of Independent Registered Public Accounting Firm | 106 |
| | |
(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 107 through 109. |
| | | |
59
SIGNATURES
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.
| Perini Corporation |
| (Registrant) |
| |
Dated: February 27, 2009 | By: /s/Robert Band |
| Robert Band |
| President and Chief Operating Officer |
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 |
| | | | |
(i) Principal Executive Officer | | | | |
Ronald N. Tutor | | Chairman and Chief Executive Officer | | February 27, 2009 |
| | | | |
By: /s/Ronald N. Tutor | | | | |
Ronald N. Tutor | | | | |
| | | | |
(ii) Principal Financial Officer | | | | |
Kenneth R. Burk | | Senior Vice President and Chief Financial Officer | | February 27, 2009 |
| | | | |
By: /s/Kenneth R. Burk | | | | |
Kenneth R. Burk | | | | |
| | | | |
(iii) Principal Accounting Officer | | | | |
Peter J. Martinkus | | Vice President and Controller | | February 27, 2009 |
| | | | |
By: /s/Peter J. Martinkus | | | | |
Peter J. Martinkus | | | | |
| | | | |
(iv) Directors | | | | |
| | | | |
Ronald N. Tutor | | ) | | |
Marilyn A. Alexander | | ) | | |
Peter Arkley | | ) | | |
Robert Band | | ) | | |
Willard W. Brittain, Jr. | | ) | | |
Robert A. Kennedy | | ) /s/Robert Band | | |
Michael R. Klein | | ) Robert Band | | |
Robert L. Miller | | ) Attorney in Fact | | |
Chrysostomos L. Nikias | | ) | | |
Raymond R. Oneglia | | ) | | |
Donald D. Snyder | | ) Dated: February 27, 2009 | | |
60
Perini Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2008 and 2007
(In thousands, except share data)
Assets | | | |
| 2008 | | 2007 |
CURRENT ASSETS: | | | |
Cash, including cash equivalents of $333,869 and $459,188 | $ 386,172 | | $ 459,188 |
Short-term investments | 100 | | 8,355 |
Accounts receivable, including retainage of $656,458 and $420,244 | 1,378,040 | | 971,714 |
Costs and estimated earnings in excess of billings | 115,706 | | 74,397 |
Deferred tax asset | 11,589 | | 7,988 |
Other current assets | 18,693 | | 4,440 |
Total current assets | 1,910,300 | | 1,526,082 |
| | | |
LONG-TERM INVESTMENTS | 104,779 | | - |
| | | |
PROPERTY AND EQUIPMENT, at cost: | | | |
Land | 27,082 | | 17,371 |
Buildings and improvements | 71,547 | | 35,421 |
Construction equipment | 169,714 | | 63,918 |
Other equipment | 107,253 | | 17,372 |
| 375,596 | | 134,082 |
Less – Accumulated depreciation | 47,116 | | 38,645 |
| | | |
Total property and equipment, net | 328,480 | | 95,437 |
| | | |
GOODWILL | 588,112 | | 26,268 |
| | | |
INTANGIBLE ASSETS, NET | 125,026 | | 4,141 |
| | | |
OTHER ASSETS | 16,381 | | 2,187 |
| | | |
| $ 3,073,078 | | $ 1,654,115 |
The accompanying notes are an integral part of these consolidated financial statements.
61
Perini Corporation and Subsidiaries
Consolidated Balance Sheets
December 31, 2008 and 2007
(In thousands, except share data)
| | | |
| | | |
Liabilities and Stockholders’ Equity | | | |
| 2008 | | 2007 |
CURRENT LIABILITIES: | | | |
Current maturities of long-term debt | $ 18,674 | | $ 7,374 |
Accounts payable, including retainage of $486,561 and $308,631 | 1,352,041 | | 939,593 |
Billings in excess of costs and estimated earnings | 192,442 | | 183,242 |
Accrued expenses | 122,094 | | 102,352 |
Total current liabilities | 1,685,251 | | 1,232,561 |
| | | |
LONG-TERM DEBT, less current maturities included above | 61,580 | | 13,358 |
| | | |
DEFERRED INCOME TAXES | 98,862 | | 2,124 |
| | | |
OTHER LONG-TERM LIABILITIES | 89,159 | | 37,738 |
| | | |
CONTINGENCIES AND COMMITMENTS | | | |
| | | |
STOCKHOLDERS’ EQUITY: | | | |
Common stock, $1 par value: | | | |
Authorized – 75,000,000 shares | | | |
Issued and outstanding – 48,319,223 shares and 26,986,746 shares | 48,319 | | 26,987 |
Additional paid-in capital | 1,001,392 | | 160,664 |
Retained earnings | 123,060 | | 198,200 |
Accumulated other comprehensive loss | (34,545) | | (17,517) |
Total stockholders' equity | 1,138,226 | | 368,334 |
| | | |
| | | |
| $ 3,073,078 | | $ 1,654,115 |
62
Perini Corporation and Subsidiaries
Consolidated Statements of Operations
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands, except per share data)
| 2008 | | 2007 | | 2006 |
| | | | | |
Revenues | $ 5,660,286 | | $ 4,628,358 | | $ 3,042,839 |
| | | | | |
Cost of Operations | 5,327,056 | | 4,379,464 | | 2,873,444 |
| | | | | |
Gross Profit | 333,230 | | 248,894 | | 169,395 |
| | | | | |
General and Administrative Expenses | 133,998 | | 107,913 | | 98,516 |
| | | | | |
Goodwill and Intangible Asset Impairment | 224,478 | | - | | - |
| | | | | |
(LOSS) INCOME FROM CONSTRUCTION OPERATIONS | (25,246) | | 140,981 | | 70,879 |
| | | | | |
Other Income, Net | 9,559 | | 15,361 | | 2,581 |
Interest Expense | (4,163) | | (1,947) | | (3,771) |
| | | | | |
(Loss) Income before Income Taxes | (19,850) | | 154,395 | | 69,689 |
| | | | | |
Provision for Income Taxes | (55,290) | | (57,281) | | (28,153) |
| | | | | |
NET (LOSS) INCOME | $ (75,140) | | $ 97,114 | | $ 41,536 |
| | | | | |
| | | | | |
| | | | | |
Less: Accrued Dividends on $21.25 Preferred Stock | - | | - | | (166) |
Less: Excess of fair value over carrying value upon redemption of | | | | | |
$21.25 Preferred Stock | - | | - | | (253) |
| | | | | |
NET (LOSS) INCOME AVAILABLE FOR COMMON STOCKHOLDERS | $ (75,140) | | $ 97,114 | | $ 41,117 |
| | | | | |
| | | | | |
BASIC (LOSS) EARNINGS PER COMMON SHARE | $ (2.19) | | $ 3.62 | | $ 1.56 |
| | | | | |
DILUTED (LOSS) EARNINGS PER COMMON SHARE | $ (2.19) | | $ 3.54 | | $ 1.54 |
| | | | | |
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING: | | | | | |
BASIC | 34,272 | | 26,819 | | 26,308 |
Effect of Dilutive Stock Options, Warrants and Restricted Stock | | | | | |
Units | - | | 600 | | 450 |
DILUTED | 34,272 | | 27,419 | | 26,758 |
The accompanying notes are an integral part of these consolidated financial statements.
63
Perini Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
| | | | | | Accumulated | |
| | Stock | | Additional | | Other | |
| Preferred | Purchase | Common | Paid-In | Retained | Comprehensive | |
| Stock | Warrants | Stock | Capital | Earnings | Income (Loss ) | Total |
Balance - December 31, 2005 | $ 19 | $ 461 | $ 26,038 | $ 116,223 | $ 67,885 | $ (27,451) | $ 183,175 |
Net Income | - | - | - | - | 41,536 | - | 41,536 |
| | | | | | | |
Other comprehensive income: | | | | | | | |
Change in pension benefit plans | - | - | - | - | - | 3,759 | 3,759 |
Total comprehensive income | | | | | | | 45,295 |
| | | | | | | |
Preferred Stock dividends accrued and paid | - | - | - | - | (166) | - | (166) |
| | | | | | | |
Common Stock options exercised | - | - | 229 | 847 | - | - | 1,076 |
| | | | | | | |
Excess income tax benefit from stock-based compensation | - | - | - | 2,423 | - | - | 2,423 |
| | | | | | | |
Restricted stock compensation expense | - | - | - | 17,105 | - | - | 17,105 |
| | | | | | | |
Redemption of Preferred Stock | (19) | - | - | 3,543 | (8,169) | - | (4,645) |
| | | | | | | |
Issuance of Common Stock, net | - | - | 287 | (691) | - | - | (404) |
| | | | | | | |
Balance - December 31, 2006 | $ - | $ 461 | $ 26,554 | $ 139,450 | $ 101,086 | $ (23,692) | $ 243,859 |
Net Income | - | - | - | - | 97,114 | - | 97,114 |
| | | | | | | |
Other comprehensive income: | | | | | | | |
Change in pension benefit plans | - | - | - | - | - | 6,175 | 6,175 |
Total comprehensive income | | | | | | | 103,289 |
| | | | | | | |
Common Stock options and | | | | | | | |
stock purchase warrants exercised | - | (461) | 267 | 1,095 | - | - | 901 |
| | | | | | | |
Excess income tax benefit from stock-based compensation | - | - | - | 5,712 | - | - | 5,712 |
| | | | | | | |
Restricted stock compensation expense | - | - | - | 14,427 | - | - | 14,427 |
| | | | | | | |
Issuance of Common Stock, net | - | - | 166 | (20) | - | - | 146 |
| | | | | | | |
Balance - December 31, 2007 | $ - | $ - | $ 26,987 | $ 160,664 | $ 198,200 | $ (17,517) | $ 368,334 |
64
Perini Corporation and Subsidiaries
Consolidated Statements of Stockholders' Equity (continued)
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
| | | | | | Accumulated | |
| | Stock | | Additional | | Other | |
| Preferred | Purchase | Common | Paid-In | Retained | Comprehensive | |
| Stock | Warrants | Stock | Capital | Earnings | Income (Loss) | 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 | - | - | - | - | - | (14,922) | (14,922) |
Change in fair value of investments | - | - | - | - | - | (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 |
The accompanying notes are an integral part of these consolidated financial statements.
65
Perini Corporation and Subsidiaries
Consolidated Statements of Cash Flows
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
| 2008 | | 2007 | | 2006 |
Cash Flows from Operating Activities: | | | | | |
Net (loss) income | $ (75,140) | | $ 97,114 | | $ 41,536 |
| | | | | |
Adjustments to reconcile net (loss) income to net cash from operating activities: | | | | | |
Goodwill and intangible asset impairment | 224,478 | | - | | - |
Depreciation | 12,345 | | 9,225 | | 7,549 |
Amortization of intangible assets and deferred expenses | 15,251 | | 1,718 | | 2,378 |
Stock-based compensation expense | 12,145 | | 14,427 | | 17,105 |
Adjustment of investments to fair value | 2,721 | | - | | - |
Excess income tax benefit from stock-based compensation | (533) | | (5,712) | | (2,423) |
Deferred income taxes | (7,984) | | (10,668) | | 15,273 |
Loss (gain) on sale of land, net | 638 | | (566) | | 394 |
Gain on sale of property and equipment | (1,706) | | (1,960) | | (552) |
Other long-term liabilities | 7,581 | | 14,168 | | 1,084 |
Other non-cash items, net | - | | (10) | | - |
Cash from changes in other components of working capital: | | | | | |
(Increase) decrease in: | | | | | |
Accounts receivable | (125,064) | | (224,088) | | (211,254) |
Costs and estimated earnings in excess of billings | (12,032) | | 21,944 | | 738 |
Other current assets | (3,936) | | 3,881 | | 10,024 |
Increase (decrease) in: | | | | | |
Accounts payable | 125,736 | | 297,989 | | 174,525 |
Billings in excess of costs and estimated earnings | (36,844) | | 27,850 | | 72,219 |
Accrued expenses | (11,602) | | 36,218 | | (11,690) |
| | | | | |
NET CASH FROM OPERATING ACTIVITIES | 126,054 | | 281,530 | | 116,906 |
| | | | | |
Cash Flows used by Investing Activities: | | | | | |
Cash balance recorded in merger with Tutor-Saliba Corporation, | | | | | |
net of transaction costs | 92,081 | | - | | - |
Acquisition of property and equipment | (66,767) | | (23,885) | | (21,526) |
Proceeds from sale of property and equipment | 6,697 | | 4,994 | | 3,531 |
Land held for sale, net | (774) | | 1,133 | | (302) |
Investment in available-for-sale securities | (218,325) | | (8,000) | | - |
Proceeds from sale of available-for-sale securities | 115,856 | | 116 | | 647 |
Investment in other activities | (840) | | 27 | | (345) |
| | | | | |
NET CASH USED BY INVESTING ACTIVITIES | (72,072) | | (25,615) | | (17,995) |
66
Perini Corporation and Subsidiaries
Consolidated Statements of Cash Flows (continued)
For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
| 2008 | | 2007 | | 2006 |
Cash Flows used by Financing Activities: | | | | | |
| | | | | |
Proceeds from long-term debt | $ 2,213 | | $ 5,971 | | $ 11,486 |
Repayment of long-term debt | (38,696) | | (33,981) | | (18,994) |
Repayment of shareholder notes payable | (58,485) | | - | | - |
Purchase of common stock under share repurchase program | (31,797) | | - | | - |
Proceeds from exercise of common stock options and stock purchase warrants | - | | 901 | | 1,076 |
Excess income tax benefit from stock-based compensation | 533 | | 5,712 | | 2,423 |
Issuance of common stock and effect of cashless exercise | (284) | | 146 | | (404) |
Deferred debt costs | (482) | | (980) | | - |
Redemption of $21.25 Preferred Stock, including payment of accrued dividends | - | | - | | (8,842) |
| | | | | |
NET CASH USED BY FINANCING ACTIVITIES | (126,998) | | (22,231) | | (13,255) |
| | | | | |
Net (Decrease) Increase in Cash and Cash Equivalents | (73,016) | | 233,684 | | 85,656 |
| | | | | |
Cash and Cash Equivalents at Beginning of Year | 459,188 | | 225,504 | | 139,848 |
| | | | | |
Cash and Cash Equivalents at End of Year | $ 386,172 | | $ 459,188 | | $ 225,504 |
| | | | | |
| | | | | |
Supplemental Disclosure of Cash Paid During the Year For: | | | | | |
| | | | | |
Interest | $ 3,693 | | $ 1,872 | | $ 3,923 |
| | | | | |
Income taxes | $ 79,270 | | $ 59,450 | | $ 3,440 |
| | | | | |
Supplemental Disclosure of Non-Cash Transactions: | | | | | |
| | | | | |
Common stock issued in merger with Tutor-Saliba Corporation | $ 881,463 | | $ - | | $ - |
| | | | | |
Grant date fair value of common stock issued for services | $ 12,651 | | $ 5,966 | | $ 7,396 |
| | | | | |
Property and equipment acquired through financing arrangements | $ 27,441 | | $ - | | $ - |
The accompanying notes are an integral part of these consolidated financial statements.
67
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006
[1] Summary of Significant Accounting Policies
(a) Nature of Business
Perini Corporation was incorporated in 1918 as a successor to businesses which had been engaged in providing construction services since 1894. 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: building, civil and management services. The building segment focuses on large, complex projects in the hospitality and gaming, healthcare, municipal offices, sports and entertainment, education, transportation, corrections, biotech, pharmaceutical and high-tech markets, and electrical and mechanical, plumbing and HVAC 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 management services segment, including the recently acquired Tutor-Saliba operation in Guam, 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, to a lesser extent, construction management or design-build contracting arrangements.
In an effort to 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 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
68
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[1] Summary of Significant Accounting Policies (continued)
(c) Use of Estimates (continued)
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 9 below). Actual results could differ in the near term from these estimates and such differences could be material.
(d) Method of Accounting for Contracts
Revenues and profits from the Company’s contracts and construction joint venture contracts are generally 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 estimated. 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, 2008 and 2007, consisted of the following (in thousands):
| 2008 | | 2007 |
Unbilled costs and profits incurred to date* | $ 30,623 | | $ 8,982 |
Unapproved change orders | 16,401 | | 9,313 |
Claims | 68,682 | | 56,102 |
| $ 115,706 | | $ 74,397 |
* 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.
69
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[1] Summary of Significant Accounting Policies (continued)
(d) Method of Accounting for Contracts (continued)
Of the balance of “Unapproved change orders” and “Claims” included above in costs and estimated earnings in excess of billings at December 31, 2008 and December 31, 2007, approximately $56.6 million and $45.3 million, respectively, are amounts subject to pending litigation or dispute resolution proceedings as described in Note 9, “Contingencies and Commitments”. These amounts are management’s estimate of the probable cost recovery from the disputed claims considering such factors as evaluation of entitlement, settlements reached to date and experience with the customer. In the event that future facts and circumstances, including the resolution of disputed claims, cause a reduction in the aggregate amount of the estimated probable cost recovery from the disputed claims, the amount of such reduction will be recorded against earnings in the relevant future period.
The prerequisite for billing “Unbilled costs and profits incurred to date” is provided in the defined billing terms of each of the applicable contracts. The prerequisite for billing “Unapproved change orders” or “Claims” is the final resolution and agreement between the parties. The amount of costs and estimated earnings in excess of billings at December 31, 2008 estimated by management to be collected beyond one year is approximately $37.3 million.
(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 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. 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.
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. Intangible assets with finite lives are tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. Based on impairment tests completed in 2008, 2007 and 2006, the Company concluded that goodwill and certain other intangible assets were impaired in 2008 and were not impaired in 2007 and 2006. See Note 4 for further information regarding the impairment loss recorded in 2008.
70
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[1] Summary of Significant Accounting Policies (continued)
(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 Financial Accounting Standards Board (“FASB”) issued Financial Accounting Standards Interpretation No. 48, “Accounting for Uncertainty in Income Taxes – an interpretation of FASB Statement No. 109” (“FIN 48”). FIN 48 prescribes a recognition threshold and measurement process for recording in the financial statements uncertain tax positions taken or expected to be taken in a tax return. FIN 48 also provides guidance on recognition, derecognition, classification, interest and penalties, accounting in interim periods, disclosures and transitions. The Company adopted the provisions of FIN 48 as of January 1, 2007, as required. There was no impact on total liabilities or stockholders’ equity as a result of the adoption of FIN 48. The Company recognizes interest and penalties related to uncertain tax positions as a component of the income tax provision.
(i) (Loss) Earnings Per Common Share
Basic (loss) earnings per common share was computed by dividing net (loss) income less the sum of (i) dividends accrued on the $21.25 Preferred Stock and (ii) the excess of the fair value of the consideration given over the carrying value upon redemption of the $21.25 Preferred Stock, where applicable, by the weighted average number of common shares outstanding. Diluted (loss) earnings per common share was similarly computed after giving consideration to the dilutive effect of outstanding stock options, warrants and restricted stock units.
The computation of diluted loss per common share in 2008 excludes 841,500 stock options and 1,797,501 restricted stock units at December 31, 2008 because the awards would have an antidilutive effect. There were no antidilutive stock options, restricted stock units or stock purchase warrants at December 31, 2007 and 2006. The effect of the assumed conversion of the Company’s outstanding $21.25 Preferred Stock into Common Stock was antidilutive in 2006.
(j) Cash and Cash Equivalents
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. The Company’s cash balance at December 31, 2008 and 2007 also includes $6.0 million and $25.0 million, respectively, which represents an advance received from a project owner to be used to fund subcontract work on a specific project under certain circumstances. The Company has included this amount in its contract
71
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[1] Summary of Significant Accounting Policies (continued)
(j) Cash and Cash Equivalents (continued)
billings and it is included as a component of “Billings in excess of costs and estimated earnings” in the Consolidated Balance Sheets at December 31, 2008 and 2007.
At December 31, 2008 and 2007, cash and cash equivalents consisted of the following (in thousands):
| 2008 | | 2007 |
| | | |
Corporate cash and cash equivalents (available | | | |
for general corporate purposes) | $ 342,246 | | $ 426,825 |
| | | |
Company's share of joint venture cash and | | | |
cash equivalents (available only for joint venture | | | |
purposes, including future distributions) | 43,926 | | 32,363 |
| $ 386,172 | | $ 459,188 |
(k) Long-term Investments
Investments, consisting primarily 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 are charged against income.
(l) Stock-Based Compensation
Effective January 1, 2006, the Company adopted Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised 2004), “Share-Based Payment”, using the modified-prospective application method and, accordingly, prior period amounts have not been restated. 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.
72
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[1] Summary of Significant Accounting Policies (continued)
(n) 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 3 for disclosure of the fair value of investments and Note 5 for disclosure of the fair value of long-term debt.
(o) 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.
(p) Reclassifications
Certain prior year amounts have been reclassified to be consistent with the current year classifications, including intangible assets that were reclassified from Other Assets to Intangible Assets, Net in the Consolidated Balance Sheets.
(q) New Accounting Pronouncements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements,” (“SFAS 157”) which clarifies the definition of fair value, describes methods used to appropriately measure fair value, and expands fair value disclosure requirements. SFAS 157 applies under other accounting pronouncements that currently require or permit fair value measurements. The Company adopted SFAS 157 on January 1, 2008, as required. In February 2008, the FASB issued FASB Staff Position No. FAS 157-2, “Effective Date of FASB Statement No. 157,” which amends SFAS 157 by delaying its effective date by one year for non-financial assets and non-financial liabilities, except for items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Therefore, the application of SFAS 157 relating to non-financial assets and non-financial liabilities of the Company will be adopted prospectively beginning January 1, 2009. See Note 3, “Fair Value Measurements” for additional information.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities – including an Amendment of SFAS No. 115, ” (“SFAS 159”). SFAS 159 permits entities to choose to measure many financial instruments and certain other items at fair value. The Company adopted SFAS 159 on January 1, 2008, as required. The Company did not elect the fair value measurement option for any of its financial assets or liabilities. Therefore, the adoption of SFAS 159 had no impact on the Company’s financial statements.
In December 2007, the FASB issued SFAS No. 141(R), “Business Combinations,” (“SFAS 141(R)”). SFAS 141(R) establishes principles and requirements for how an acquirer of a business recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree. SFAS 141(R) also provides guidance for recognizing and measuring the goodwill acquired in the business combination and determines what information to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination. SFAS 141(R) is effective for the Company beginning January 1, 2009 and the Company will apply the provisions of SFAS 141(R) prospectively to any business combinations for which the acquisition date is on or after January 1, 2009.
73
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[1] Summary of Significant Accounting Policies (continued)
(q) New Accounting Pronouncements (continued)
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of Accounting Research Bulletin No. 51,” (“SFAS 160”). SFAS 160 establishes accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160 is effective for the Company beginning January 1, 2009 and the Company will apply the provisions of SFAS 160 prospectively as of that date. The Company does not expect the adoption of SFAS 160 to have a material impact on its consolidated financial statements and related disclosures.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities – An Amendment of SFAS No. 133,” (“SFAS 161”). SFAS 161 is effective for the Company beginning January 1, 2009. SFAS 161 applies only to financial statement disclosures, and the Company does not expect the adoption of SFAS 161 to have a material impact on its consolidated financial statements and related disclosures.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles," (“SFAS 162”). SFAS 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in conformity with generally accepted accounting principles in the United States. This statement will be effective 60 days following the Securities and Exchange Commission’s approval of the Public Company Accounting Oversight Board's amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles." The Company does not expect the adoption of SFAS 162 to have a material impact on its consolidated financial statements.
[2] Merger With Tutor-Saliba Corporation
On September 8, 2008, the Company acquired all of the outstanding shares of Tutor-Saliba Corporation (“Tutor-Saliba”), a privately-held California-based construction company, in exchange for 22,987,293 shares of the Company’s common stock. Two trusts controlled by Ronald N. Tutor, the Chief Executive Officer of both companies prior to the merger, which collectively owned 96% of the outstanding stock of Tutor-Saliba prior to the merger, received approximately 22.1 million shares of the Company’s common stock in connection with the merger. As a result of the merger, Mr. Tutor, through these two trusts, is the beneficial owner of approximately 46% of the Company’s outstanding common stock. These shares are subject to certain restrictions contained in a shareholders agreement between Mr. Tutor, the Company and other former Tutor-Saliba shareholders as described in a Form 8-K filed with the SEC on April 7, 2008.
The value of the Company’s common stock issued in the merger was equal to $38.35 per share, which was based on the average of the closing market prices of the Company’s common stock for the period beginning three trading days before and ending three trading days after April 2, 2008, the date on which the merger agreement was publicly announced, in accordance with EITF Issue 99-12, “Determination of the Market Price of Acquirer Securities Issued in a Purchase Business Combination”, and aggregated $881.5 million. In addition to the shares issued, the purchase price includes $13.0 million of estimated direct transaction costs, which consists of investment banking, legal and accounting fees, regulatory filing fees, and other external costs directly related to the merger. The Company’s consolidated results of operations and financial position include the financial results of Tutor-Saliba from the date of acquisition.
Tutor-Saliba operates in three business segments: building construction, civil construction and international. Tutor-Saliba’s building operations are conducted primarily in Nevada and California. Its civil operations have been historically focused primarily in California and New York. Its international operations are conducted primarily in
74
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[2] Merger With Tutor-Saliba Corporation (continued)
Guam and the Philippines. Tutor-Saliba is a leading civil infrastructure and commercial building construction company that focuses on large, complex projects, usually ranging from $100 million to $1 billion or more in size. Tutor Saliba manages all aspects of these projects, including design-build, design-bid-build and pre-construction services for project owners. These capabilities, together with its significant capacity to self-perform critical construction specialties such as concrete forming and placement, site excavation and support of excavation, and electrical and mechanical services, are the core strengths of Tutor-Saliba.
Tutor-Saliba was acquired because the Company believes it is a strong strategic fit, providing the Company with enhanced opportunities for growth not available to the Company on a stand-alone basis through increased size, scale and management capabilities, complementary assets and expertise, particularly Tutor-Saliba’s expertise in civil projects, immediate access to multiple geographic regions, and increased ability to compete for larger numbers of projects particularly in the civil construction segment due to an increased bonding capacity. The merger will also allow Mr. Tutor to focus his management efforts entirely on the growth and development of the Company.
The transaction was accounted for using the purchase method of accounting. The Company has not yet completed the final allocation of the purchase price to the tangible and intangible assets of Tutor-Saliba. Pending the outcome of further analysis, the preliminary purchase price allocation could change. The following table summarizes the estimated fair value of the assets acquired and liabilities assumed as of the acquisition date (in thousands):
Current assets | $ 427,795 |
Property and equipment | 156,356 |
Other long-term assets | 14,268 |
Other intangible assets | 193,100 |
Goodwill | 727,742 |
Total assets acquired | 1,519,261 |
| |
Current maturities of long-term debt | (16,762) |
Other current liabilities | (366,280) |
Long-term debt | (51,801) |
Deferred income tax liabilities | (111,606) |
Other long-term liabilities | (78,337) |
Total purchase price | $ 894,475 |
The $727.7 million of Goodwill was allocated as follows: building construction segment ($578.0 million), civil construction segment ($83.2 million) and management services segment ($66.5 million). Approximately $12.0 million of the goodwill will be deductible for tax purposes.
The following table identifies other intangible assets acquired and their respective amortization period. The amounts assigned to intangible assets represent the Company’s estimate of the fair value of the intangible assets acquired as of the acquisition date.
75
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[2] Merger With Tutor-Saliba Corporation (continued)
| | | Weighted |
| Fair | | Average Useful |
| Value | | Life |
| (in thousands) | | |
Trade name | $ 139,500 | | Indefinite |
Customer relationships | 24,400 | | 13 years |
Construction contract backlog | 23,200 | | 2.2 years |
Contractor license | 6,000 | | Indefinite |
Total | $ 193,100 | | |
The following unaudited pro forma summary financial information presents the operating results of the combined company assuming that the merger occurred on January 1, 2007. This unaudited pro forma summary financial information is presented for informational purposes only and is not indicative either of the operating results that actually would have occurred had the merger been completed on January 1, 2007, or of future results.
| Year Ended |
| December 31, |
| 2008 | | 2007 |
| (in thousands, except per share amounts) |
| (Unaudited Pro Forma) |
| | | |
Revenues | $ 6,695,803 | | $ 5,875,294 |
| | | |
Income from construction operations, before impairment charge | 239,211 | | 196,395 |
Impairment charge (see Note 4) | 224,478 | | - |
Income from construction operations, net of impairment charge | 14,733 | | 196,395 |
| | | |
Net (loss) income | (51,945) | | 189,381 |
| | | |
(Loss) earnings per share: | | | |
Basic | $ (1.04) | | $ 3.80 |
Diluted | $ (1.04) | | $ 3.76 |
| | | |
Weighted average shares outstanding: | | | |
Basic | 50,036 | | 49,806 |
Diluted | 50,036 | | 50,406 |
The pro forma operating results for the year ended December 31, 2008 include merger-related costs incurred by Tutor-Saliba of approximately $7.0 million. The pro forma operating results for the year ended December 31, 2007 include gains on the sales of marketable securities recorded by Tutor-Saliba of approximately $94.1 million. The pro forma diluted earnings per share excluding the gains on sale of marketable securities for the year ended December 31, 2007 was $2.59.
76
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[3] Fair Value Measurements
SFAS 157 establishes a three-tier valuation hierarchy for disclosure of the inputs to valuation used to measure fair value. This hierarchy prioritizes the inputs used in measuring 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, 2008 (in thousands):
| | | Fair Value Measurements at Dec. 31, 2008 Using |
| | | | | Significant other | | Significant |
| Total Carrying | | Quoted prices in | | observable | | unobservable |
| Value at | | active markets | | inputs | | inputs |
| Dec. 31, 2008 | | (Level 1) | | (Level 2) | | (Level 3) |
| | | | | | | |
Cash and cash equivalents (1) | $ 386,172 | | $ 386,172 | | $ - | | $ - |
| | | | | | | |
Short-term investments, | | | | | | | |
other than auction rate securities (2) | 100 | | 100 | | - | | - |
| | | | | | | |
Auction rate securities (3) | | | | | | | |
Long-term | 104,779 | | - | | 1,350 | | 103,429 |
| | | | | | | |
TOTAL | $ 491,051 | | $ 386,272 | | $ 1,350 | | $ 103,429 |
Assets measured at fair value on a recurring basis using significant unobservable inputs (Level 3) are as follows (in thousands):
| Auction Rate |
| Securities |
| |
Balance at December 31, 2007 | $ - |
Transfer into Level 3 | 8,000 |
Purchases and settlements, net | 101,275 |
Impairment charge included in other income, net | (2,622) |
Impairment charge included in other comprehensive loss | (3,224) |
Balance at December 31, 2008 | $ 103,429 |
77
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[3] Fair Value Measurements (continued)
(1) | 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. |
(2) | Short-term investments consist of an S&P 500 index mutual fund for which fair value is determined through quoted market prices. |
(3) | At December 31, 2008, the Company had $104.8 million invested in auction rate securities (“ARS”) which the Company considers as available-for-sale. The majority of the ARS held by the Company at December 31, 2008, totaling $78.9 million, are in securities collateralized by student loan portfolios, which are guaranteed by the United States government. An additional amount totaling $17.9 million are in securities collateralized by student loan portfolios, which are privately insured. The remainder of the securities, totaling $8.0 million, are in tax-exempt municipal bond investments, for which the market has had a number of successful auctions in the past nine months. Most of the Company’s ARS are rated AAA or AA. |
The Company estimated the fair value of its ARS utilizing 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 the fair valuation analysis performed, the Company recorded a pretax impairment charge of $5.8 million during 2008. Of this $5.8 million impairment charge, $2.6 million was deemed to be other-than-temporary and was recorded as a charge against income. The $3.2 million balance of the impairment charge was deemed to be temporary and was recorded as a charge to stockholders’ equity.
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 $104.8 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, 2008.
[4] Goodwill and Other Intangible Assets
There was no change in the carrying amount of goodwill during the year ended December 31, 2007. Changes in the carrying amount of goodwill during the year ended December 31, 2008 by segment are as follows (in thousands):
| | | | | Management | | |
| Building | | Civil | | Services | | Total |
| | | | | | | |
Balance, December 31, 2007 | $ 26,268 | | $ - | | $ - | | $ 26,268 |
| | | | | | | |
Goodwill recorded in connection with | | | | | | | |
the merger with Tutor-Saliba | 578,046 | | 83,163 | | 66,533 | | 727,742 |
| | | | | | | |
Payment of contingent consideration | | | | | | | |
in connection with the acquisition of | | | | | | | |
James A. Cummings, Inc. in a prior year | 1,000 | | - | | - | | 1,000 |
| | | | | | | |
Impairment charge | (146,847) | | - | | (20,051) | | (166,898) |
| | | | | | | |
Balance, December 31, 2008 | $ 458,467 | | $ 83,163 | | $ 46,482 | | $ 588,112 |
78
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[4] Goodwill and Other Intangible Assets (continued)
Other intangible assets consist of the following (in thousands):
| December 31, 2008 | | Weighted |
| | | | | | | | | Average |
| | | Accumulated | | Impairment | | Carrying | | Amortization |
| Cost | | Amortization | | Charge | | Value | | Period |
| | | | | | | | | |
Trade names | $ 140,350 | | $ - | | $ (56,900) | | $ 83,450 | | Indefinite |
Contractor license | 6,000 | | - | | (680) | | 5,320 | | Indefinite |
Customer relationships | 26,700 | | (1,373) | | - | | 25,327 | | 12.7 years |
Construction contract backlog | 25,040 | | (14,951) | | - | | 10,089 | | 2.3 years |
Non-compete agreements | 2,400 | | (1,560) | | - | | 840 | | 5 years |
Total | $ 200,490 | | $ (17,884) | | $ (57,580) | | $ 125,026 | | |
| | | | | | | | | |
| December 31, 2007 | | | | |
| | | | | | | | | |
| | | Accumulated | | Carrying | | | | |
| Cost | | Amortization | | Value | | | | |
| | | | | | | | | |
Trade names | $ 850 | | $ - | | $ 850 | | | | |
Contractor license | - | | - | | - | | | | |
Customer relationships | 2,300 | | (518) | | 1,782 | | | | |
Construction contract backlog | 1,840 | | (1,651) | | 189 | | | | |
Non-compete agreements | 2,400 | | (1,080) | | 1,320 | | | | |
Total | $ 7,390 | | $ (3,249) | | $ 4,141 | | | | |
| | | | | | | | | |
Amortization expense for the year ended December 31, 2008 totaled $14.6 million. At December 31, 2008, amortization expense is estimated to be $10.6 million in 2009, $4.4 million in 2010, $2.3 million in 2011, $2.1 million in 2012 and $2.1 million in 2013.
The Company performs its annual impairment test of goodwill and other indefinite-lived intangible assets in the fourth quarter of each year. SFAS 142, “Goodwill and Other Intangible Assets”, prescribes a two-step process for determining whether goodwill is impaired. The first step 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 its reporting units, the Company uses 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 used to project these amounts and the impact of market conditions on those assumptions. The Company also uses the market valuation method to estimate the fair value of
its reporting units by utilizing industry multiples of operating earnings.
79
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[4] Goodwill and Other Intangible Assets (continued)
In the fourth quarter of 2008, the Company performed the initial step of its goodwill impairment evaluation by comparing the fair value of its reporting units, as determined by the discounted cash flow model, to their carrying value. It was determined that the carrying value of certain reporting units exceeded their fair values and therefore the Company performed the second step of its impairment evaluation for these units. As a result of this analysis, the Company recorded an impairment to goodwill of approximately $166.9 million. In connection with conducting the initial step of its goodwill evaluation, the Company compared the fair value of the other indefinite-lived intangible assets to their carrying value and determined that the carrying value of these assets exceeded their fair value as determined by the income valuation method. Accordingly, the Company recorded additional impairment charges of $57.6 million ($35.9 million after taxes) related to the trade names and contractor license. The impairment charges were due to degradation in the timing of cash flows caused by delays, postponements and reduction in scope of certain projects that we were anticipating to enter into backlog in 2008 or 2009, exacerbated by the global economic conditions experienced in the fourth quarter of 2008. 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. In addition to the SFAS No. 142 impairment analysis, the Company evaluated it finite-lived intangible assets for impairment in the fourth quarter of 2008 in accordance with SFAS No. 144, “Accounting for Impairment or Disposal of Long-Lived Assets”. This analysis was triggered by a decrease in the timing of projected cash flows in connection with the impairment evaluation of goodwill and indefinite-lived intangible assets. The impairment test results did not indicate that an impairment of the finite-lived intangible assets existed in 2008.
[5] Financial Commitments
Long-term Debt
Long-term debt consists of the following (in thousands):
| 2008 | | 2007 |
| | | |
Equipment financing at rates ranging from 2.0% to 7.95% | $ 49,021 | | $ 10,035 |
Loan on aircraft at a rate of 5.25% payable in equal monthly installments over a seven year | | | |
period, with a balloon payment of $12.0 million in 2015 | 16,661 | | - |
Mortgage on corporate headquarters 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 | 5,855 | | 6,123 |
Mortgage on office building at a variable rate of lender's prime rate less 1.0% (3.0% in 2008) payable | | | |
in equal monthly installments over a five year period, with a balloon payment of $4.3 million in 2013 | 4,843 | | - |
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 | 1,665 | | 1,711 |
Mortgage on office building at a rate of 5.62% (5.68% in 2007) payable in equal monthly installments | | | |
over a five year period, with a balloon payment of $1.1 million in 2013 | 1,397 | | 1,456 |
| | | |
Other mortgages | - | | 1,407 |
Other indebtedness | 812 | | - |
Total | 80,254 | | 20,732 |
Less – current maturities | 18,674 | | 7,374 |
Net long-term debt | $ 61,580 | | $ 13,358 |
80
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[5] Financial Commitments (continued)
Payments required under these obligations amount to approximately $18.7 million in 2009, $23.0 million in 2010, $12.6 million in 2011, $5.6 million in 2012, $2.3 million in 2013 and $18.1 million in 2014 and beyond.
On September 8, 2008, the Company entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”), as Borrower, with Bank of America, N. A., as Administrative Agent, Swing Line Lender and L/C Issuer (the “Lender”). The Credit Agreement replaces the Company’s previously existing credit agreement dated February 22, 2007, as amended on May 7, 2008 (the “Prior Agreement”), and allows the Company to borrow up to $155 million on a revolving credit basis, with a $50 million sublimit for letters of credit, and an additional $110.6 million at December 31, 2008 under a supplementary facility to the extent that the $155 million base facility has been fully drawn.
Subject to certain conditions, the Company has the option to increase the base facility by up to an additional $45 million. Similar to the Prior Agreement, certain subsidiaries of the Company unconditionally guarantee the obligations of the Company under the Credit Agreement. Certain companies not party to the Prior Agreement, having become subsidiaries of the Company as a result of the acquisition of Tutor-Salilba on September 8, 2008, also became guarantors under the Credit Agreement. The obligations under the 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 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 225 basis points (with a floor of 150 basis points for the $155 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 100 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 credit facility mature on February 22, 2012, unless extended pursuant to the terms of the Credit Agreement.
The Credit Agreement requires the Company to comply with certain financial and other covenants including minimum net worth, minimum asset coverage, minimum fixed charge coverage and maximum leverage ratios. The 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. In addition, the Credit Agreement provides that the supplementary facility shall be reduced by the amount of any reduction in the principal amount of certain auction rate securities presently held by the Company.
On February 23, 2009, the Credit Agreement was amended effective December 31, 2008 to modify certain financial covenants to accommodate the impact of the $224.5 million impairment charge recorded in 2008 and to extend the maturity date of the supplementary facility to December 31, 2010.
The Company has not borrowed under its available revolving credit facilities during 2008 and 2007, but has utilized them for letters of credit. Accordingly, at December 31, 2008, the Company has $247.7 million available to borrow under the Credit Agreement.
The fair value of the $4.8 million of variable rate debt approximates its carrying value at December 31, 2008. There was no variable rate debt outstanding at December 31, 2007. For fixed rate debt, fair value is determined based on
81
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[5] Financial Commitments (continued)
discounted cash flows for the debt at the Company’s current incremental borrowing rate for similar types of debt. The estimated fair value of fixed rate debt at December 31, 2008 and 2007 is $76.8 million and $21.2 million, respectively, compared to the carrying amount of $75.5 million and $20.7 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, 2008 are as follows (in thousands):
| Amount |
| |
2009 | $ 12,939 |
2010 | 9,246 |
2011 | 6,316 |
2012 | 4,774 |
2013 | 4,461 |
Thereafter | 12,296 |
Subtotal | 50,032 |
| |
Less - Sublease rental agreements | (293) |
| |
Total | $ 49,739 |
Rental expense under operating leases of construction equipment, vehicles and office space was $10,498 in 2008, $7,492 in 2007 and $7,191 in 2006.
[6] Income Taxes
For the years ended December 31, 2008, 2007 and 2006, the (loss) income before taxes, consists of the following (in thousands):
| U.S. | | Foreign | | |
| Operations | | Operations | | Total |
| | | | | |
2008 | $ (3,734) | | $ (16,116) | | $ (19,850) |
2007 | 154,395 | | - | | 154,395 |
2006 | 69,689 | | - | | 69,689 |
82
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[6] Income Taxes (continued)
The provision for income taxes consists of the following (in thousands):
| Federal | | State | | Foreign | | Total |
| | | | | | | |
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 |
2007 | | | | | | | |
Current | $ 61,198 | | $ 6,751 | | $ - | | $ 67,949 |
Deferred | (9,593) | | (1,075) | | - | | (10,668) |
| $ 51,605 | | $ 5,676 | | $ - | | $ 57,281 |
2006 | | | | | | | |
Current | $ 11,564 | | $ 1,316 | | $ - | | $ 12,880 |
Deferred | 13,931 | | 1,342 | | - | | 15,273 |
| $ 25,495 | | $ 2,658 | | $ - | | $ 28,153 |
The table below reconciles the difference between the statutory federal income tax rate and the effective rate provided for (loss) income before income taxes in the Consolidated Statements of Operations.
| 2008 | | 2007 | | 2006 |
| | | | | |
Statutory federal income tax rate | 35.0% | | 35.0% | | 35.0% |
State income taxes, net of federal tax benefit | (24.0) | | 2.6 | | 2.9 |
Officer's compensation | (6.6) | | - | | 3.2 |
Impairment of goodwill and other intangible assets | (294.3) | | - | | - |
Other | 11.4 | | (0.5) | | (0.7) |
Effective tax rate | (278.5)% | | 37.1% | | 40.4% |
83
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[6] Income Taxes (continued)
The following is a summary of the significant components of the deferred tax assets and liabilities as of December 31, 2008 and 2007 (in thousands):
| 2008 | | 2007 |
Deferred Tax Assets | | | |
Timing of expense recognition | $ 34,898 | | $ 20,665 |
Construction contract accounting | 1,002 | | 2,126 |
Other, net | 2,384 | | - |
Deferred tax assets | 38,284 | | 22,791 |
| | | |
Deferred Tax Liabilities | | | |
Intangible assets, due primarily to purchase accounting | (57,894) | | (2,636) |
Fixed assets, due primarily to purchase accounting | (38,906) | | (8,332) |
Construction contract accounting | (22,169) | | - |
Joint ventures - construction | (3,987) | | (5,723) |
Other | (2,601) | | (236) |
Deferred tax liabilities | (125,557) | | (16,927) |
| | | |
Net deferred tax (liability) asset | $ (87,273) | | $ 5,864 |
The net deferred tax (liability) asset as of December 31, 2008 and 2007 is classified in the Consolidated Balance Sheets based on when the future benefit (expense) is expected to be realized as follows (in thousands):
| 2008 | | 2007 |
| | | |
Short-term deferred tax asset | $ 11,589 | | $ 7,988 |
Long-term deferred tax liability | (98,862) | | (2,124) |
| $ (87,273) | | $ 5,864 |
No valuation allowance for deferred tax assets was recorded at December 31, 2008 and 2007 since the Company believes it is more likely than not that all of the deferred tax assets will be realized because they would be recoverable from taxes paid in prior years.
In general, it is the practice and intention of the Company to reinvest the earnings of its non-U.S. subsidiaries in those operations. As of December 31, 2008, the Company has not made a provision for U.S. or additional foreign withholdings taxes on approximately $10.3 million of the excess of the amount for financial reporting over the tax basis of investments in foreign subsidiaries that are essentially permanent in duration. Generally, such amounts become subject to U.S. taxation upon the remittance of dividends and under certain other circumstances. It is not practicable to estimate the amount of deferred tax liability related to investments in these foreign subsidiaries.
The Company identified and reviewed potential tax uncertainties in accordance with FIN 48 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, 2008 and 2007.
84
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[7] Other Assets, Other Long-term Liabilities and Other Income, Net
Other Assets, Other Long-term Liabilities and Other Income, Net consist of the following (in thousands):
Other Assets | | | | | |
| 2008 | | 2007 | | |
Mineral reserves | $ 12,850 | | $ - | | |
Deferred expenses | 1,432 | | 1,348 | | |
Other investments | 1,556 | | 432 | | |
Land held for sale | 543 | | 407 | | |
| $ 16,381 | | $ 2,187 | | |
| | | | | |
Other Long-term Liabilities | | | | | |
| 2008 | | 2007 | | |
Subcontractor insurance program | $ 36,558 | | $ 26,966 | | |
Pension liability | 27,829 | | 5,892 | | |
Mineral royalties payable | 11,360 | | - | | |
Employee benefit related liabilities | 2,211 | | 2,189 | | |
Deferred lease incentive | 1,726 | | 1,571 | | |
Other | 9,475 | | 1,120 | | |
| $ 89,159 | | $ 37,738 | | |
| | | | | |
Other Income, Net | | | | | |
| 2008 | | 2007 | | 2006 |
Interest income | $ 12,898 | | $ 13,811 | | $ 4,323 |
Gain (loss) from land sales, net | (638) | | 566 | | (394) |
Adjustment of investments to fair value | (2,721) | | - | | - |
Gain on sale of property used in operations | 1,617 | | 1,585 | | - |
Bank fees | (1,093) | | (683) | | (712) |
Stock registration expense | - | | - | | (222) |
Miscellaneous income (expense), net | (504) | | 82 | | (414) |
| $ 9,559 | | $ 15,361 | | $ 2,581 |
[8] Employee Benefit Plans
The Company has a defined benefit pension plan that covers 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. Effective June 1, 2004, all benefit accruals under the Company’s pension plan were frozen; however, the current vested benefit was preserved. The Company also has an unfunded supplemental retirement plan for certain employees whose benefits under the defined benefit pension plan were reduced because of compensation limitations under federal tax laws. In accordance with SFAS No. 132(R), “Employers’ Disclosures About Pensions and Other Post-Retirement Benefits”, pension disclosure as presented below includes aggregated amounts for both of the Company’s plans, except where otherwise indicated.
85
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[8] Employee Benefit Plans (continued)
SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an Amendment of FASB Statements No. 87, 88, 106 and 132(R)” (“SFAS 158”) requires an employer to measure the funded status of a plan as of the date of its fiscal year-end, with limited exceptions. The Company historically has used the date of its fiscal year-end as its measurement date.
Net pension cost for 2008, 2007 and 2006 is as follows (in thousands):
| 2008 | | 2007 | | 2006 |
| | | | | |
Interest cost on projected benefit obligation | $ 4,658 | | $ 4,490 | | $ 4,382 |
Expected return on plan assets | (4,799) | | (4,536) | | (4,247) |
Recognized actuarial loss | 1,468 | | 2,261 | | 2,453 |
Net pension cost | $ 1,327 | | $ 2,215 | | $ 2,588 |
| | | | | |
Actuarial assumptions used to determine net pension cost: | | | | | |
Discount rate | 6.41% | | 5.86% | | 5.62% |
Long-term rate of 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 2009. The expected long-term rate of return on assets assumption was developed considering historical and future expectations for returns for each asset class.
The target asset allocation for the Company’s pension plan by asset category for 2009 and the actual asset allocation at December 31, 2008 and 2007 by asset category are as follows:
| | Percentage of Plan Assets at December 31, |
| | Target | | | | |
| | Allocation | | | | |
Asset Category | | 2009 | | 2008 | | 2007 |
| | | | | | |
Equity securities: | | | | | | |
Domestic | | 60.0% | | 65.8% | | 60.9% |
International | | 15.0 | | 14.7 | | 18.4 |
Fixed income securities | | 25.0 | | 19.5 | | 20.7 |
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 reducing 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.
86
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[8] Employee Benefit Plans (continued)
International investments consist primarily of large capitalization equities. 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. Investments are broadly diversified by strategy and manager. As of December 31, 2008 and 2007, plan assets included approximately $30.3 million and $40.1 million, respectively, of investments in funds of hedge funds which do not have readily determinable fair values. Estimates of fair value of these funds are determined using the best information available. The fixed income allocation comprises a high yield mutual fund which invests primarily in corporate bonds with an average rating of B.
The Company expects to contribute approximately $7.0 million to its defined benefit pension plan in 2009.
Future benefit payments under the plans are estimated as follows (in thousands):
| Amount |
2009 | $ 4,949 |
2010 | 5,050 |
2011 | 5,190 |
2012 | 5,309 |
2013 | 5,485 |
2014 - 2018 | 29,264 |
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, 2008, and a summary of the funded status as of December 31, 2008 and 2007 (in thousands):
87
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[8] Employee Benefit Plans (continued)
| 2008 | | 2007 |
Change in Fair Value of Plan Assets | | | |
Balance at beginning of year | $ 66,343 | | $ 62,659 |
Actual return on plan assets | (19,265) | | 4,505 |
Company contribution | 3,344 | | 3,397 |
Benefit payments | (4,340) | | (4,218) |
Balance at end of year | $ 46,082 | | $ 66,343 |
| | | |
Change in Projected and Accumulated Benefit Obligations | | | |
Balance at beginning of year | $ 74,638 | | $ 78,311 |
Interest cost | 4,658 | | 4,490 |
Actuarial loss (gain) | 1,394 | | (3,945) |
Benefit payments | (4,340) | | (4,218) |
Balance at end of year | $ 76,350 | | $ 74,638 |
| | | |
Funded Status | | | |
Funded status at December 31, | $ (30,268) | | $ (8,295) |
| | | |
Amounts recognized in Consolidated Balance Sheets consist of: | | | |
Current liabilities | $ (228) | | $ (210) |
Long-term liabilities | (30,040) | | (8,085) |
| | | |
Net amount recognized in Consolidated Balance Sheets | $ (30,268) | | $ (8,295) |
| | | |
Amounts not yet reflected in net periodic benefit cost and | | | |
included in accumulated other comprehensive loss: | | | |
Accumulated loss | $ (41,506) | | $ (17,517) |
Accumulated other comprehensive loss | (41,506) | | (17,517) |
Cumulative Company contributions in excess of net periodic benefit cost | 11,238 | | 9,222 |
Net amount recognized in Consolidated Balance Sheets | $ (30,268) | | $ (8,295) |
The estimated amount of the net accumulated loss that will be amortized from accumulated other comprehensive loss into net period benefit cost in 2009 is $1.9 million.
| 2008 | | 2007 |
Actuarial assumptions used to determine benefit obligation: | | | |
Discount rate | 6.29% | | 6.41% |
Rate of increase in compensation | n.a. | | n.a. |
Measurement date | December 31 | | December 31 |
88
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[8] Employee Benefit Plans (continued)
Other comprehensive loss attributable to the net gain or loss arising during the period plus the amortization of the loss during the period pursuant to SFAS 158 amounted to an increase of $24.0 million in 2008, and decreases of $6.2 million in 2007 and $5.9 million in 2006. Other comprehensive loss attributable to a change in the additional minimum pension liability recognized pursuant to SFAS 87 amounted to increases of $29.6 million in prior years. The cumulative net amount of $41.5 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, 2008, compared to an $11.2 million pension asset previously recognized. The net amount of $30.3 million is reflected as a liability as of December 31, 2008 (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.
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, 2008 and 2007 (in thousands):
| 2008 | | 2007 |
| | | Benefit | | | | | | Benefit | | |
| Pension | | Equalization | | | | Pension | | Equalization | | |
| Plan | | Plan | | Total | | Plan | | Plan | | Total |
| | | | | | | | | | | |
Projected benefit obligation | $ 73,315 | | $ 3,035 | | $ 76,350 | | $ 71,764 | | $ 2,874 | | $ 74,638 |
Accumulated benefit obligation | 73,315 | | 3,035 | | 76,350 | | 71,764 | | 2,874 | | 74,638 |
Fair value of plan assets | 46,082 | | - | | 46,082 | | 66,343 | | - | | 66,343 |
| | | | | | | | | | | |
Projected benefit obligation | | | | | | | | | | | |
greater than fair value of | | | | | | | | | | | |
plan assets | 27,233 | | 3,035 | | 30,268 | | 5,421 | | 2,874 | | 8,295 |
| | | | | | | | | | | |
Accumulated benefit obligation | | | | | | | | | | | |
greater than fair value of | | | | | | | | | | | |
plan assets | $ 27,233 | | $ 3,035 | | $ 30,268 | | $ 5,421 | | $ 2,874 | | $ 8,295 |
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 $4.8 million in 2008, $3.7 million in 2007 and $2.9 million in 2006. The Company’s contribution is based on a non-discretionary match of employees’ contributions, as defined.
The Company has an incentive compensation plan for key employees which is generally based on the Company’s achievement of a certain level of profit.
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 $30.6 million in 2008, $25.9 million in 2007 and $15.3 million in 2006. The Multi-employer Pension Plan Amendments Act of 1980 defines
89
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[8] Employee Benefit Plans (continued)
certain employer obligations under multi-employer plans. Information regarding union retirement plans is not 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.
[9] Contingencies and Commitments
(a) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter
During 1995, a joint venture, Tutor-Saliba-Perini, or the Joint Venture, in which Perini Corporation, or Perini, was the 40% minority partner and Tutor-Saliba Corporation, or Tutor-Saliba, of Sylmar, California was the 60% managing partner, 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, or 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 Perini jointly and severally (together, TSP). In September, 2008, Tutor-Saliba merged with Perini.
Claims concerning the construction of LAMTA projects were tried in 2001. During the trial, based on the Joint Venture's alleged failure to comply with the court's discovery orders, the judge issued terminating sanctions that resulted in a substantial judgment against TSP.
TSP appealed and, in January 2005, the State of California Court of Appeal reversed the trial court's entire judgment and found that the trial court judge had abused his discretion and had violated TSP's due process rights, and had imposed impermissibly overbroad terminating sanctions. The Court of Appeal also directed the trial court to dismiss LAMTA's claims that TSP had violated the Unfair Competition Law ("UCL") because LAMTA lacked standing to bring such a claim, and remanded the Joint Venture's claims against LAMTA for extra work required by LAMTA and LAMTA's counterclaim under the CFCA against TSP to the trial court for further proceedings, including a new trial.
In 2006, upon remand, the trial court allowed LAMTA to amend its cross-complaint to add the District Attorney as a party in order to have a plaintiff with standing to assert a UCL claim, and allowed a UCL claim to be added. The court also ordered that individual issues of the case be tried separately.
In December 2006, in the trial of the first issue, which arose out of a 1994 change order involving a Disadvantaged Business Enterprise subcontractor pass-through claim, the jury found that the Joint Venture had submitted two false claims for payment and had breached its contract with LAMTA and awarded LAMTA $111,651 in direct damages.
The court has awarded penalties of $10,000 for each of the two claims and will treble the damages awarded by the Jury. A final judgment with respect to these claims will not be entered until the entire case has been resolved and is subject to appeal. In addition, the court will determine whether there were any violations of the UCL, but has deferred its decision on those claims until the case is completed. Each such violation may bear a penalty of up to $2,500.
90
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[9] Contingencies and Commitments (continued)
(a) Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter (continued)
In February 2007, the court granted a Joint Venture motion and precluded LAMTA in future proceedings from presenting its claims that the Joint Venture breached its contract and violated the CFCA by allegedly “frontloading” the so-called “B Series” contracts. The court ordered further briefing on LAMTA’s UCL claim on this issue.
In December 2007, the court dismissed both TSP’s and LAMTA’s affirmative work restriction claims.
In September 2008, the Court tentatively ruled that LAMTA’s Disadvantaged Business Enterprise (DBE) claims are sufficient to proceed to trial although the Court has not finally so ruled. The Court also heard TSP’s argument that LAMTA’s DBE program was/is unconstitutional thus making LAMTA’s DBE claims unenforceable. TSP is waiting for the Court’s ruling as of this time.
A schedule for addressing the remainder of the case thereafter has not yet been established. The court continues to indicate that it would like the parties to resolve the entire case through mediation. To date, efforts by the parties to settle the case have not been successful.
The ultimate financial impact of the lawsuit is not yet determinable. Therefore, no provision for loss, if any, has been recorded in the financial statements.
(b) Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter
Perini/Kiewit/Cashman Joint Venture, or PKC, a joint venture in which Perini holds a 56% interest and is the managing partner, is currently pursuing a series of claims for additional contract time and/or compensation against the Massachusetts Highway Department, or MHD, for work performed by PKC on a portion of the Central Artery/Tunnel 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, or DRB, which consists of three construction experts chosen by the parties. To date, the various DRB panels have issued seven awards and several interim decisions on PKC’s claims. The second panel (the “Second DRB”) has ruled on a binding basis that PKC is entitled to five compensation awards, less credits, totaling $57.2 million for delays, impacts and inefficiencies caused by MHD to certain of PKC’s work. The first three such awards, totaling $34.5 million, have been confirmed by the Superior Court and were not appealed. The other two awards, totaling $22.7 million, were confirmed by the Superior Court in January 2009 and may be appealed by MHD. The January 2009 Superior Court decision also held that PKC was entitled to post-award, pre-judgment interest on those two awards, albeit at a lower rate than awarded by the Second DRB.
To date, the current DRB panel (the “Third DRB”) has made two awards. The first is an award to PKC in the amount of $50.7 million for further delays, impacts and inefficiencies. Of that total award, $41.1 million was issued as a binding arbitration award, and the remaining $9.6 million was issued as a non-binding recommendation. The second award is in the amount of $5.8 million for delay damages. Of that amount, $3.3 million was issued as a binding arbitration award, and $2.5 million was issued as a non-binding recommendation. MHD has appealed both awards.
91
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[9] Contingencies and Commitments (continued)
(b) Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter (continued)
The Third DRB has also issued three interim decisions. The first interim decision held that PKC’s claim for delays, on which it later issued an award, is not barred or limited by the 10% markups for overhead and profit on change orders. The second interim decision held that the date of the project’s substantial completion, for purposes of calculating any liquidated damages, is August 23, 2003. Most recently, a third interim decision was issued in which the Third DRB decided which portions of PKC’s claims are subject to binding arbitration.
It is PKC’s position that the remaining claims to be decided by the DRB on a binding basis have an anticipated value of approximately $30 million. MHD disputes that the remaining claims before the DRB may be decided on a binding basis. Hearings before the DRB are scheduled to occur throughout 2009 and into 2010.
Management has made an estimate of the total anticipated cost recovery on this project and it is included in revenue recorded to date. To the extent new facts become known or the final cost recovery included in the claim settlement varies from this estimate, the impact of the change will be reflected in the financial statements at that time.
(c) Investigation by U.S. Attorney for Eastern District of New York
In 2001, the Company received a grand jury subpoena for documents in connection with an investigation by the U.S. Attorney’s Office for the Eastern District of New York. The investigation concerns contracting between the Company’s civil division and disadvantaged, minority, and women-owned businesses in the New York City area construction industry. The Company has cooperated with the U. S. Attorneys Office in the investigation and produced documents pursuant to the subpoena in 2001 and 2002. In August 2006 and May 2007, the Company received additional grand jury subpoenas for documents in connection with the same investigation. The Company subsequently produced documents pursuant to those subpoenas, and continues to cooperate in the investigation. In December 2008, the Company was informed by the U.S. Attorney’s Office that a determination had been made not to bring any criminal charges against the Company in connection with the investigation, and that the matter would be best resolved by a purely civil settlement. The Company and the U.S. Attorney’s Office are currently negotiating a civil settlement agreement that will resolve all outstanding allegations relating to the Company and its civil division. On January 13, 2009, an indictment stemming from the investigation was unsealed in the Eastern District of New York. The indictment alleges fraud charges against two former employees of the Company – a former president of the civil division and a former procurement manager in the civil division. Both of these employees left the Company nearly two years ago, and neither is currently associated with Perini.
The Company recorded a charge in 2007 with respect to this matter which materially affected the operating results of the civil segment. Since this matter has not been settled, the potential for a further charge (or credit) exists; however, management believes that the amount of such further charge or credit, if any, will not be material to the operating results of the Company or to the civil segment.
(d) Long Island Expressway/Cross Island Parkway Matter |
The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange for the New York State Department of Transportation (the “NYSDOT”). The $130 million project (the “Project”) included the complete reconstruction and/or new construction of fourteen bridges and numerous retaining and barrier walls; reconfiguration of the existing interchange with the addition of three flyover bridges; widening and resurfacing of three miles of highway; and a substantial amount of related work. The Company substantially completed the Project in January 2004, and its work on the Project was accepted by the NYSDOT as finally complete in February 2006.
92
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[9] Contingencies and Commitments (continued)
(d) Long Island Expressway/Cross Island Parkway Matter | (continued) |
Because of 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, the Company suffered impacts involving every structure. As a result, the Company incurred significant additional costs in completing its work and suffered a significantly extended Project schedule.
The initial Project schedule contemplated substantial completion in 28 months from the Project commencement in September 2000. Ultimately, the time for substantial completion was extended by the NYSDOT by 460 days. While the Project was under construction, the NYSDOT made $8.5 million of payments to the Company as additional compensation for its extended overhead costs.
The Company sought approximately $33 million of additional relief from the NYSDOT for the delay and extra work it experienced. The NYSDOT, however, declined to grant the Company any further relief. Moreover, the NYSDOT stated it will take an adjustment of approximately $2.5 million of the $8.5 million it previously paid to the Company for its extended overhead costs. Since the NYSDOT has accepted the Company’s work as complete, it must close out the Project contract. The Company is actively pursuing the closeout of this Contract with NYSDOT and hopes to achieve the same within the next few months.
After the closeout of the Project contract by the NYSDOT, the Company had intended to file a formal claim with the NYSDOT for the delay and extra work it experienced, as well as for appropriate portions of the adjustment taken by the NYSDOT to the amounts previously paid to the Company for its extended overhead costs, as a condition precedent to filing an action in the New York Court of Claims. However, as a result of a meeting with the NYSDOT on January 26, 2009, the NYSDOT has indicated a willingness to engage in settlement negotiations to resolve all claims.
Management has made an estimate of the total anticipated cost recovery on the Project and it is included in revenue recorded to date. To the extent new facts become known or the final cost recovery included in the claim settlement varies from this estimate, the impact of the change will be reflected in the financial statements at that time.
(e) The Cosmopolitan Resort and Casino Matter
The Company is engaged in the construction of the Cosmopolitan Resort and Casino, a mixed-use casino/hotel development project in Las Vegas, Nevada, (the “Project”). On January 16, 2008, Deutsche Bank AG (the “Bank”) delivered a notice of loan default to Cosmo, Senior Borrower LLC (“Cosmo”), then the Owner/Developer of the Project. Subsequently, the Bank foreclosed against the property and, as of August 29, 2008, Nevada Property 1 LLC (“NP1”) acquired title to the Project. Subsequently, NP1 notified the Company that it elected to have the Company continue with the performance of the work, and that it assumed the obligations of Cosmo under the construction contract for the Project.
The Company has an interim commitment from the Bank under which the Bank continues to pay the Company for performing construction work on the Project on a monthly basis while NP1 finalizes its financing for future payments. The Bank has continued to renew its commitment monthly.
Construction work continues on the Project and all current amounts due the Company have been paid pursuant to the terms of the construction contract.
93
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[9] Contingencies and Commitments (continued)
(e) The Cosmopolitan Resort and Casino Matter (continued)
On August 14, 2008, the parties executed an amendment to the Project contract increasing the contract value and setting the guaranteed maximum price at approximately $2.3 billion for the Project. The Project currently is expected to be completed in 2010. As of December 31, 2008, approximately $915 million of work remained to be performed by the Company under the construction contract.
The ultimate financial impact of this matter, if any, is not yet determinable. Therefore, no provision for loss or contract profit reduction, if any, has been recorded in the financial statements.
(f) Queensridge
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. The subcontractors have brought claims against PBC and have filed liens on the property in the amount of approximately $25 million. PBC has also filed a lien on the property in the amount of $24 million, representing unpaid contract balances and additional work, which is subordinate to a pre-existing security interest of the lender as to all amounts over $11.2 million. Queensridge has alleged that Perini and the subcontractors are not due the amounts which were sought and that it has backcharges from incomplete and defective work. Through an action in the Clark County District Court in Nevada, PBC has asked the court to consolidate all of the claims into one proceeding and to compel Queensridge and the subcontractors to participate in binding arbitration of all of those claims per the requirements of the contract. The court has advised that it will not act on the Motion to Compel Arbitration until it rules on several other pending motions, including cross motions for spoliation. To date, efforts by the parties to settle the matter have not been successful.
Management has made an estimate of the total anticipated recovery on this project and it is included in revenues recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from this estimate, the impact of the change will be reflected in the financial statements at that time.
(g) Gaylord Hotel and Convention Center
In 2005, Gaylord National, LLC (“Gaylord”), as Owner, and Perini Building Company, Inc. (“PBC”) /Tompkins Builders, Joint Venture (“PTJV”), as Construction Manager, entered into a contract (“Contract”) to construct the Gaylord National Resort and Convention Center (the “Project”) in Maryland. PBC is the managing partner of the joint venture. The Project included 2000 hotel rooms, a spa, swimming pool, restaurants, a convention center and other meeting space, surface and structural parking, site work, a central utility plant and various other elements.
PTJV requested payments it alleged were due by Gaylord. Gaylord disputed payment of such amounts and set forth certain claims against PTJV.
On September 18, 2008, PTJV filed suit against Gaylord and a petition for a lien in the Circuit Court for Prince George’s County Maryland. On October 10, 2008, Gaylord filed a separate suit in the same court against PTJV seeking damages. Effective November 26, 2008, the parties reached a settlement. Gaylord agreed to pay PTJV $42 million to settle all claims of each party against the other as of the settlement date. PTJV agreed to perform additional punchlist and related work valued at $3 million. PTJV also agreed to pay all subcontractors and defend all claims and lien actions by them relating to the Project.
94
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[9] Contingencies and Commitments (continued)
(g) Gaylord Hotel and Convention Center (continued)
PTJV expects to close out most subcontracts in the first quarter of 2009. Resolution of the issues remaining with six subcontractors, including PTJV’s claim of approximately $3.8 million against Banker Steel, Company, LLC, may require mediation and/or arbitration. A mediation with Pierce Associates, Inc. is scheduled for March, 2009 with an arbitration, if necessary, to be held in September of 2009.
Management has made an estimate of the total net anticipated recovery on this project and it is included in revenues recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from this estimate, the impact of the change will be reflected in the financial statements at that time.
(h) 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 project has been completed.
The project experienced significant delays, impacts and inefficiencies which TSP maintains were the result of Owner caused delays and design deficiencies. TSP has submitted a claim to the Owner that includes a delay claim which, under the Contract between TSP and the Owner, is compensable at the rate of $25,000 per day, and a labor and material escalation claim in the amount of $800,000.
In addition, TSP’s subcontractors have submitted various claims, which TSP forwarded to the Owner as pass-through claims to the Owner. Some subcontractors have filed lawsuits to enforce bond, stop notice and contract rights. Other subcontractors are anticipated to file lawsuits before expiration of applicable statutes of limitation. With respect to subcontractor lawsuits, TSP has in turn, filed indemnity claims against the Owner. Pursuant to the provisions of TSP’s subcontract agreements with its subcontractors, TSP is not responsible to pay subcontractors for Owner-caused damages.
The Owner currently is auditing the books and records of TSP and its subcontractors. Global claims negotiations are now scheduled for May 2009.
(i) Shareholder Litigation
(1) Weitman v. Tutor, et al Matter
On June 19, 2008, an individual named Nina Weitman filed a lawsuit in Superior Court of Middlesex County, Massachusetts, (Weitman v. Tutor, et al., (Massachusetts Superior Court, Middlesex County, No. 08-2351) allegedly on behalf of herself and other shareholders of Perini Corporation (“Perini”), against Ronald N. Tutor, Robert Band, Raymond R. Oneglia, Michael R. Klein, William W. Brittain, Jr., Robert A. Kennedy, Peter Arkley and Robert L. Miller (collectively, the “Individual Defendants”); Perini Corporation itself; and Tutor-Saliba Corporation (“Tutor-Saliba”). Ms. Weitman reportedly owns seventeen (17) shares of Perini Corporation common stock. The complaint alleged generally that the Individual Defendants breached their fiduciary duties to Perini by agreeing to enter into the Merger Agreement with Tutor-Saliba. Specifically, the complaint alleged: that the proxy statement related to, among other things, the meeting of the Perini shareholders to approve the merger, did not provide shareholders with enough information regarding the merger; that the exchange ratio in the Merger Agreement was not fair to the Perini shareholders; and that Perini’s board of directors allegedly breached its fiduciary duties by, among other things, allegedly failing to
95
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[9] Contingencies and Commitments (continued)
(i) Shareholder Litigation (continued)
(1) Weitman v. Tutor, et al Matter (continued)
examine strategic alternatives to the merger. The complaint sought, among other forms of relief, certification of the case as a class action, injunctive relief to enjoin the proposed merger, rescission in the event that the merger is consummated before a judgment in the case is entered, and damages.
The plaintiff had filed a motion seeking expedited procedures for its lawsuit. On August 13, 2008, the Superior Court issued an order denying Plaintiff’s motion for expedited procedures. Plaintiff did not file a motion to enjoin the Merger, which was completed on September 8, 2008.
In the Superior Court, Perini had moved to dismiss the complaint as to Perini and Tutor-Saliba. On July 31, 2008, rather than responding to Perini’s and Tutor-Saliba’s motions to dismiss, plaintiff filed an Amended Complaint alleging new claims for aiding and abetting breach of fiduciary duties and conspiracy, and naming Trifecta Acquisition LLC as a new defendant. The defendants subsequently removed the case to the United States District Court for the District of Massachusetts. Plaintiff moved to remand the case to Massachusetts Superior Court, and the defendants filed cross motions to dismiss that they initially filed in that Court. On December 3, 2008, the District Court remanded the case to Middlesex County Superior Court. Defendants have renewed their motions to dismiss, and the court has scheduled a hearing on these motions for February 27, 2009.
(2) Isham and Rollman Securities Litigation Matters
Two putative class actions have been filed in the U.S. District Court for the District of Massachusetts on behalf of individuals who purchased Perini stock between November 2, 2006 and January 17, 2008, alleging securities fraud violations against Perini and company executives Ronald N. Tutor, Robert Band, Michael E. Ciskey and Kenneth R. Burk (collectively, the “Isham/Rollman Individual Defendants”). The first lawsuit was filed on August 18, 2008, by an individual named William B. Isham. On September 11, 2008, an individual named Marion Rollman filed the second lawsuit.
In both cases, the plaintiffs claim that Perini and the Isham/Rollman Individual Defendants violated sections 10(b) and 20(a) of the 1934 Exchange Act, as well as the SEC's Rule 10b-5. The complaints allege generally that the defendants purportedly made material misrepresentations or omissions in press releases and SEC filings regarding the future prospects for Las Vegas construction projects. The plaintiffs claim that the alleged misrepresentations or omissions had the effect of artificially inflating the value of Perini's stock. Plaintiffs further allege that stock sales by the Isham/Rollman Individual Defendants prior to disclosures related to the developer of one of the Las Vegas projects support the claims that the defendants misrepresented or omitted material facts regarding the future prospects of these projects. Plaintiffs seek certification of the matter as a class action, and damages allegedly incurred by Perini shareholders who had purchased stock during the putative class period. Scheduling orders have not yet been entered in these cases. On October 20, 2008, the two pension funds, the Iron Workers District Council, Southern Ohio & Vicinity Pension Trust and the Operating Engineers Construction Industry and Miscellaneous Pension Fund moved to consolidate the two cases and to be appointed lead plaintiff under the Private Securities Litigation Reform Act (PSLRA). The court granted that motion on December 10, 2008. The parties agreed to a stipulated scheduling order, which provides that plaintiffs are to file a consolidated amended complaint by February 9,
96
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[9] Contingencies and Commitments (continued)
(i) Shareholder Litigation (continued)
(2) Isham and Rollman Securities Litigation Matters (continued)
2009 and Defendants are to file any motions to dismiss by March 26, 2009. The consolidated amended complaint repeats the allegations and counts from the initial complaints, while adding additional factual allegations regarding financial difficulties with The Cosmopolitan Resort and Casino project in Las Vegas.
(3) Adams Derivative Lawsuit
On October 7, 2008, an individual named Kathy Adams, allegedly derivatively on behalf of Perini Corporation, filed a suit in Middlesex County, Massachusetts, Superior Court (Adams v. Tutor, et al., (Massachusetts Superior Court, Middlesex County, No. 08-3740)), against defendants Ronald N. Tutor, Willard W. Brittain, Jr., Michael Klein, Robert A. Kennedy, Raymond R. Oneglia, Robert L. Miller, Peter Arkley, Robert Band and C.L. Max Nikias, (collectively, the “Adams Individual Defendants”) as well as Perini itself as a nominal defendant. Adams did not make a demand on the Board of Directors before filing this derivative lawsuit. On November 14, 2008, Adams voluntarily dismissed her case without prejudice. Adams then sent Perini’s board of directors a letter demanding that the board commence an investigation of potential claims against the defendants for alleged breaches of their fiduciary duties owed to Perini resulting from alleged failures to disclose purported problems with the company’s Las Vegas construction projects. The board is considering this claim.
[10] 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 September 8, 2008, the Company acquired all of the outstanding shares of Tutor-Saliba, a privately-held California-based construction company, 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.
The value of the Company’s common stock issued in the merger was approximately $881.5 million, equal to $38.35 per share, which was based on the average of the closing market prices of the Company’s common stock for the period beginning three trading days before and ending three trading days after April 2, 2008, the date on which the merger agreement was publicly announced. See Note 2 for additional information.
(b) Common Stock Repurchase Program
On November 13, 2008, the Company’s Board of Directors authorized a program to repurchase up to $100.0 million of the Company’s common stock over the then following 12 months. Under the terms of the program, the Company may repurchase shares in open market purchases or through privately negotiated transactions. The Company expects to use cash on hand to fund 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. The timing and amount of any repurchase will be based on management’s evaluation of market conditions, business considerations and other factors. Repurchases also may be made under 10b5-1 plans, which would permit common stock to be purchased when the Company would otherwise be prohibited from doing so under insider trading laws.
97
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[10] Capital Stock (continued)
(b) Common Stock Repurchase Program (continued)
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 2008, the Company repurchased 2,003,398 shares under the program with an aggregate purchase price of $31.8 million.
(c) Stock Purchase Warrants
In connection with an amended credit agreement effective January 17, 1997, certain banks received stock purchase warrants to purchase up to 420,000 shares of the Company’s common stock at a purchase price of $8.30 per share, subject to certain anti-dilution adjustments in the event of certain distributions and other corporate events, at any time during the ten-year period ending January 17, 2007. Prior to 2006, 333,312 warrants were exercised. The remaining balance of 86,688 warrants outstanding as of December 31, 2006 was exercised on January 12, 2007.
(d) Preferred Stock
The Company is authorized to issue 1,000,000 shares of preferred stock. On May 17, 2006, the Company redeemed all remaining outstanding Depositary Shares in accordance with the terms of the $21.25 Preferred Stock at a price of $25.00 per Depositary Share plus accrued and unpaid dividends to that date, for an aggregate amount of approximately $8.8 million. At December 31, 2008 and 2007, there were no preferred shares issued and outstanding.
[11] 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 $12.1 million, $14.4 million and $17.1 million in 2008, 2007 and 2006, 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 $4.6 million, $5.4 million and $6.5 million in 2008, 2007 and 2006, respectively, have been recognized relating to these awards.
A total of 1,986,537 shares of common stock are available for future grant under the Plan at December 31, 2008. |
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. During 2008, 2007 and 2006, the Company granted 1,122,500, 50,000 and 1,295,000 restricted stock awards, respectively, to eligible participants. The awards granted in 2008, 2007 and 2006 had a weighted-average grant date fair value of $22.79, $53.22 and $31.44, respectively. The grant date fair value is determined based on the closing price of the Company’s common stock on the date of grant.
98
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[11] Stock-Based Compensation (continued)
(a) 2004 Stock Option and Incentive Plan (continued)
The Company recognized compensation expense of $11.6 million, $14.4 million and $17.1 million in 2008, 2007 and 2006, respectively, related to the restricted stock awards which is included in “General and Administrative Expenses.” As of December 31, 2008, there was $26.4 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 4.2 years.
A summary of restricted stock awards activity during the year ended December 31, 2008 is as follows:
| | | Weighted-Average | | Aggregate |
| Number | | Grant Date | | Intrinsic |
| of Shares | | Fair Value | | Value |
| | | | | |
Unvested, January 1, 2008 | 1,030,000 | | $32.47 | | $ 42,662,600 |
Granted | 1,122,500 | | 22.79 | | 25,577,775 |
Vested | (354,999) | | 33.28 | | 11,813,218 |
Unvested, December 31, 2008 | 1,797,501 | | $26.26 | | $ 42,025,573 |
Of the unvested awards at December 31, 2008, approximately 205,000 awards vest in January 2009, 535,000 awards vest in January 2010, 722,500 awards vest in September 2013 and the balance generally vests in November 2013. Approximately 673,334 of the unvested awards will vest based on the satisfaction of service requirements and 1,124,167 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 2007 and 2006 was $5.2 million and $4.7 million, respectively.
Stock Options
During 2008, the Company granted 805,000 stock options under the Plan to eligible participants. The exercise price of the options was equal to the closing price of the Company’s common stock on the date of grant. The options vest and become exercisable on the fifth anniversary of the grant date upon completion of a service requirement. The options generally expire ten years from the date of grant.
The Company recognized compensation expense of $527,000 in 2008 related to these stock option grants. As of December 31, 2008, there was $9.0 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 4.75 years.
99
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[11] Stock-Based Compensation (continued)
(a) 2004 Stock Option and Incentive Plan (continued)
A summary of stock option activity under the Plan during the year ended December 31, 2008 is as follows:
| | | Weighted-Average | | Weighted-Average |
| Number | | Grant Date | | Exercise |
| of Shares | | Fair Value | | Price |
| | | | | |
Outstanding, January 1, 2008 | - | | $ - | | $ - |
Granted | 805,000 | | 11.78 | | 20.68 |
Outstanding, December 31, 2008 | 805,000 | | $11.78 | | $20.68 |
The outstanding options had an intrinsic value of approximately $2.2 million and a weighted-average remaining contractual life of 9.88 years at December 31, 2008. None of the outstanding options were exercisable at December 31, 2008.
The fair value of the 2008 awards was determined using the Black-Scholes option-pricing model using the following key assumptions:
Range of risk-free interest rates | 2.76% – 3.52% |
Expected life of options | 7.5 years |
Range of expected volatility of underlying stock | 49.53% - 52.76% |
Expected quarterly dividends (per share) | $0.00 |
(b) Special Equity Incentive Plan
The Company is 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 “Incentive Plan”). Options are granted at not less than the fair market value on the date of grant, as defined, and generally expire 10 years from the date of grant. No options were granted under the Incentive Plan in 2008, 2007 and 2006. As of December 31, 2008, 36,500 options were outstanding and exercisable at a weighted-average exercise price of $3.97. The outstanding options had an intrinsic value of approximately $708,000 and a weighted-average remaining contractual life of 1.62 years at December 31, 2008. No options were exercised in 2008. The intrinsic value of options exercised in 2007 and 2006 was $9.3 million and $5.4 million, respectively. A total of 195,634 shares of common stock are available for future grant under the Incentive Plan at December 31, 2008.
100
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[12] Unaudited Quarterly Financial Data
The following table sets forth unaudited quarterly financial data for the years ended December 31, 2008 and 2007
(in thousands, except per share amounts):
| 2008 by Quarter |
| 1st | | 2nd | | 3rd | | 4th (a) |
Revenues | $ 1,256,336 | | $ 1,388,387 | | $ 1,412,635 | | $ 1,602,928 |
Gross profit | 66,562 | | 70,998 | | 85,507 | | 110,163 |
Net income (loss) | 25,153 | | 28,557 | | 34,106 | | (162,956) |
| | | | | | | |
Basic earnings (loss) per common share | $ 0.93 | | $ 1.05 | | $ 1.03 | | $ (3.29) |
| | | | | | | |
Diluted earnings (loss) per common share | $ 0.91 | | $ 1.03 | | $ 1.01 | | $ (3.29) |
| | | | | | | |
| 2007 by Quarter |
| 1st | | 2nd | | 3rd | | 4th |
Revenues | $ 987,356 | | $ 1,151,620 | | $ 1,242,666 | | $ 1,246,716 |
Gross profit | 57,897 | | 64,902 | | 63,895 | | 62,200 |
Net income | 22,653 | | 27,578 | | 24,011 | | 22,872 |
| | | | | | | |
Basic earnings per common share | $ 0.85 | | $ 1.03 | | $ 0.89 | | $ 0.85 |
| | | | | | | |
Diluted earnings per common share | $ 0.84 | | $ 1.01 | | $ 0.87 | | $ 0.83 |
(a) The net loss in the fourth quarter of 2008 includes an after-tax impairment charge of $202.8 million, or $4.08 per diluted share, relating to goodwill and certain intangible assets.
[13] Business Segments
During the years 2006 through 2008, the Company’s chief operating decision making group consisted of the Chairman and Chief Executive Officer, the President and Chief Operating Officer who is also the President of Perini Management Services, and the Chairman and Chief Executive Officer of Perini Building Company. This group 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.
101
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[13] Business Segments (continued)
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, 2008 (in thousands):
2008 | Reportable Segments | | | | |
| | | | | Management | | | | | | Consolidated |
| Building | | Civil | | Services | | Totals | | Corporate | | Total |
| | | | | | | | | | | |
Revenues | $ 5,146,563 | | $ 310,722 | | $ 203,001 | | $ 5,660,286 | | $ - | | $ 5,660,286 |
Income 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 | 1,961,476 | | 384,612 | | 178,096 | | 2,524,184 | | 548,894 | (b) | 3,073,078 |
Capital Expenditures | 20,490 | | 18,359 | | 2,309 | | 41,158 | | 53,050 | | 94,208 |
| | | | | | | | | | | |
2007 | Reportable Segments | | | | |
| | | | | Management | | | | | | Consolidated |
| Building | | Civil | | Services | | Totals | | Corporate | | Total |
| | | | | | | | | | | |
Revenues | $ 4,248,814 | | $ 234,778 | | $ 144,766 | | $ 4,628,358 | | $ - | | $ 4,628,358 |
Income (Loss) from | | | | | | | | | | | |
Construction Operations | 127,426 | | (12,991) | | 49,402 | | 163,837 | | (22,856) | (a) | 140,981 |
Assets | 995,303 | | 181,798 | | 23,697 | | 1,200,798 | | 453,317 | (b) | 1,654,115 |
Capital Expenditures | 19,111 | | 4,504 | | 270 | | 23,885 | | - | | 23,885 |
| | | | | | | | | | | |
2006 | Reportable Segments | | | | |
| | | | | Management | | | | | | Consolidated |
| Building | | Civil | | Services | | Totals | | Corporate | | Total |
| | | | | | | | | | | |
Revenues | $ 2,515,051 | | $ 281,137 | | $ 246,651 | | $ 3,042,839 | | $ - | | $ 3,042,839 |
Income from | | | | | | | | | | | |
Construction Operations | 59,296 | | 1,772 | | 34,280 | | 95,348 | | (24,469) | (a) | 70,879 |
Assets | 717,467 | | 253,896 | | 27,430 | | 998,793 | | 197,199 | (b) | 1,195,992 |
Capital Expenditures | 17,850 | | 3,453 | | 223 | | 21,526 | | - | | 21,526 |
(a) | Consists of corporate general and administrative expenses. |
(b) | Consists principally of cash and cash equivalents, corporate aircraft, net deferred tax asset, land held for sale and other investments available for general corporate purposes. |
Revenues from the Project CityCenter project and other projects in Las Vegas, Nevada for MGM MIRAGE in the building segment totaled approximately $2,263 million (or 40% of total revenues in 2008), $1,495 million (or 32%
102
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[13] Business Segments (continued)
of total revenues) in 2007, and approximately $452 million (or 15% of total revenues) in 2006. Revenues from various healthcare-related projects in California for Kaiser Foundation Health Plan, Inc. in the building segment totaled approximately $310 million (or 10% of total revenues) in 2006.
Information concerning principal geographic areas is as follows (in thousands):
| Revenues |
| 2008 | | 2007 | | 2006 |
| | | | | |
United States | $ 5,464,944 | | $ 4,494,976 | | $ 2,887,755 |
Foreign and U.S. Territories | 195,342 | | 133,382 | | 155,084 |
| | | | | |
Total | $ 5,660,286 | | $ 4,628,358 | | $ 3,042,839 |
| | | | | |
| | | | | |
| Income from Construction Operations |
| | | | | |
| 2008 | | 2007 | | 2006 |
| | | | | |
United States | $ 181,739 | | $ 114,986 | | $ 66,022 |
Foreign and U.S. Territories | 39,632 | | 48,851 | | 29,326 |
Corporate | (22,139) | | (22,856) | | (24,469) |
Goodwill and intangible asset impairment | (224,478) | | - | | - |
| | | | | |
Total | $ (25,246) | | $ 140,981 | | $ 70,879 |
| | | | | |
| Assets |
| | | | | |
| 2008 | | 2007 | | 2006 |
| | | | | |
United States | $ 2,934,381 | | $ 1,654,115 | | $ 1,195,992 |
Foreign and U.S. Territories | 138,697 | | - | | - |
| | | | | |
Total | $ 3,073,078 | | $ 1,654,115 | | $ 1,195,992 |
Income from construction operations has been allocated geographically based on the location of the job site.
[14] Related Party Transactions
Prior to the Company’s merger with Tutor-Saliba (see Note 2) and as a condition to an investor group’s acquisition of shares of the Company’s Series B Preferred Stock for an aggregate of $30 million, which was approved by the stockholders in January 1997, the Company entered into an agreement with Tutor-Saliba and Ronald N. Tutor, Chief Executive Officer and primary beneficial owner of Tutor-Saliba, to provide certain management services, as defined.
103
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[14] Related Party Transactions (continued)
Tutor-Saliba participated in joint ventures with the Company before the agreement and continued to participate in joint ventures with the Company after the agreement. The Company’s share of revenue from these joint ventures amounted to $61.3 million (or 1.1%), $70.6 million (or 1.5%) and $41.4 million (or 1.4%) in 2008 prior to the merger with Tutor-Saliba, 2007 and 2006, respectively. In addition, in January 2008, Tutor-Saliba acquired a plumbing contractor which had subcontracts with the Company totaling approximately $63.7 million. The management agreement was generally renewed annually by the Compensation Committee of the Company’s Board of Directors, which consists entirely of independent directors, under the same basic terms and conditions as the initial agreement except that the amount of the annual fee payable thereunder to Tutor-Saliba was increased effective March 15, 2006, from $800,000 to $900,000, and effective March 14, 2007, from $900,000 to $1,000,000. Effective December 1, 2001, Mr. Tutor was included as a participant in the Company’s incentive compensation plan. Since January 17, 1997, Mr. Tutor has been a member of the Company’s Board of Directors and an officer of Perini. Effective July 1, 1999, Mr. Tutor was elected Chairman of the Board of Directors and effective March 29, 2000 was elected Chairman and Chief Executive Officer. Compensation for his management services consisted of (i) payments of $879,000 to Tutor-Saliba for the year ended December 31, 2006, $979,000 for the year ended December 31, 2007, and $688,900 for the eight months ended August 31, 2008 prior to the merger with Tutor-Saliba; (ii) stock options and restricted stock awards granted to Mr. Tutor; and (iii) incentive compensation payable to Tutor-Saliba of $1,679,000 in 2006, $977,000 in 2007, and $1,513,000 in 2008. Stock options for 1,225,000 shares of common stock were granted to Mr. Tutor between January, 1997 and March, 2000. All of the stock options were granted at or above the fair market value price per share on the respective dates of grant. All of the stock options were exercised in 2004.
On April 5, 2006, Mr. Tutor was granted 450,000 restricted stock units under the Perini Corporation 2004 Stock Option and Incentive Plan, subject to vesting, as described in Note 11. Upon the satisfaction of the service and/or performance-based vesting requirements, the Company issued to Mr. Tutor 150,000 shares of common stock on June 30, 2006, 2007 and 2008 of each year. The grant date fair value of the restricted stock awards was $14.2 million which was recorded as expense over the vesting period. Accordingly, expense related to these restricted stock awards of $1.1 million, $9.1 million and $4.0 million was recorded in 2008, 2007 and 2006, respectively.
The Company issued to Mr. Tutor 75,000 shares of common stock on June 30, 2005 and 75,000 additional shares of common stock to Mr. Tutor on June 30, 2006 based on the completion of certain service requirements. The grant date fair value of these restricted stock awards was $2.5 million which was recorded as expense over the vesting period. Expense related to these restricted stock awards of $0.4 million was recorded in 2006.
The Company leases certain facilities from Mr. Tutor and an affiliate owned by Mr. Tutor under non-cancelable operating lease agreements with monthly payments of $140,000, which increase at 3% per annum beginning July 1, 2007 and expiring in July 31, 2016. Lease expense for these leases recorded on a straight-line basis was $0.7 million for the four months ended December 31, 2008.
In the fourth quarter of 2008, the Company repaid $58.5 million of notes payable due to the former Tutor-Saliba shareholders which was assumed in the merger. Approximately $55.9 million of the total was paid to the two trusts controlled by Mr. Tutor.
An affiliate of Mr. Tutor has an outstanding note payable to a Company joint venture, of which the Company’s proportionate share is $0.2 million as of December 31, 2008
104
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Years Ended December 31, 2008, 2007 and 2006 (continued)
[14] Related Party Transactions (continued)
The investors that provided $40 million of new equity in the Company on March 29, 2000 consisted of Tutor-Saliba (see above), O&G Industries, Inc. (“O&G”), a participant in certain construction joint ventures with the Company, and National Union Fire Insurance Company of Pittsburgh, Pa., a wholly owned subsidiary of American International Group, Inc. (“AIG”), one of the Company’s sureties and a provider of insurance and insurance related services to the Company. These investors participated in a secondary public stock offering which was completed in December 2005. In addition, in 2005 Tutor-Saliba exercised its call right under an existing shareholders’ agreement to purchase all of the 2,352,941 shares owned by AIG at a predetermined rate, as defined. The cumulative holdings of each of the investors as of December 31, 2008, 2007 and 2006 were as follows:
| | Number of Common Shares |
| | Tutor-Saliba | | O&G |
Balance at December 31, 2006 | | 3,035,229 | | 1,652,941 |
Sold | | (3,035,229) | | (1,052,941) |
Balance at December 31, 2007 and 2008 | | - | | 600,000 |
| | | | |
Percentage of total common shares outstanding | | 0.00% | | 1.24% |
O&G participates in joint ventures with the Company, the Company’s share of which contributed $6.1 million (or less than 1%), $3.1 million (or less than 1%) and $37.9 million (or 1.2%) to the Company’s consolidated revenues in 2008, 2007 and 2006, respectively.
[15] Subsequent Event
On January 15, 2009, the Company completed the acquisition of Keating Building Corporation, a Philadelphia-based privately held construction, construction management and design-build company. Under the terms of the transaction, the Company acquired 100% of Keating’s common stock for $43.0 million in cash plus an amount to be determined based on fiscal 2009 through 2011 operating results, not to exceed $9.0 million.
Keating is licensed to provide construction services in Pennsylvania, Connecticut, New Jersey, Delaware, Maryland, Florida, Virginia, Texas and the District of Columbia, and is one of the largest general building contractors in its region of operation.
Keating was acquired because the Company believes Keating is a strong strategic fit enabling the Company to expand its building construction market presence in the Eastern half of the United States, including the important Northeast and Mid-Atlantic regions, and to realize significant synergies from the acquisition by deploying Keating’s resources in the regional gaming, hospitality and public works building markets in the Eastern United States.
105
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Perini Corporation
Framingham, Massachusetts
We have audited the accompanying consolidated balance sheets of Perini Corporation (the “Company”) as of December 31, 2008 and 2007, and the related consolidated statements of operations, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 2008. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the 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 the Company as of December 31, 2008 and 2007, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2008, 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, 2008, 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 February 27, 2009 expressed an unqualified opinion on the Company's internal control over financial reporting.
/s/Deloitte & Touche LLP
Boston, Massachusetts
February 27, 2009
106
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. | Plan of Acquisition, Reorganization, Arrangement, Liquidation or Succession |
| | |
| 2.1 | Agreement and Plan of Merger, dated as of April 2, 2008, by and among 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). |
| | |
| 2.2 | Amendment No. 1 to the Agreement and Plan of Merger, dated as of May 28, 2008, by and among 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). |
| | |
Exhibit 3. | Articles of Incorporation and By-laws |
| | |
| 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). |
| | |
| 3.2 | Articles of Amendment to the Restated Articles of Organization of the Perini Corporation (incorporated by reference to Exhibit 3.2 to Form S-1 (File No. 333-111338) filed on December 19, 2003). |
| | |
| 3.3 | Articles of Amendment to the Articles of Organization of Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on April 12, 2000). |
| | |
| 3.4 | Articles of Amendment to the Articles of Organization of Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on September 11, 2008.) |
| | |
| 3.5 | Amended and Restated By-laws of Perini Corporation (incorporated by reference to Exhibit 3.2 of Form 8-K (File No. 001-06314) filed on February 14, 1997). |
| | |
| 3.6 | Amendment No. 1 to the Amended and Restated By-laws of Perini Corporation (incorporated by reference to Exhibit 3.2 to Form 8-K filed on April 12, 2000). |
| | |
| 3.7 | Amendment No. 2 to the Amended and Restated By-laws of Perini Corporation (incorporated by reference to Exhibit 3.7 to Form 10-Q filed on November 7, 2008.) |
| | |
Exhibit 4. | Instruments Defining the Rights of Security Holders, Including Indentures |
| | |
| 4.1 | Registration Rights Agreement by and among Perini Corporation, Tutor-Saliba Corporation, Ronald N. Tutor, O&G Industries, Inc. and National Union Fire Insurance Company of Pittsburgh, Pa., BLUM Capital Partners, L.P., PB Capital Partners, L.P., The Common Fund for Non-Profit Organizations, and The Union Labor Life Insurance Company, acting on behalf of its Separate Account P, dated as of March 29, 2000 (incorporated by reference to Exhibit 4.1 to Form 8-K filed on April 12, 2000). |
107
Exhibit Index
(Continued)
| | |
| 4.2 | Letter Agreement by and among Perini Corporation, BLUM Capital Partners, L.P., PB Capital Partners, L.P. and The Common Fund for Non-Profit Organizations, dated as of December 1, 2003 (incorporated by reference to Exhibit 4.14 to Form S-1 (File No. 333-111338) filed on December 19, 2003). |
| | |
| 4.3 | Shareholders Agreement, dated April 2, 2008, by and among 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.) |
| | |
Exhibit 10. | Material Contracts |
| | |
| 10.1* | Perini Corporation Amended and Restated (2004) General Incentive Compensation Plan (incorporated by reference to Exhibit 10.1 to Amendment No. 2 to Form S-1 (File No. 333-111338) filed on March 8, 2004). |
| | |
| 10.2* | 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* | Special Equity Incentive Plan (incorporated by reference to Exhibit A to Perini Corporation’s Proxy Statement for the Annual Meeting of Stockholders dated April 19, 2000). |
| | |
| 10.4* | Perini Corporation 2004 Stock Option and Incentive Plan (incorporated by reference to Exhibit D to Perini Corporation’s Proxy Statement for the Annual Meeting of Stockholders dated April 20, 2004). |
| | |
| 10.5 | Promissory Note dated as of September 6, 2000 by and among Mt. Wayte Realty, LLC (a wholly owned subsidiary of Perini Corporation) and The Manufacturers Life Insurance Company (U.S.A.) (incorporated by reference to Exhibit 10.34 to Perini Corporation’s Quarterly Report on Form 10-Q for the period ended September 30, 2000 filed on November 6, 2000). |
| | |
| 10.6* | 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). |
| | | |
| 10.7* | Form of Restricted Stock Unit Award Agreement under the Perini Corporation 2004 Stock Option and Incentive Plan (incorporated by reference to Exhibit 10.24 to Perini Corporation’s Annual Report on Form 10-K for the year ended December 31, 2004 filed on March 4, 2005). | |
| | | |
108
Exhibit Index
(Continued)
| 10.8 | Letter Agreement by and among Perini Corporation, BLUM Capital Partners, L.P., PB Capital Partners, L.P., National Union Fire Insurance Company of Pittsburgh, Pa., The Union Labor Life Insurance Company, O&G Industries, Inc. and Tutor-Saliba Corporation, dated as of December 14, 2005 (incorporated by reference to Exhibit 10.28 to Post-Effective Amendment No. 4 to Form S-1 (File No. 333-117344) filed on December 14, 2005). |
| | |
| 10.9* | Restricted Stock Unit Award Agreement under the 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). |
| | |
| 10.10* | Employment Agreement, dated April 2, 2008, by and between Perini Corporation and Ronald N. Tutor (incorporated by reference to Exhibit 10.1 to Form 8-K filed on April 7, 2008.) |
| | |
| 10.11* | 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 8-K filed on December 23, 2008.) |
| | |
| 10.12 | Third Amended and Restated Credit Agreement dated as of September 8, 2008 among Perini Corporation, the subsidiaries of 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 field on September 12, 2008). |
| | |
| 10.13 | First Amendment dated February 23, 2009 to the Third Amended and Restated Credit Agreement among Perini Corporation, the subsidiaries of Perini identified therein, and Bank of America, N.A. and the other lenders that are parties thereto – filed herewith. |
| | |
Exhibit 21 | Subsidiaries of Perini Corporation - filed herewith. |
| | |
Exhibit 23 | Consent of Independent Registered Public Accounting Firm - filed herewith |
| | |
Exhibit 24 | Power of Attorney - filed herewith. |
| | |
Exhibit 31.1 | Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – filed herewith |
| |
Exhibit 31.2 | Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 – filed herewith. |
| |
Exhibit 32.1 | 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. |
| |
Exhibit 32.2 | 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.
109
