Revisions in Estimates

Our profit recognition related to construction contracts is based on estimates of costs to complete each project. These estimates can vary significantly in the normal course of business as projects progress, circumstances develop and evolve, and uncertainties are resolved. We recognize revenue associated with unapproved change orders and, effective in the first quarter of 2015, affirmative claims to the extent the related costs have been incurred, the amount can be reliably estimated and recovery is probable. Prior to 2015, we recognized revenue on affirmative claims when we had a signed agreement. See Note 1 for further discussion.

We recognize revisions to estimated total costs as soon as the obligation to perform is determined. When we experience significant changes in our estimates of costs to complete, we undergo a process that includes reviewing the nature of the changes to ensure that there are no material amounts that should have been recorded in a prior period rather than as a revision in estimates for the current period. In our review of these changes for the three months ended March 31, 2015 and 2014, we did not identify any amounts that should have been recorded in a prior period. We use the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. Under this method, revisions in estimates are accounted for in their entirety in the period of change. There can be no assurance that we will not experience future changes in circumstances or otherwise be required to revise our profitability estimates.

Revenue in an amount equal to cost incurred is recognized if there is not sufficient information to determine the estimated profit on the project with a reasonable level of certainty. The gross profit impact from projects that reached initial profit recognition is not included in the tables below. During the three months ended March 31, 2015 and 2014, the gross profit impact from projects that reached initial profit recognition was $7.6 million and $4.0 million, respectively.

Construction

There were three and two revisions in estimates that individually had an impact of $1.0 million or more on gross profit for the three months ended March 31, 2015 and 2014, respectively. The impact to gross profit during the three months ended March 31, 2015 was a $4.8 million increase, ranging from $1.0 million to $2.2 million, due to estimated cost recovery from claims. The impact to gross profit during the three months ended March 31, 2014 was a $3.5 million decrease, ranging from $1.3 million to $2.2 million, due to additional costs and lower productivity than originally anticipated.

Large Project Construction

The net changes in project profitability from revisions in estimates, both increases and decreases, that individually had an impact of $1.0 million or more on gross profit were a net decrease of $0.8 million and a net increase of $8.2 million for the three months ended March 31, 2015 and 2014, respectively. Amounts attributable to non-controlling interests were $0.5 million of the net decrease and $0.7 million of the net increase for the three months ended March 31, 2015 and 2014, respectively. The projects are summarized as follows:

Increases



		Three Months Ended March 31,
(dollars in millions)		2015		2014
Number of projects with upward estimate changes		2		5
Range of increase in gross profit from each project, net	$	1.1 - 1.9	$	1.3 - 7.9
Increase in project profitability	$	3.0	$	16.1

The increase during the three months ended March 31, 2015 was due to estimated cost recovery from claims. The increases during the three months ended March 31, 2014 were due to a claim settlement with a vendor and owner-directed scope changes.

Decreases



		Three Months Ended March 31,
(dollars in millions)		2015		2014
Number of projects with downward estimate changes		3		2
Range of reduction in gross profit from each project, net	$	1.1 - 1.3	$	3.4 - 4.5
Decrease in project profitability	$	3.8	$	7.9

The decreases during the three months ended March 31, 2015 and 2014 were due to additional costs and lower productivity than originally anticipated.