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EX-95 - EX-95 - TUTOR PERINI CORPtpc-20160630xex95.htm
EX-32.2 - EX-32.2 - TUTOR PERINI CORPtpc-20160630xex32_2.htm
EX-32.1 - EX-32.1 - TUTOR PERINI CORPtpc-20160630xex32_1.htm
EX-31.2 - EX-31.2 - TUTOR PERINI CORPtpc-20160630xex31_2.htm
EX-31.1 - EX-31.1 - TUTOR PERINI CORPtpc-20160630xex31_1.htm
EX-3.5 - EX-3.5 - TUTOR PERINI CORPtpc-20160630xex3_5.htm





UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549



FORM 10-Q



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



For the quarterly period ended June 30, 2016



OR



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



For the transition period from             to             



Commission File Number:  1-6314



Tutor Perini Corporation

(Exact name of registrant as specified in its charter)





 

 

MASSACHUSETTS

 

04-1717070

(State or other jurisdiction of
incorporation or organization)

 

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



15901 OLDEN STREET, SYLMAR, CALIFORNIA 91342-1093

(Address of principal executive offices)

(Zip code)



(818) 362-8391

(Registrant’s telephone number, including area code)





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



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



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



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





 

 

Large accelerated filer 

 

Accelerated filer 



 

 

Non-Accelerated filer 

 

Smaller reporting company 



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



The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at August 1, 2016 was 49,169,813.







 



 


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES



INDEX





 

 

 



 

 

Page Number

Part I.

Financial Information:

 



Item 1.

Financial Statements (Unaudited)

 



 

Condensed Consolidated  Statements of Operations for the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)

3



 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2016 and 2015 (Unaudited)



 

Condensed Consolidated Balance Sheets as of June 30, 2016 and December 31, 2015 (Unaudited)



 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2016 and 2015 (Unaudited)



 

Notes to the Condensed Consolidated Financial Statements

7-29 



Item 2.

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

30-36 



Item 3.

Quantitative and Qualitative Disclosures About Market Risk

36 



Item 4.

Controls and Procedures

36 

Part II.

Other Information:

 



Item 1.

Legal Proceedings

37 



Item 1A.

Risk Factors

37 



Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

37 



Item 3.

Defaults Upon Senior Securities

37 



Item 4.

Mine Safety Disclosures

37 



Item 5.

Other Information

37 



Item 6.

Exhibits

38 



Signatures

 

39 





2


 

PART I.  – FINANCIAL INFORMATION



Item 1. – Financial Statements



TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



UNAUDITED











 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(in thousands, except per share amounts)

2016

 

2015

 

2016

 

2015

REVENUE

$

1,308,130 

 

$

1,312,438 

 

$

2,393,499 

 

$

2,378,903 

COST OF OPERATIONS

 

(1,198,360)

 

 

(1,213,818)

 

 

(2,178,637)

 

 

(2,189,524)

GROSS PROFIT

 

109,770 

 

 

98,620 

 

 

214,862 

 

 

189,379 

General and administrative expenses

 

(60,941)

 

 

(67,739)

 

 

(125,911)

 

 

(138,414)

INCOME FROM CONSTRUCTION OPERATIONS

 

48,829 

 

 

30,881 

 

 

88,951 

 

 

50,965 

Other income (expense), net

 

2,485 

 

 

379 

 

 

3,166 

 

 

(97)

Interest expense

 

(15,534)

 

 

(11,268)

 

 

(29,614)

 

 

(22,671)

INCOME BEFORE INCOME TAXES

 

35,780 

 

 

19,992 

 

 

62,503 

 

 

28,197 

Provision for income taxes

 

(14,419)

 

 

(8,215)

 

 

(25,743)

 

 

(11,294)

NET INCOME

$

21,361 

 

$

11,777 

 

$

36,760 

 

$

16,903 



 

 

 

 

 

 

 

 

 

 

 

BASIC EARNINGS PER COMMON SHARE

$

0.43 

 

$

0.24 

 

$

0.75 

 

$

0.35 

DILUTED EARNINGS PER COMMON SHARE

$

0.43 

 

$

0.24 

 

$

0.74 

 

$

0.34 



 

 

 

 

 

 

 

 

 

 

 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

49,131 

 

 

49,028 

 

 

49,105 

 

 

48,890 

DILUTED

 

49,561 

 

 

49,828 

 

 

49,423 

 

 

49,688 





The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.





3


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME



UNAUDITED











 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(in thousands)

2016

 

2015

 

2016

 

2015

NET INCOME

$

21,361 

 

$

11,777 

 

$

36,760 

 

$

16,903 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE (LOSS) INCOME, NET OF TAX:

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

 

324 

 

 

 —

 

 

571 

 

 

 —

Foreign currency translation adjustment

 

(258)

 

 

(1,146)

 

 

672 

 

 

(1,734)

Unrealized loss in fair value of investments

 

(153)

 

 

(74)

 

 

(145)

 

 

(84)

Unrealized gain (loss) in fair value of interest rate swap

 

11 

 

 

60 

 

 

(24)

 

 

105 

Total other comprehensive (loss) income, net of tax

 

(76)

 

 

(1,160)

 

 

1,074 

 

 

(1,713)



 

 

 

 

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

$

21,285 

 

$

10,617 

 

$

37,834 

 

$

15,190 





The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 



4


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



UNAUDITED











 

 

 

 

 



 

 

 

 

 

(in thousands, except share and per share amounts)

June 30, 2016

 

December 31, 2015

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

$

93,622 

 

$

75,452 

Restricted cash

 

49,452 

 

 

45,853 

Accounts receivable, including retainage of $512,808 and $484,255

 

1,739,343 

 

 

1,473,615 

Costs and estimated earnings in excess of billings

 

811,406 

 

 

905,175 

Deferred income taxes

 

19,098 

 

 

26,306 

Other current assets

 

76,960 

 

 

108,844 

Total current assets

 

2,789,881 

 

 

2,635,245 

PROPERTY AND EQUIPMENT (net of accumulated depreciation

of $280,059 and $254,477)

 

507,395 

 

 

523,525 

GOODWILL

 

585,006 

 

 

585,006 

INTANGIBLE ASSETS, NET

 

94,768 

 

 

96,540 

OTHER ASSETS

 

218,535 

 

 

196,361 

TOTAL ASSETS

$

4,195,585 

 

$

4,036,677 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

$

120,256 

 

$

88,917 

Accounts payable, including retainage of $222,175 and $204,767

 

968,193 

 

 

937,464 

Billings in excess of costs and estimated earnings

 

325,290 

 

 

288,311 

Accrued expenses and other current liabilities

 

171,150 

 

 

159,016 

Total current liabilities

 

1,584,889 

 

 

1,473,708 

LONG-TERM DEBT, less current maturities (net of unamortized
discount and debt issuance cost of $63,297 and $6,697)

 

680,265 

 

 

728,767 

DEFERRED INCOME TAXES

 

296,728 

 

 

273,310 

OTHER LONG-TERM LIABILITIES

 

140,870 

 

 

140,665 

Total liabilities 

 

2,702,752 

 

 

2,616,450 



 

 

 

 

 

CONTINGENCIES AND COMMITMENTS (NOTE 6)

 

 

 

 

 



 

 

 

 

 

STOCKHOLDERS' EQUITY:

 

 

 

 

 

Preferred stock - authorized 1,000,000 shares ($1 par value), none issued

 

 —

 

 

 —

Common stock - authorized 75,000,000 shares ($1 par value),
issued and outstanding 49,169,813 and 49,072,710 shares

 

49,170 

 

 

49,073 

Additional paid-in capital

 

1,070,191 

 

 

1,035,516 

Retained earnings

 

414,563 

 

 

377,803 

Accumulated other comprehensive loss

 

(41,091)

 

 

(42,165)

TOTAL STOCKHOLERS' EQUITY

 

1,492,833 

 

 

1,420,227 



 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLERS' EQUITY

$

4,195,585 

 

$

4,036,677 





The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

5


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



UNAUDITED







 

 

 

 

 



 

 

 

 

 



Six Months Ended



June 30,

(in thousands)

2016

 

2015

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

$

36,760 

 

$

16,903 

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

 

 

 

 

 

Depreciation and amortization

 

29,956 

 

 

20,389 

Share-based compensation expense

 

6,959 

 

 

13,324 

Excess income tax benefit from share-based compensation

 

 —

 

 

(162)

Change in debt discount and deferred debt issuance costs

 

3,348 

 

 

1,045 

Deferred income taxes

 

(371)

 

 

(177)

Loss (gain) on sale of property and equipment

 

204 

 

 

(313)

Other long-term liabilities

 

(3,811)

 

 

42 

Other non-cash items

 

1,200 

 

 

(3,259)

Changes in other components of working capital 

 

(69,669)

 

 

(79,550)

NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES

 

4,576 

 

 

(31,758)



 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisition of property and equipment excluding financed purchases

 

(8,681)

 

 

(29,544)

Proceeds from sale of property and equipment

 

1,092 

 

 

1,122 

Change in restricted cash

 

(3,599)

 

 

4,877 

NET CASH USED IN INVESTING ACTIVITIES

 

(11,188)

 

 

(23,545)



 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from issuance of convertible notes

 

200,000 

 

 

 —

Proceeds from debt

 

711,092 

 

 

473,490 

Repayment of debt

 

(871,654)

 

 

(446,239)

Excess income tax benefit from share-based compensation

 

 —

 

 

162 

Issuance of common stock and effect of cashless exercise

 

 —

 

 

(776)

Debt issuance costs

 

(14,656)

 

 

 —

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

24,782 

 

 

26,637 



 

 

 

 

 

Net increase (decrease) in cash and cash equivalents

 

18,170 

 

 

(28,666)

Cash and cash equivalents at beginning of year

 

75,452 

 

 

135,583 

Cash and cash equivalents at end of period

$

93,622 

 

$

106,917 



 

 

 

 

 



The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

 





 

6


 

Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 

UNAUDITED

 

(1)     Basis of Presentation



The Condensed Consolidated Financial Statements do not include footnotes and certain financial information normally presented annually under accounting principles generally accepted in the United States (“GAAP”); therefore, they should be read in conjunction with the audited consolidated financial statements and the related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015. The results of operations for the three and six months ended June 30, 2016 may not necessarily be indicative of results that can be expected for the full year.



In the opinion of management, the accompanying unaudited Condensed Consolidated Financial Statements reflect all adjustments, including those of a normal recurring nature, necessary to present fairly the Company’s consolidated financial position as of June 30, 2016 and its consolidated results of operations and cash flows for the interim periods presented. All significant intercompany transactions of consolidated subsidiaries have been eliminated. Management has evaluated all material events occurring subsequent to the date of the financial statements up to the filing of this Form 10-Q.

 

(2)     Recent Accounting Pronouncements



In June 2016, the FASB issued ASU No. 2016-13, Measurement of Credit Losses on Financial Instruments. The amendments in this update replace the incurred loss impairment methodology in current GAAP with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information in credit loss estimates. This guidance is effective for the Company as of January 1, 2020 with early adoption permitted as of January 1, 2019. The Company is currently assessing the impact of this standard on its consolidated financial statements.



In the first quarter of 2016, the Company adopted ASU 2015-03, Interest – Imputation of Interest (Subtopic 835-30). This ASU requires companies to present, in the balance sheet, debt issuance costs related to a recognized debt liability as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. In addition, the amortization of that debt discount is required to be presented as a component of interest expense. The Company applied this guidance retrospectively, effective January 1, 2016. Accordingly, the Company reclassified unamortized debt issuance costs of $5.8 million from Other Assets to Long-Term Debt,  less current maturities in its December 31, 2015 Condensed Consolidated Balance Sheet and reclassified amortization of deferred debt issuance costs of $0.3 million and $0.6 million, respectively, from Other income (expense), net to Interest Expense in its Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015.



In March 2016, the FASB issued ASU No. 2016-09, Improvement to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects of the accounting for employee share-based payments including: accounting for income taxes, forfeitures and statutory tax withholding requirements. This guidance is to be adopted by the Company as of January 1, 2017. The adoption of this ASU is not expected to have a material impact on the Company’s financial statements.



In March 2016, the FASB issued ASU No. 2016-07, Equity Method and Joint Ventures (Topic 323), which eliminates the requirement that an entity retroactively adopt the equity method of accounting if an investment qualifies for use of the equity method as a result of an increase in the level of ownership. Instead, an equity method investor adds the cost of acquiring the additional interest to the current basis of the previously held interest and adopts the equity method of accounting as of the date the investment becomes qualified as such. This guidance is effective for the Company as of January 1, 2017. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic-842), which amends the existing guidance in ASC 840 Leases. This amendment requires the recognition of lease assets and lease liabilities by lessees for those leases currently classified as operating leases. Other significant provisions of the amendment include (i) defining the “lease term” to include the non-cancellable period together with periods for which there is a significant economic incentive for the lessee to extend or not terminate the lease; (ii) defining the initial lease liability to be recorded on the balance sheet to contemplate only those variable lease payments that depend on an index or that are in substance “fixed”; and (iii) a dual approach for determining whether lease expense is recognized on a straight-line or accelerated basis, depending on whether the lessee is expected to consume more than an insignificant portion of the leased asset’s economic benefits. This ASU is to be adopted by the Company as of January 1, 2019. Lessees and lessors are required to use a modified retrospective transition method for existing leases. Accordingly, they would apply the new accounting model for the earliest year presented in the financial statements. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.



7

 


 

Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification of Deferred Taxes (Subtopic 740-10). This ASU requires entities to present all deferred tax assets and all deferred tax liabilities as noncurrent in a classified balance sheet. This ASU is effective for the Company as of January 1, 2017. The Company had $19.1 million of current deferred tax assets and $31.1 million of current deferred tax liabilities as of June 30 2016, which will be presented as noncurrent upon adoption of this ASU. 



In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), which provides a single comprehensive accounting standard for revenue recognition for contracts with customers and supersedes current industry-specific guidance, including ASC 605-35. The new standard prescribes a five-step revenue recognition model that focuses on transfer of control and entitlement to consideration in determining the amount of revenue to be recognized. The guidance also significantly expands qualitative and quantitative disclosure requirements regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The standard is effective for the Company as of January 1, 2018. The adoption will result in retrospective application, either in the form of recasting all prior periods presented or a cumulative adjustment to equity in the period of adoption. The Company is currently evaluating the effect that the adoption of this ASU will have on its financial statements.

 

(3)     Earnings Per Share (EPS)



Basic EPS is calculated by dividing net income for a given period by the weighted-average number of common shares outstanding during that period, to which dilutive securities are included in the calculation of diluted EPS, using the treasury stock method. The calculations of the basic and diluted EPS for the three and six months ended June 30, 2016 and 2015 are presented below:



 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,

(in thousands, except per share data)

2016

 

2015

 

2016

 

2015

Net income

$

21,361 

 

$

11,777 

 

$

36,760 

 

$

16,903 



 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding - basic

 

49,131 

 

 

49,028 

 

 

49,105 

 

 

48,890 

Effect of diluted stock options and unvested restricted stock

 

430 

 

 

800 

 

 

318 

 

 

798 

Weighted-average common shares outstanding - diluted

 

49,561 

 

 

49,828 

 

 

49,423 

 

 

49,688 



 

 

 

 

 

 

 

 

 

 

 

Net income per share:

 

 

 

 

 

 

 

 

 

 

 

Basic

$

0.43 

 

$

0.24 

 

$

0.75 

 

$

0.35 

Diluted

$

0.43 

 

$

0.24 

 

$

0.74 

 

$

0.34 



 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive shares not included above

 

1,704 

 

 

628 

 

 

1,704 

 

 

574 



With regard to diluted EPS and the impact of the Convertible Notes (as discussed in Note 5) on the diluted EPS calculation, because the Company has the intent and ability to settle the principal amount of the Convertible Notes in cash, per Accounting Standards Codification (“ASC”) 260, Earnings Per Share, the settlement of the principal amount has no impact on diluted EPS. ASC 260 also requires any potential conversion premium associated with the Convertible Notes’ conversion option to be considered in the calculation of diluted EPS when the Company's average stock price for the periods presented is higher than the initial conversion price of $30.25. As this was not the case during the three and six months ended June 30, 2016, the conversion premium also has no impact on diluted EPS for those periods.

  

(4)     Costs and Estimated Earnings in Excess of Billings



Reported costs and estimated earnings in excess of billings consist of the following:





 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,

(in thousands)

2016

 

2015

Claims

$

427,558 

 

$

407,164 

Unapproved change orders

 

220,427 

 

 

270,019 

Other unbilled costs and profits

 

163,421 

 

 

227,992 

Total costs and estimated earnings in excess of billings

$

811,406 

 

$

905,175 



Claims and unapproved change orders are billable upon the final resolution and agreement between the contractual parties. Other unbilled costs and profits are billable in accordance with the billing terms of each of the existing contractual arrangements. 

 

8


 

Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(5)     Financial Commitments



Long-Term Debt



Long-term debt consists of the following:





 

 

 

 

 



 

 

 

 

 



June 30,

 

December 31,

(in thousands)

2016

 

2015

Term Loan

$

83,911 

 

$

222,120 

Revolver

 

148,070 

 

 

155,815 

Senior Notes

 

297,616 

 

 

297,118 

Convertible Notes

 

148,606 

 

 

 —

Equipment financing, mortgages and acquisition-related notes

 

116,179 

 

 

133,288 

Other indebtedness

 

6,139 

 

 

9,343 

Total debt

 

800,521 

 

 

817,684 

Less – current maturities

 

(120,256)

 

 

(88,917)

Long-term debt, net

$

680,265 

 

$

728,767 



The following table reconciles the outstanding debt balance to the reported debt balances as of June 30, 2016 and December 31, 2015.





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



June 30, 2016

 

December 31, 2015

(in thousands)

Outstanding Long-Term Debt

 

Unamortized Discount and Issuance Cost

 

Long-Term

Debt,

as reported

 

Outstanding Long-Term Debt

 

Unamortized Discount and Issuance Cost

 

Long-Term

Debt,

as reported

Term Loan

$

87,500 

 

$

(3,589)

 

$

83,911 

 

$

223,750 

 

$

(1,630)

 

$

222,120 

Revolver

 

154,000 

 

 

(5,930)

 

 

148,070 

 

 

158,000 

 

 

(2,185)

 

 

155,815 

Senior Notes

 

300,000 

 

 

(2,384)

 

 

297,616 

 

 

300,000 

 

 

(2,882)

 

 

297,118 

Convertible Notes

 

200,000 

 

 

(51,394)

 

 

148,606 

 

 

 —

 

 

 —

 

 

 —



Convertible Notes



On June 15, 2016, the Company issued $200 million of 2.875% Convertible Senior Notes (the “Convertible Notes”) due June 15, 2021. The Company used the proceeds to prepay $125 million of its Term Loan, pay down $69 million of its Revolver and pay $6 million of debt issuance fees.



To account for the Convertible Notes, the Company applied the provisions of ASC 470-20, Debt with Conversion and Other Options. ASC 470-20 requires issuers of certain convertible debt instruments that may be settled in cash upon conversion to separately account for the liability (debt) and equity (conversion option) components of the instrument in a manner that reflects the issuer’s nonconvertible debt borrowing rate. This is done by allocating the proceeds from issuance to the liability component based on the fair value of the debt instrument excluding the conversion feature, with the residual allocated to the equity component and classified in additional paid in capital. The $46.8 million difference between the principal amount of the Convertible Notes ($200.0 million) and the proceeds allocated to the liability component ($153.2 million) is treated as a discount on the Convertible Notes. This difference is being amortized as non-cash interest expense using the interest method, as discussed further below under Interest Expense. The equity component, however, is not subject to amortization nor subsequent remeasurement. 



In addition, ASC 470-20 requires that the debt issuance costs associated with a convertible debt instrument be allocated between the liability and equity components in proportion to the allocation of the debt proceeds between these two components. The debt issuance costs attributable to the liability component of the Convertible Notes ($4.9 million) are also treated as a discount on the Convertible Notes and amortized as non-cash interest expense. The debt issuance costs attributable to the equity component ($1.5 million) were netted with the equity component and will not be amortized.



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UNAUDITED

 

The following table presents information related to the liability and equity components of the Convertible Notes:





 

 

 



 

 

 

(in thousands)

 

June 30, 2016

Liability component:

 

 

 

Principal

 

$

200,000 

Conversion feature

 

 

(46,800)

Allocated debt issuance costs

 

 

(4,934)

Amortization of discount and debt issuance costs (non-cash interest expense)

 

 

340 

Net carrying amount

 

$

148,606 



 

 

 

Equity component:

 

 

 

Conversion feature

 

$

46,800 

Allocated debt issuance costs

 

 

(1,507)

Net deferred tax liability

 

 

(18,787)

Net carrying amount

 

$

26,506 



The Convertible Notes, governed by the terms of an indenture between the Company and Wilmington Trust, National Association, as trustee, are unsecured obligations and do not contain any financial covenants or restrictions on the payments of dividends, the incurrence of indebtedness or the issuance or repurchase of securities by the Company. The Convertible Notes bear interest at a rate of 2.875% per year, payable in cash semiannually in June and December, unless earlier purchased by the Company or converted.



Prior to January 15, 2021, the Convertible Notes will be convertible only under the following circumstances: (1) during the five business day period after any ten consecutive trading day period in which the trading price per $1,000 principal amount of Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of our common stock and the conversion rate on each such trading day; (2) during any calendar quarter commencing after the calendar quarter ending on September 30, 2016, if the last reported sale price of the common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; or (3) upon the occurrence of specified corporate events. On or after January 15, 2021 until the close of business on the second scheduled trading day immediately preceding the maturity date, holders may convert all or any portion of their notes, in multiples of $1,000 principal amount, at the option of the holder regardless of the foregoing circumstances.



The Convertible Notes will be convertible at an initial conversion rate of 33.0579 shares of the Company’s common stock per $1,000 principal amount of the Convertible Notes, which is equivalent to an initial conversion price of approximately $30.25. The conversion rate will be subject to adjustment for some events but will not be adjusted for any accrued and unpaid interest. In addition, following certain corporate events that occur prior to the maturity date, the Company is required to increase, in certain circumstances, the conversion rate for a holder who elects to convert its Convertible Notes in connection with such a corporate event including customary conversion rate adjustments in connection with a “make-whole fundamental change” as defined. Upon conversion, and at the Company’s election, the Company may satisfy its conversion obligation by paying or delivering, as applicable, cash, shares of its common stock or a combination of cash and shares of its common stock.



Credit Facility



On June 5, 2014, the Company entered into a Sixth Amended and Restated Credit Agreement, (the “Original Facility”; with subsequent amendments discussed herein, the “Credit Facility”) with Bank of America, N.A. as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The Credit Facility, provides for a $300 million revolving credit facility (the “Revolver”), a $250 million term loan (the “Term Loan”) and a sublimit for the issuance of letters of credit up to the aggregate amount of $150 million, all maturing on May 1, 2018. Borrowings under both the Revolver and the Term Loan bear interest based either on Bank of America’s prime lending rate or the London Interbank Offered Rate (“LIBOR”), each plus an applicable margin. 



 During the first half of 2016, the Company entered into two amendments to the Original Facility (the “Amendments”): Waiver and Amendment No. 1, entered into on February 26, 2016 (“Amendment No.1”), and Consent and Amendment No. 2, entered into on June 8, 2016 (“Amendment No. 2”). In Amendment No. 1, the lenders waived the Company’s violation of its consolidated leverage ratio covenant and consolidated fixed charge coverage ratio covenant. These violations were the result of the Company’s financial results for the fiscal year ended December 31, 2015, which included the previously reported $23.9 million non-cash, pre-tax charge related to an adverse ruling on the Brightwater litigation matter in the third quarter of 2015 as well as $45.6 million of pre-tax charges in the

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UNAUDITED

 

third and fourth quarters of 2015 for various Five Star Electric projects. In Amendment No. 2, the lenders consented to the issuance of the Convertible Notes subject to certain conditions, including the prepayment of $125 million on the Term Loan and the paydown of $69 million on the Revolver, and consented to a potential sale transaction of one of the Company’s business units in its Building segment.



In addition to the Amendments’ provisions discussed above, the Amendments also modified other provisions and added new provisions to the Original Facility, and Amendment No. 2 superseded and modified some of the provisions of Amendment No. 1. The following reflects the more significant changes to the Original Facility and the results of the Amendments that are now reflected in the Credit Facility. Unless otherwise noted, the changes below were primarily the result of Amendment No. 1: (1) The Company may utilize LIBOR-based borrowings. (Amendment No. 1 precluded the use of LIBOR-based borrowings until the Company filed its compliance certificate for the fourth quarter of 2016; however, Amendment No. 2 negated this preclusion.) (2) The Company is subject to an increased rate on borrowings, with such rate being 100 basis points higher than the highest rate under the Original Facility if the Company’s consolidated leverage ratio is greater than 3.50:1.00 but not more than 4.00:1.00, and an additional 100 basis points higher if the Company’s consolidated leverage ratio is greater than 4.00:1.00. (3) The Company will be subject to increased commitment fees if the Company’s consolidated leverage ratio is greater than 3.50:1.00. (4) The impact of the Brightwater litigation matter is to be excluded from the calculation of the Company’s consolidated leverage ratio and consolidated fixed charge coverage ratio covenants. (5) Interest payments are due on a monthly basis; however, if the Company is in compliance with its consolidated leverage ratio and consolidated fixed charge coverage ratio covenants provided in the Original Facility as of December 31, 2016, the timing of interest payments will revert to the terms of the Original Facility. (6) The accordion feature of the Original Facility, which would have allowed either an increase of $300 million in the Revolver or the establishment of one or more new term loan commitments, is no longer available. (7) The Company’s maximum allowable consolidated leverage ratio was increased to 4.25:1.00 for the first, second and third quarters of 2016 after which it returns to the Original Facility’s range of 3.25:1.00 to 3.00:1.00. (Amendment No. 1 increased the Company’s maximum allowable consolidated leverage ratio covenant requirements to 4.25:1.00 for the first quarter of 2016 and 4.0:1.0 for the second and third quarters of 2016. Amendment No. 2 increased the maximum allowable consolidated leverage ratio covenant requirements to 4.25:1.00 for the second and third quarters of 2016.) (8) The Company is subject to additional covenants regarding its liquidity, including a cap on the cash balance in the Company’s bank account and a weekly minimum liquidity requirement (based on specified available cash balances and availability under the Revolver). (9) The Company is required to achieve certain quarterly cash collection milestones, which were eased somewhat in Amendment No. 2. (10) The Company is required to make additional quarterly principal payments, which will be applied to the Term Loan balloon payment, with some of the payments based on a percentage of certain forecasted cash collections for the prior quarter. This change will be effective beginning in the fourth quarter of 2016. (11) The lenders’ collateral package was increased by pledging to the lenders (i) the equity interests of each direct domestic subsidiary of the Company and (ii) 65% of the stock of each material first-tier foreign restricted subsidiary of the Company. (12) The Credit Facility will now mature on May 1, 2018, as opposed to maturity date of the Original Facility of June 5, 2019.



As of June 30, 2016 there was $145.8 million available under the Revolver and the Company had utilized the Credit Facility for letters of credit in the amount of $0.2 million. The Company was in compliance with the financial covenants under the Credit Facility for the period ended June 30, 2016.



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UNAUDITED

 

Interest Expense



Interest expense as reported in the Condensed Consolidated Statements of Operations consists of the following:





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Six Months Ended



June 30,

 

June 30,

(in thousands)

2016

 

2015

 

2016

 

2015

Cash interest expense:

 

 

 

 

 

 

 

 

 

 

 

Interest on Credit Facility

$

7,051 

 

$

3,633 

 

$

12,389 

 

$

7,229 

Interest on Senior Notes

 

5,719 

 

 

5,719 

 

 

11,438 

 

 

11,438 

Interest on Convertible Notes

 

240 

 

 

 —

 

 

240 

 

 

 —

Other interest

 

863 

 

 

1,393 

 

 

2,199 

 

 

2,959 

Total cash interest expense

 

13,873 

 

 

10,745 

 

 

26,266 

 

 

21,626 



 

 

 

 

 

 

 

 

 

 

 

Non-cash interest expense:(a)

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt issuance costs on Original Facility and Amendments

 

1,071 

 

 

279 

 

 

2,510 

 

 

558 

Amortization of discount and debt issuance costs on Senior Notes

 

250 

 

 

244 

 

 

498 

 

 

487 

Amortization of discount and debt issuance costs on Convertible Notes

 

340 

 

 

 —

 

 

340 

 

 

 —

Total non-cash interest expense

 

1,661 

 

 

523 

 

 

3,348 

 

 

1,045 



 

 

 

 

 

 

 

 

 

 

 

Total cash and non-cash interest expense

$

15,534 

 

$

11,268 

 

$

29,614 

 

$

22,671 

(a)

Non-cash interest expense in the table above was the result of the amortization of debt discounts and debt issuance costs associated with the Credit Facility, the Senior Notes and the Convertible Notes. As a result, this amortization produces an effective interest rate for these liabilities that is greater than the contractual rate per their respective debt indenture agreements; accordingly, the effective interest rates for the Credit Facility, Senior Notes and Convertible Notes are 9.66%,  7.99% and 9.37%, respectively.

 

(6)     Contingencies and Commitments



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



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



Long Island Expressway/Cross Island Parkway Matter



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



In March 2011, the Company filed its claim and complaint with the New York State Court of Claims and served to the New York State Attorney General’s Office, seeking damages in the amount of $53.8 million. In May 2011, the NYSDOT filed a motion to dismiss the Company’s claim on the grounds that the Company had not provided required documentation for project closeout and filing of a claim. In September 2011, the Company reached agreement on final payment with the Comptroller’s Office on behalf of the NYSDOT which resulted in an amount of $0.5 million payable to the Company and formally closed out the project allowing the Company to re-file its claim. The Company re-filed its claim in the amount of $53.8 million with the NYSDOT in February 2012 and with the Court of Claims in March 2012. In May 2012, the NYSDOT served its answer and counterclaims in the amount of

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UNAUDITED

 

$151 million alleging fraud in the inducement and punitive damages related to disadvantaged business enterprise (“DBE”) requirements for the project. The Court subsequently ruled that NYSDOT’s counterclaims may only be asserted as a defense and offset to the Company’s claims and not as affirmative claims. In November 2014, the Appellate Division First Department affirmed the dismissal of the City’s affirmative defenses and counterclaims based on DBE fraud. The Company does not expect the counterclaims to have any material effect on its consolidated financial statements.



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



Fontainebleau Matter



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



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



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



In October 2013, a settlement was reached by and among the Statutory Lienholders and the other interested parties. The Bankruptcy Court appointed a mediator to facilitate the execution of that settlement agreement. Mediation is ongoing.



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



Honeywell Street/Queens Boulevard Bridges Matter



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



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



Westgate Planet Hollywood Matter



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



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



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



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



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



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



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



NOAA requested an extension to issue a decision on the First Certified Claim and on the Third Certified Claim, but did not request an extension of time to review the Second Certified Claim. On January 6, 2014, R&S filed suit in the United States Federal Court of Claims on the Second Certified Claim plus interest and attorney's fees and costs. This was followed by a submission of a lawsuit on the First Certified Claim on July 31, 2014. In February 2015, the Court denied NOAA’s motion to dismiss the Second Certified Claim. In March 2015, the Contracting Officer issued decisions on all Claims accepting a total of approximately $1.0 million of claims and denying approximately $29.5 million of claims. On April 14, 2015, the Court consolidated the cases. No trial date has been set.



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



Five Star Electric Matter



In the third quarter of 2015, Five Star Electric Corp. ("Five Star"), a subsidiary of the Company that was acquired in 2011, entered into a tolling agreement related to an ongoing investigation being conducted by the United States Attorney for the Eastern District of New York (“USAO EDNY”). The tolling agreement extended the statute of limitations to avoid the expiration of any unexpired statute of limitations while the investigation is pending. Five Star has been cooperating with the USAO EDNY since late June 2014, when it was first made aware of the investigation, and has been providing information related to its use of certain minority-owned, women-owned, small and disadvantaged business enterprises and, in addition, most recently, information regarding certain of Five Star’s employee compensation, benefit and tax practices. The investigation covers the period of 2005-2014.



The Company cannot predict the ultimate outcome of the investigation and cannot accurately estimate any potential liability that Five Star or the Company may incur or the impact of the results of the investigation on Five Star or the Company.



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Alaskan Way Viaduct Matter



In January 2011, Seattle Tunnel Partners (“STP”), a joint venture between Dragados USA, Inc. and the Company, entered into a design-build contract with the Washington State Department of Transportation ("WSDOT") for the construction of a large diameter bored tunnel in downtown Seattle, King County, Washington to replace the Alaskan Way Viaduct, also known as State Route 99.



The construction of the large diameter bored tunnel requires the use of a tunnel boring machine (“TBM”). In December 2013, the TBM struck a steel pipe, installed by WSDOT as a well casing for an exploratory well. The TBM was damaged and was required to be shut down for repair. STP has asserted that the steel pipe casing was a differing site condition that WSDOT failed to properly disclose. The Disputes Review Board mandated by the contract to hear disputes issued a decision finding the steel casing was a Type I differing site condition. WSDOT has not accepted that finding.



The TBM is insured under a Builder’s Risk Insurance Policy (“the Policy”) with Great Lakes Reinsurance (UK) PLC and a consortium of other insurers (the “Insurers”). STP submitted the claims to the insurer and requested interim payments under the Policy. The Insurers refused to pay and denied coverage. In June 2015, STP filed a lawsuit in the King County Superior Court, State of Washington (“Washington Superior Court”) seeking declaratory relief concerning contract interpretation as well as damages as a result of the Insurers’ breach of its obligations under the terms of the Policy. WSDOT is deemed a plaintiff since WSDOT is an insured under the Policy and had filed its own claim for damages. Trial is scheduled for June 2017. In April 2016, the Insurers filed a motion with the Court of Appeals seeking dismissal of STP’s claims. The commissioner’s ruling is pending before the Court of Appeals.



In October 2015, WSDOT filed a complaint against STP in the Washington Superior Court for breach of contract and declaratory relief concerning contract interpretation. Said Complaint was dismissed. In March 2016, WSDOT refiled action against STP in Thurston County Superior Court. In July 2016, STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and against the manufacturer of the TBM.



As of June 2016, the Company has concluded that the potential for a material adverse financial impact due to the Insurer’s and WSDOT’s respective legal actions are neither probable nor remote. Management has made an estimate of the total anticipated recovery on this project and such estimate is included in revenue recorded to date. To the extent new facts become known or the final recovery included in the claim settlement varies from the estimate, the impact of the change will be reflected in the financial statements at that time.

 

(7)     Share-Based Compensation



The Company’s share-based compensation plan is described, and informational disclosures are provided, in the Notes to Consolidated Financial Statements included in the Form 10-K for the year ended December 31, 2015. In the first half of 2016 and 2015, 483,387 and 321,500 restricted stock units were granted at weighted-average per share prices of $19.14 and $23.07, respectively. During the first half of 2016 and 2015, the Company awarded 274,000 and 259,000 stock options at weighted-average exercise prices of $16.20 and $16.07 per share, respectively. The options expire ten years after the grant date. Both the restricted stock units and options granted in 2016 and 2015 vest upon the achievement of defined performance targets.

  



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(8)     Other Comprehensive Income (Loss)



The tax effects of the components of other comprehensive income (loss) for the three months ended June 30, 2016 and 2015 are as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Three Months Ended



June 30, 2016

 

June 30, 2015

(in thousands)

Before-Tax Amount

 

Tax (Expense) Benefit

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Tax (Expense) Benefit

 

Net-of-Tax Amount

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

$

427 

 

$

(103)

 

$

324 

 

$

 -

 

$

 -

 

$

 -

Foreign currency translation adjustment

 

(396)

 

 

138 

 

 

(258)

 

 

(1,877)

 

 

731 

 

 

(1,146)

Unrealized gain (loss) in fair value of investments

 

(271)

 

 

118 

 

 

(153)

 

 

(122)

 

 

48 

 

 

(74)

Unrealized gain (loss) in fair value of interest rate swap

 

17 

 

 

(6)

 

 

11 

 

 

99 

 

 

(39)

 

 

60 

Total other comprehensive income (loss)

$

(223)

 

$

147 

 

$

(76)

 

$

(1,900)

 

$

740 

 

$

(1,160)



The tax effects of the components of other comprehensive income (loss) for the six months ended June 30, 2016 and 2015 are as follows:





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Six Months Ended

 

Six Months Ended



June 30, 2016

 

June 30, 2015

(in thousands)

Before-Tax Amount

 

Tax (Expense) Benefit

 

Net-of-Tax Amount

 

Before-Tax Amount

 

Tax (Expense) Benefit

 

Net-of-Tax Amount

Other comprehensive income (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

$

853 

 

$

(282)

 

$

571 

 

$

 -

 

$

 -

 

$

 -

Foreign currency translation adjustment

 

1,208 

 

 

(536)

 

 

672 

 

 

(2,841)

 

 

1,107 

 

 

(1,734)

Unrealized gain (loss) in fair value of investments

 

(258)

 

 

113 

 

 

(145)

 

 

(138)

 

 

54 

 

 

(84)

Unrealized gain (loss) in fair value of interest rate swap

 

(45)

 

 

21 

 

 

(24)

 

 

173 

 

 

(68)

 

 

105 

Total other comprehensive income (loss)

$

1,758 

 

$

(684)

 

$

1,074 

 

$

(2,806)

 

$

1,093 

 

$

(1,713)



The following tables present the changes in accumulated other comprehensive income (“AOCI”) balances by component (after tax) for the three and six months ended June 30, 2016:





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Three Months Ended June 30, 2016

(in thousands)

Defined Benefit Pension Plan

 

Foreign Currency Translation

 

Unrealized Gain in Fair Value of Investments, net

 

Unrealized Gain (Loss) in Fair Value of Interest Rate Swap, net

 

Accumulated Other Comprehensive Income (Loss), Net

Balance as of March 31, 2016

$

(37,995)

 

$

(3,673)

 

$

664 

 

$

(11)

 

$

(41,015)

Other comprehensive income (loss) before reclassifications

 

 —

 

 

(258)

 

 

(153)

 

 

11 

 

 

(400)

Amounts reclassified from AOCI

 

324 

 

 

 —

 

 

 —

 

 

 —

 

 

324 

Total other comprehensive income (loss)

 

324 

 

 

(258)

 

 

(153)

 

 

11 

 

 

(76)

Balance as of June 30,2016

$

(37,671)

 

$

(3,931)

 

$

511 

 

$

 —

 

$

(41,091)

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UNAUDITED

 







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Six Months Ended June 30, 2016

(in thousands)

Defined Benefit Pension Plan

 

Foreign Currency Translation

 

Unrealized Gain in Fair Value of Investments, net

 

Unrealized Gain (Loss) in Fair Value of Interest Rate Swap, net

 

Accumulated Other Comprehensive Income (Loss), Net

Balance as of December 31, 2015

$

(38,242)

 

$

(4,603)

 

$

656 

 

$

24 

 

$

(42,165)

Other comprehensive income (loss) before reclassifications

 

 —

 

 

672 

 

 

(145)

 

 

(24)

 

 

503 

Amounts reclassified from AOCI

 

571 

 

 

 —

 

 

 —

 

 

 —

 

 

571 

Total other comprehensive income (loss)

 

571 

 

 

672 

 

 

(145)

 

 

(24)

 

 

1,074 

Balance as of June 30, 2016

$

(37,671)

 

$

(3,931)

 

$

511 

 

$

 —

 

$

(41,091)



The following tables present the changes in AOCI balances by component (after tax) for the three and six months ended June 30, 2015:





 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Three Months Ended June 30, 2015

(in thousands)

Defined Benefit Pension Plan

 

Foreign Currency Translation

 

Unrealized Loss in Fair Value of Investments, net

 

Unrealized Gain in Fair Value of Interest Rate Swap, net

 

Accumulated Other Comprehensive Income (Loss), Net

Balance as of March 31, 2015

$

(40,268)

 

$

(1,977)

 

$

(120)

 

$

194 

 

$

(42,171)

Other comprehensive income (loss)

 

 —

 

 

(1,146)

 

 

(74)

 

 

60 

 

 

(1,160)

Balance as of June 30, 2015

$

(40,268)

 

$

(3,123)

 

$

(194)

 

$

254 

 

$

(43,331)







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



For the Six Months Ended June 30, 2015

(in thousands)

Defined Benefit Pension Plan

 

Foreign Currency Translation

 

Unrealized Loss in Fair Value of Investments, net

 

Unrealized Gain in Fair Value of Interest Rate Swap, net

 

Accumulated Other Comprehensive Income (Loss), Net

Balance as of December 31, 2014

$

(40,268)

 

$

(1,389)

 

$

(110)

 

$

149 

 

$

(41,618)

Other comprehensive income (loss)

 

 —

 

 

(1,734)

 

 

(84)

 

 

105 

 

 

(1,713)

Balance as of June 30, 2015

 

(40,268)

 

 

(3,123)

 

 

(194)

 

 

254 

 

 

(43,331)



The items reclassified out of AOCI and the corresponding location and impact on the Condensed Consolidated Statement of Operations are as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Location in

 

Three Months Ended

 

Six Months Ended



 

Condensed Consolidated

 

June 30,

 

June 30,

(in thousands)

 

Statements of Earnings

 

2016

 

2015

 

2016

 

2015

Defined benefit pension plan adjustments

 

Various accounts(a)

 

$

427 

 

$

 —

 

$

853 

 

$

 —

Income tax benefit

 

Provision for income taxes

 

 

(103)

 

 

 —

 

 

(282)

 

 

 —

Net of tax

 

 

 

$

324 

 

$

 —

 

$

571 

 

$

 —




(a)

Defined benefit pension plan adjustments were reclassified primarily to cost of operations and general and administrative expenses.

  

(9)     Income Taxes



The Company’s income tax provision was $14.4 million and $25.7 million for the three and six months ended June 30, 2016, with an effective tax rate of 40.3% and 41.2%, respectively, compared to an income tax provision of $8.2 million and $11.3 million with an effective tax rate of 41.1% and 40.1% for the same periods in 2015. The effective tax rate for the second quarter of 2016 was favorably impacted by various accrual and interest adjustments relating to uncertain tax benefits.

 

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UNAUDITED

 

(10)     Fair Value Measurements



The fair value hierarchy established by ASC 820, Fair Value Measurements, prioritizes the use of inputs used in valuation techniques into the following three levels:



Level 1 — quoted prices in active markets for identical assets or liabilities

Level 2 — inputs are other than Level 1 inputs that are observable, either directly or indirectly

Level 3 — unobservable inputs



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





 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

June 30, 2016

 

December 31, 2015



 

Fair Value Hierarchy

 

Fair Value Hierarchy

(in thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

Assets:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (a)

 

$

93,622 

 

$

93,622 

 

$

 —

 

$

 —

 

$

75,452 

 

$

75,452 

 

$

 —

 

$

 —

Restricted cash (a)