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EX-31.2 - EX-31.2 - TUTOR PERINI CORPtpc-20170331xex31_2.htm
EX-31.1 - EX-31.1 - TUTOR PERINI CORPtpc-20170331xex31_1.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 March 31, 2017



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,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):





 

 

Large accelerated filer 

 

Accelerated filer 



 

 

Non-Accelerated filer 

 

Smaller reporting company 



 

 

Emerging growth company 

 

 



If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act 



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 April 27, 2017  was 49,695,374.









 


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES



TABLE OF CONTENTS





 

 

 



 

 

Page Numbers

Part I.

Financial Information:

 



Item 1.

Financial Statements:

 



 

Condensed Consolidated  Statements of Operations for the Three Months Ended March 31, 2017 and 2016 (Unaudited)



 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2017 and 2016 (Unaudited)



 

Condensed Consolidated Balance Sheets as of March 31, 2017 and December 31, 2016 (Unaudited)



 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016 (Unaudited)



 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7-25 



Item 2.

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

26-31 



Item 3.

Quantitative and Qualitative Disclosures About Market Risk

31 



Item 4.

Controls and Procedures

31 

Part II.

Other Information:

 



Item 1.

Legal Proceedings

32 



Item 1A.

Risk Factors

32 



Item 4.

Mine Safety Disclosures

32 



Item 5.

Other Information

32 



Item 6.

Exhibits

33 



Signature

 

34 





2


 

PART I.  – FINANCIAL INFORMATION



Item 1. – Financial Statements



TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS



UNAUDITED











 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,

(in thousands, except per share amounts)

2017

 

2016

REVENUE

$

1,117,361 

 

$

1,085,369 

COST OF OPERATIONS

 

(1,014,641)

 

 

(980,277)

GROSS PROFIT

 

102,720 

 

 

105,092 

General and administrative expenses

 

(65,703)

 

 

(64,970)

INCOME FROM CONSTRUCTION OPERATIONS

 

37,017 

 

 

40,122 

Other income, net

 

417 

 

 

682 

Interest expense

 

(15,564)

 

 

(14,080)

INCOME BEFORE INCOME TAXES

 

21,870 

 

 

26,724 

Provision for income taxes

 

(8,106)

 

 

(11,324)

NET INCOME

$

13,764 

 

$

15,400 

BASIC EARNINGS PER COMMON SHARE

$

0.28 

 

$

0.31 

DILUTED EARNINGS PER COMMON SHARE

$

0.27 

 

$

0.31 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

BASIC

 

49,282 

 

 

49,079 

DILUTED

 

50,948 

 

 

49,285 





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



March 31,

(in thousands)

2017

 

2016

NET INCOME

$

13,764 

 

$

15,400 



 

 

 

 

 

OTHER COMPREHENSIVE INCOME, NET OF TAX:

 

 

 

 

 

Defined benefit pension plan adjustments

 

268 

 

 

247 

Foreign currency translation adjustments

 

(54)

 

 

930 

Unrealized (loss) gain in fair value of investments

 

(21)

 

 

Unrealized loss in fair value of interest rate swap

 

 —

 

 

(35)

Total other comprehensive income, net of tax

 

193 

 

 

1,150 



 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

$

13,957 

 

$

16,550 





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

 



4


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS



UNAUDITED











 

 

 

 

 



 

 

 

 

 



As of March 31,

 

As of December 31,

(in thousands, except share and per share amounts)

2017

 

2016

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

$

104,817 

 

$

146,103 

Restricted cash

 

60,158 

 

 

50,504 

Accounts receivable, including retainage of $594,926 and $569,391

 

1,749,602 

 

 

1,743,300 

Costs and estimated earnings in excess of billings

 

840,760 

 

 

831,826 

Other current assets

 

58,482 

 

 

66,023 

Total current assets

 

2,813,819 

 

 

2,837,756 

PROPERTY AND EQUIPMENT, net of accumulated depreciation

of $333,531 and $313,783

 

462,695 

 

 

477,626 

GOODWILL

 

585,006 

 

 

585,006 

INTANGIBLE ASSETS, NET

 

92,111 

 

 

92,997 

OTHER ASSETS

 

44,852 

 

 

45,235 

TOTAL ASSETS

$

3,998,483 

 

$

4,038,620 



 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

$

27,598 

 

$

85,890 

Accounts payable, including retainage of $264,336 and $258,294

 

965,931 

 

 

994,016 

Billings in excess of costs and estimated earnings

 

288,795 

 

 

331,112 

Accrued expenses and other current liabilities

 

112,448 

 

 

107,925 

Total current liabilities

 

1,394,772 

 

 

1,518,943 

LONG-TERM DEBT, less current maturities, net of unamortized
discounts and debt issuance costs totaling $52,293 and $56,072

 

753,191 

 

 

673,629 

DEFERRED INCOME TAXES

 

130,616 

 

 

131,007 

OTHER LONG-TERM LIABILITIES

 

159,777 

 

 

162,018 

TOTAL LIABILITIES

 

2,438,356 

 

 

2,485,597 



 

 

 

 

 

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 49,694,018 and 49,211,353 shares

 

49,694 

 

 

49,211 

Additional paid-in capital

 

1,068,264 

 

 

1,075,600 

Retained earnings

 

487,389 

 

 

473,625 

Accumulated other comprehensive loss

 

(45,220)

 

 

(45,413)

TOTAL STOCKHOLDERS' EQUITY

 

1,560,127 

 

 

1,553,023 



 

 

 

 

 

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

3,998,483 

 

$

4,038,620 





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









 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,

(in thousands)

2017

 

2016

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

$

13,764 

 

$

15,400 

Adjustments to reconcile net income to net cash (used in) provided by operating activities:

 

 

 

 

 

Depreciation

 

20,110 

 

 

11,923 

Amortization of intangible assets

 

886 

 

 

886 

Share-based compensation expense

 

4,306 

 

 

3,647 

Change in debt discounts and deferred debt issuance costs

 

3,836 

 

 

1,687 

Deferred income taxes

 

(526)

 

 

(155)

(Gain) loss on sale of property and equipment

 

(131)

 

 

285 

Other long-term liabilities

 

(1,824)

 

 

(4,061)

Other non-cash items

 

267 

 

 

1,399 

Changes in other components of working capital 

 

(73,533)

 

 

(15,067)

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

(32,845)

 

 

15,944 



 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisition of property and equipment excluding financed purchases

 

(5,672)

 

 

(4,812)

Proceeds from sale of property and equipment

 

259 

 

 

939 

Change in restricted cash

 

(9,654)

 

 

(3,305)

NET CASH USED IN INVESTING ACTIVITIES

 

(15,067)

 

 

(7,178)



 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from debt

 

313,977 

 

 

299,785 

Repayment of debt

 

(296,485)

 

 

(287,484)

Issuance of common stock and effect of cashless exercise

 

(10,809)

 

 

 —

Debt issuance costs

 

(57)

 

 

(5,937)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

6,626 

 

 

6,364 



 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

 

(41,286)

 

 

15,130 

Cash and cash equivalents at beginning of period

 

146,103 

 

 

75,452 

Cash and cash equivalents at end of period

$

104,817 

 

$

90,582 





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, 2016. The results of operations for the three months ended March 31, 2017 may not be indicative of the results that will be achieved for the full year ending December 31, 2017.



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 March 31, 2017 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 May 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2014-09, Revenue from Contracts with Customers (Topic 606), as amended by subsequent ASUs (collectively, “ASU 2014-09”). ASU 2014-09 amends the existing accounting standards for revenue recognition and establishes principles for recognizing revenue upon the transfer of promised goods or services to customers based on the expected consideration to be received in exchange for those goods or services. The guidance will be effective for the Company as of January 1, 2018. The amendments may be applied retrospectively to each prior period presented or with the cumulative effect recognized as of the date of initial application (modified retrospective method). The Company is currently reviewing contracts in order to determine the impact, if any, the adoption of ASU 2014-09 will have on its consolidated financial statements. A number of industry-specific implementation issues are still unresolved, and the final resolution of certain of these issues could impact the Company’s current accounting policies and/or revenue recognition patterns. The Company currently expects to adopt this new standard using the modified retrospective method.



In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350),  Simplifying the Test for Goodwill Impairment. This ASU simplifies the calculation of goodwill impairment by eliminating Step 2 of the impairment test as required by the current guidance.  Step 2 requires companies to calculate the implied fair value of their goodwill by estimating the fair value of their assets, other than goodwill, and liabilities, including unrecognized assets and liabilities, following the procedures that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. The calculated net fair value of the assets would then be compared to the fair value of the reporting unit to determine the implied fair value of goodwill, and to the extent that the carrying value of goodwill was less than the implied fair value, a loss would be recognized. Under ASU 2017-04, however, goodwill is impaired when the calculated fair value of a reporting unit is less than its carrying value, and the impairment charge will equal that difference  (i.e., impairment will be calculated at the reporting unit level and there will be no need to estimate the fair value of individual assets and liabilities). This guidance will be effective for the Company for any goodwill impairment tests performed in years beginning after December 15, 2019; however, early adoption is permitted for tests performed on testing dates after January 1, 2017. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.



In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230) - Restricted Cash. This ASU requires that restricted cash and restricted cash equivalents be aggregated with cash and cash equivalents in the statement of cash flows; thus the statement will reconcile the aggregate beginning-of-period and end-of-period balances. Consequently, changes in restricted cash and restricted cash equivalents will no longer be presented as a component of cash flows from investing activities in the statement of cash flows. The Company expects to retrospectively adopt this ASU effective January 1, 2018.



In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842), which amends the existing lease guidance. This ASU 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 utilize more than an insignificant portion of the leased asset’s economic benefits. This will be effective for the Company as of January 1, 2019 and will be applied using the modified retrospective transition method for existing leases. The Company is currently evaluating the effect that the adoption of this ASU will have on its consolidated financial statements.

7


 

Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

 

(3)     Earnings Per Common Share (EPS)



Basic EPS and diluted EPS are calculated by dividing net income by the following: for basic EPS, the weighted-average number of common shares outstanding during the period; and for diluted EPS, the sum of the weighted-average number of both outstanding common shares and potentially dilutive securities. The Company calculates the number of potentially dilutive securities using the treasury stock method for its granted but unvested restricted stock units and stock options and vested but unexercised stock options. The calculations of basic and diluted EPS for the three months ended March 31, 2017 and 2016 are presented below:





 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,

(in thousands, except per share amounts)

2017

 

2016

Net income

$

13,764 

 

$

15,400 



 

 

 

 

 

Weighted-average common shares outstanding, basic

 

49,282 

 

 

49,079 

Effect of dilutive restricted stock units and stock options

 

1,666 

 

 

206 

Weighted-average common shares outstanding, diluted

 

50,948 

 

 

49,285 



 

 

 

 

 

Earnings per common share:

 

 

 

 

 

Basic earnings per common share

$

0.28 

 

$

0.31 

Diluted earnings per common share

$

0.27 

 

$

0.31 



 

 

 

 

 

Anti-dilutive shares not included above

 

930 

 

 

1,704 



With regard to diluted EPS and the impact of the Convertible Notes 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. Additionally, ASC 260 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, as defined in the indenture governing the Convertible Notes, is higher than 130% of the Convertible Notes’ conversion rate of 33.0579 (or $39.32). This was not the case during the three months ended March 31, 2017.

  

(4)     Costs and Estimated Earnings in Excess of Billings



Costs and estimated earnings in excess of billings, as reported on the Balance Sheet, consist of the following:







 

 

 

 

 



 

 

 

 

 



As of March 31,

 

As of December 31,

(in thousands)

2017

 

2016

Claims

$

464,220 

 

$

477,425 

Unapproved change orders

 

250,114 

 

 

207,475 

Other unbilled costs and profits

 

126,426 

 

 

146,926 

Total costs and estimated earnings in excess of billings

$

840,760 

 

$

831,826 



Claims and unapproved change orders are billable upon the agreement and resolution between the contractual parties and after the execution of contractual amendments. Increases in claims and unapproved change orders typically result from costs being incurred against existing or new positions where recovery is concluded to be both probable and reliably estimable; decreases normally result from resolutions and subsequent billings. Other unbilled costs and profits are billable in accordance with the billing terms of each of the existing contractual arrangements and, as such, the timing of contract billing cycles can cause fluctuations in the balance of unbilled costs and profits. Ultimate resolution of other unbilled costs and profits typically involves the passage of time and, often, incremental progress toward contractual requirements or milestones.



8


 

Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(5)     Financial Commitments



Subsequent Events - Debt Transactions



2017 Senior Notes



On April 20, 2017, the Company issued $500 million in aggregate principal amount of 6.875% Senior Notes due 2025 (the “2017 Senior Notes”) in a private placement offering. Interest on the 2017 Senior Notes is payable in arrears semi-annually on May 1 and November 1 of each year, beginning on November 1, 2017.



Prior to May 1, 2020, the Company may redeem the 2017 Senior Notes at a redemption price equal to 100% of their principal amount plus a “make whole” premium described in the indenture. In addition, prior to May 1, 2020, the Company may redeem up to 40% of the original aggregate principal amount of the notes at a redemption price of 106.875% of their principal amount with the proceeds received by the Company from any equity offering. After May 1, 2020, the Company may redeem the 2017 Senior Notes at specified redemption prices described in the indenture. Upon a change of control, holders of the 2017 Senior Notes may require the Company to repurchase all or part of the 2017 Senior Notes at 101% of the principal amount thereof, plus accrued and unpaid interest, if any, to, but excluding, the redemption date.



The 2017 Senior Notes are senior unsecured obligations of the Company and are guaranteed by substantially all of the Company’s existing and future subsidiaries that also guarantee obligations under the Company’s 2017 Credit Facility, as defined below. In addition, the indenture for the 2017 Senior Notes provides for customary covenants, including restrictions on the payment of dividends and share repurchases, and events of default.



2017 Credit Facility



On April 20, 2017 the Company entered into a credit agreement (the “2017 Credit Facility”) with SunTrust Bank as Administrative Agent, Swing Line Lender and L/C Issuer and a syndicate of other lenders. The 2017 Credit Facility provides for a $350 million revolving credit facility (the “2017 Revolver”) and a sublimit for the issuance of letters of credit and swingline loans up to the aggregate amount of $150 million and $10.0 million, respectively, both maturing on April 20, 2022 unless any of the Convertible Notes, as defined below, are outstanding on December 17, 2020, in which case all such borrowings will mature on December 17, 2020 (subject to certain further exceptions). In addition, the 2017 Credit Facility permits additional borrowings in an aggregate amount of $150 million, which can be in the form of increased capacity on the 2017 Revolver or the establishment of one or more term loans.



Borrowings under the 2017 Revolver bear interest, at the Company’s option, at a rate equal to a margin over (a) the London Interbank Offered Rate (“LIBOR”) plus a margin of between 1.50% and 3.00% (which is initially 2.50%) or (b) a base rate (determined by reference to the highest of (i) the administrative agent’s prime lending rate, (ii) the federal funds effective rate plus 50 basis points, (iii) the LIBOR rate for a one-month interest period plus 100 basis points and (iv) 0%) plus a margin of between 0.50% and 2.00% (which is initially 1.50%), in each case based on the Consolidated Leverage Ratio (as defined in the 2017 Credit Agreement). In addition to paying interest on outstanding principal under the 2017 Credit Agreement, the Company will pay a commitment fee to the lenders under the 2017 Revolver in respect of the unutilized commitments thereunder. The Company will pay customary letter of credit fees. If an event of default occurs and is continuing, the otherwise applicable margin and letter of credit fees will be increased by 2% per annum.



The 2017 Credit Facility contains customary covenants for credit facilities of this type, including maximum consolidated leverage ratios ranging from 4.00:1.00 to 3.25:1.00 over the life of the facility and a minimum consolidated fixed charge coverage ratio of 1.25:1.00. Substantially all of the Company’s subsidiaries unconditionally guarantee the obligations of the Company under the 2017 Credit Facility; additionally, the obligations are secured by a lien on all personal property of the Company and its subsidiaries guaranteeing these obligations.



Repurchase and Redemption of 2010 Senior Notes and Termination of 2014 Credit Facility



On April 20, 2017, the Company used proceeds from the 2017 Senior Notes and 2017 Revolver to repurchase or redeem its 2010 Senior Notes, to pay off its Term Loan and 2014 Revolver, and to pay accrued but unpaid interest and fees. In addition, the indenture governing the 2010 Senior Notes was satisfied and discharged, and the Company terminated the 2014 Credit Facility.



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Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

Long-Term Debt



Long-term debt consisted of the following as of the dates of the Balance Sheets presented:





 

 

 

 

 



 

 

 

 

 



As of March 31,

 

As of December 31,

(in thousands)

2017

 

2016

Term Loan

$

47,699 

 

$

54,650 

2014 Revolver

 

181,302 

 

 

147,990 

2010 Senior Notes

 

298,374 

 

 

298,120 

Convertible Notes

 

154,832 

 

 

152,668 

Equipment financing, mortgages and acquisition-related notes

 

95,453 

 

 

101,558 

Other indebtedness

 

3,129 

 

 

4,533 

Total debt

 

780,789 

 

 

759,519 

Less – current maturities

 

(27,598)

 

 

(85,890)

Long-term debt, net

$

753,191 

 

$

673,629 



The following table reconciles the outstanding debt balance to the reported debt balances as of March 31, 2017 and December 31, 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of March 31, 2017

 

As of December 31, 2016

(in thousands)

Outstanding Long-Term Debt

 

Unamortized Discounts and Issuance Costs

 

Long-Term

Debt,

as reported

 

Outstanding Long-Term Debt

 

Unamortized Discounts and Issuance Costs

 

Long-Term

Debt,

as reported

Term Loan

$

49,500 

 

$

(1,801)

 

$

47,699 

 

$

57,000 

 

$

(2,350)

 

$

54,650 

2014 Revolver

 

185,000 

 

 

(3,698)

 

 

181,302 

 

 

152,500 

 

 

(4,510)

 

 

147,990 

2010 Senior Notes

 

300,000 

 

 

(1,626)

 

 

298,374 

 

 

300,000 

 

 

(1,880)

 

 

298,120 

Convertible Notes

 

200,000 

 

 

(45,168)

 

 

154,832 

 

 

200,000 

 

 

(47,332)

 

 

152,668 



2010 Senior Notes



In October 2010, the Company issued $300 million of 7.625% Senior Notes due November 1, 2018 (the “2010 Senior Notes”) in a private placement offering. As discussed above, on April 20, 2017, the Company repurchased or redeemed the 2010 Senior Notes in full and the related indenture was satisfied and discharged.



2014 Credit Facility



On June 5, 2014, the Company entered into a Sixth Amended and Restated Credit Agreement, as amended (the “2014 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 2014 Credit Facility provides for a $300 million revolving credit facility (the “2014 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 2014 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 ranging from 1.25% to 3.00%, contingent upon the latest Consolidated Leverage Ratio.



As of March 31, 2017, there was $114.8 million available under the 2014 Revolver and the Company had utilized the 2014 Credit Facility for letters of credit in the amount of $0.2 million. The Company was in compliance with the financial covenants under the 2014 Credit Facility for the period ended March 31, 2017. As discussed above, on April 20, 2017, the Company repaid all borrowings under the 2014 Credit Facility and concurrently terminated the facility; consequently, the Company presented the full amount due under the Term Loan as long-term debt in its Condensed Consolidated Balance Sheet at March 31, 2017, as required by ASC 470, Debt.



Convertible Notes



On June 15, 2016, the Company issued $200 million of 2.875% Convertible Senior Notes due June 15, 2021 (the “Convertible Notes”) in a private placement offering. The Convertible Notes are unsecured obligations and do not contain any financial covenants or

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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 semi-annually in June and December.



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) 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 rate of 33.0579 (or $39.32), 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 their Convertible Notes in connection with such a corporate event including customary conversion rate adjustments in connection with a “make-whole fundamental change” described in the indenture. 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. As of March 31, 2017, none of the conversion provisions of the Convertible Notes have been triggered.



Interest Expense



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







 

 

 

 

 



 

 

 

 

 



Three Months Ended



March 31,

(in thousands)

2017

 

2016

Cash interest expense:

 

 

 

 

 

Interest on 2014 Credit Facility

$

3,709 

 

$

5,338 

Interest on 2010 Senior Notes

 

5,719 

 

 

5,719 

Interest on Convertible Notes

 

1,438 

 

 

 —

Other interest

 

862 

 

 

1,336 

Total cash interest expense

 

11,728 

 

 

12,393 



 

 

 

 

 

Non-cash interest expense:(a)

 

 

 

 

 

Amortization of debt issuance costs on 2014 Credit Facility

 

1,418 

 

 

1,439 

Amortization of discount and debt issuance costs on 2010 Senior Notes

 

254 

 

 

248 

Amortization of discount and debt issuance costs on Convertible Notes

 

2,164 

 

 

 —

Total non-cash interest expense

 

3,836 

 

 

1,687 



 

 

 

 

 

Total cash and non-cash interest expense

$

15,564 

 

$

14,080 

____________________________________________________________________________________________________

(a)Non-cash interest expense, when combined with cash interest expense, produces effective interest rates that are higher than contractual rates. Accordingly, the effective interest rates for the quarter ended March 31, 2017 are as follows: for the 2014 Credit Facility, 9.86%; for the 2010 Senior Notes, 7.99%; and for the Convertible Notes, 9.39%.

 

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(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. Management believes that, based on current information and discussions with the Company’s legal counsel, the ultimate resolution of these matters is not expected to have a material adverse effect on the Company’s financial position, results of operations, or cash flows.



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 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 $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 affirmative 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

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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. Settlement discussions are 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.



In January 2017, the Court granted the City’s motion for summary judgment and dismissed the Company’s claim against the City of New York. The Company has filed a notice of appeal. The Court also granted the Company’s motion for summary judgment for release of retention plus interest from 2010 for an aggregate amount of approximately $1.1 million.



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.



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

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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. In March 2017, the parties agreed to a proposed settlement subject to final government approval.



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.



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 Insurers 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 their 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. Hitachi, the manufacturer of the TBM, has also joined the case as a plaintiff for costs incurred to repair the damages to the TBM. Trial is scheduled for May 2018. Discovery is ongoing. 



In March 2016, WSDOT filed a complaint against STP in Thurston County Superior Court for breach of contract alleging STP’s delays and failure to perform and declaratory relief concerning contract interpretation. STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and against the manufacturer of the TBM. Trial is set for June 2018. Discovery is ongoing.

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As of March 31, 2017, the Company has concluded that the potential for a material adverse financial impact due to the Insurers denial of coverage and WSDOT’s legal actions is neither probable nor remote. With respect to STP’s claims against WSDOT and Hitachi, management has included an estimate of the total anticipated recovery, concluded to be both probable and reliably estimable, in receivables or costs and estimated earnings in excess of billings 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, 2016. During the first three months of 2017 and 2016, the Company issued the following share-based instruments: (1) restricted stock units of 665,000 and 483,387 at weighted-average per share prices of $30.48 and $19.14, respectively; and (2) stock options of 265,000 and 274,000 at weighted-average per share exercise prices of $23.47 and $16.20, respectively.



Effective January 1, 2017, the Company prospectively adopted ASU 2016-09, Improvements to Employee Share-Based Payment Accounting (Topic 718), which simplifies several aspects of the accounting for share-based payment transactions, including the accounting for the income tax effect of share-based transactions and the forfeiture of share-based instruments. Upon this adoption, the Company elected an accounting policy requiring forfeitures of share-based instruments to be accounted for upon occurrence. As a result, the Company will recognize the full grant-date fair value of share-based awards throughout the requisite service and/or performance period, with any adjustments for forfeitures recognized only if and when a forfeiture occurs. In the first quarter of 2017, 20,985 performance-based restricted stock units, with a weighted-average per share price of $23.91, and 19,466 performance-based stock options, with a weighted-average per share exercise price of $26.56, were forfeited; however, the impact of these forfeitures was not recognized in the first quarter of 2017 because it was previously recognized in the fourth quarter of 2016 in accordance with the provisions of ASC 718 before the adoption of ASU 2016-09.

  

(8)     Other Comprehensive Income (Loss)



ASC 220, Comprehensive Income, establishes standards for reporting and displaying comprehensive income and its components in the consolidated financial statements. The Company reports the change in pension benefit plans assets/liabilities, cumulative foreign currency translation, change in fair value of investments and change in fair value of an interest rate swap as components of accumulated other comprehensive loss (“AOCI”).



The tax effects of the components of other comprehensive income (loss) for the three months ended March 31, 2017 and 2016 are as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Three Months Ended



March 31, 2017

 

March 31, 2016

(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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

$

455 

 

$

(187)

 

$

268 

 

$

427 

 

$

(180)

 

$

247 

Foreign currency translation adjustments

 

(92)

 

 

38 

 

 

(54)

 

 

1,604 

 

 

(674)

 

 

930 

Unrealized (loss) gain in fair value of investments

 

(36)

 

 

15 

 

 

(21)

 

 

13 

 

 

(5)

 

 

Unrealized loss in fair value of interest rate swap

 

 —

 

 

 —

 

 

 —

 

 

(62)

 

 

27 

 

 

(35)

Total other comprehensive income

$

327 

 

$

(134)

 

$

193 

 

$

1,982 

 

$

(832)

 

$

1,150 



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The changes in AOCI balances by component (after tax) for the three months ended March 31, 2017 and 2016 are as follows:







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended March 31, 2017



 

 

 

 

Unrealized

 

 



Defined

 

 

 

Gain (Loss) in

 

Accumulated



Benefit

 

Foreign

 

Fair Value of

 

Other



Pension

 

Currency

 

Investments,

 

Comprehensive

(in thousands)

Plan

 

Translation

 

Net

 

Loss

Balance as of December 31, 2016

$

(40,865)

 

$

(4,864)

 

$

316 

 

$

(45,413)

Other comprehensive loss before reclassifications

 

 —

 

 

(54)

 

 

(21)

 

 

(75)

Amounts reclassified from AOCI

 

268 

 

 

 —

 

 

 —

 

 

268 

Total other comprehensive income (loss)

 

268 

 

 

(54)

 

 

(21)

 

 

193 

Balance as of March 31, 2017

$

(40,597)

 

$

(4,918)

 

$

295 

 

$

(45,220)







 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended March 31, 2016



 

 

 

 

Unrealized

 

Unrealized

 

 



Defined

 

 

 

Gain in Fair

 

Gain (Loss) in

 

Accumulated



Benefit

 

Foreign

 

Value of

 

Fair Value of

 

Other



Pension

 

Currency

 

Investments,

 

Interest Rate

 

Comprehensive

(in thousands)

Plan

 

Translation

 

Net

 

Swap, Net

 

Loss

Balance as of December 31, 2015

$

(38,242)

 

$

(4,603)

 

$

656 

 

$

24 

 

$

(42,165)

Other comprehensive gain (loss) before reclassifications

 

 —

 

 

930 

 

 

 

 

(35)

 

 

903 

Amounts reclassified from AOCI

 

247 

 

 

 —

 

 

 —

 

 

 —

 

 

247 

Total other comprehensive income (loss)

 

247 

 

 

930 

 

 

 

 

(35)

 

 

1,150 

Balance as of March 31, 2016

$

(37,995)

 

$

(3,673)

 

$

664 

 

$

(11)

 

$

(41,015)



The significant 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

 



 

Condensed Consolidated

 

March 31,

 

(in thousands)

 

Statements of Operations

 

2017

 

2016

 

Defined benefit pension plan adjustments

 

Various accounts(a)

 

$

455 

 

$

427 

 

Income tax benefit

 

Provision for income taxes

 

 

(187)

 

 

(180)

 

Net of tax

 

 

 

$

268 

 

$

247 

 

____________________________________________________________________________________________________

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

  

(9)     Income Taxes



The Company’s effective income tax rate for the three months ended March 31, 2017 was 37.1% compared to 42.4% for the same period in 2016. The effective tax rate for the first quarter of 2017 was favorably impacted by tax benefits associated with share-based compensation recognized under the provision of ASU 2016-09, as discussed in Note 7. This tax benefit is the result of a greater tax deduction for share-based compensation expense for awards vesting in the first quarter of 2017 relative to the share-based compensation expense recognized under GAAP for these same awards. For tax purposes, the value of deductible share-based compensation is based on the closing price of the Company’s common stock on the date of vesting; whereas for GAAP purposes, the value of shared-based compensation expense is determined using the closing price of the Company’s common stock on the date of grant. To the extent these values are different, the Company will recognize an additional tax benefit or expense,  either of which would have an impact on the Company’s effective income tax rate. Accordingly, the tax benefit recognized in the first quarter of 2017 resulted from the appreciation in the value of the Company’s common stock from the date of grant to the date of vesting. The effective tax rate for the first quarter of 2016 was unfavorably impacted by various discrete items, including certain state tax rate changes on deferred taxes.

 

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(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 inputs are observable quoted prices in active markets for identical assets or liabilities

·

Level 2 inputs are observable, either directly or indirectly, but are not Level 1 inputs

·

Level 3 inputs are unobservable



The following table presents, by fair value hierarchy level, the Company’s assets that are measured at fair value on a recurring basis, as of March 31, 2017 and December 31, 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of March 31, 2017

 

As of December 31, 2016



 

Fair Value Hierarchy

 

Fair Value Hierarchy

(in thousands)

 

Total

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Level 1

 

Level 2

 

Level 3

Cash and cash equivalents (a)

 

$

104,817 

 

$

104,817 

 

$

 —

 

$

 —

 

$

146,103 

 

$

146,103 

 

$

 —

 

$

 —

Restricted cash (a)

 

 

60,158 

 

 

60,158 

 

 

 —

 

 

 —

 

 

50,504 

 

 

50,504 

 

 

 —

 

 

 —

Investments in lieu of retainage (b)

 

 

53,852 

 

 

50,317 

 

 

3,535 

 

 

 —

 

 

51,266 

 

 

46,855 

 

 

4,411 

 

 

 —

Total

 

$

218,827 

 

$

215,292 

 

$

3,535 

 

$

 —

 

$

247,873 

 

$

243,462 

 

$

4,411 

 

$

 —

____________________________________________________________________________________________________

(a)Includes money market funds with original maturity dates of three months or less.

(b)Investments in lieu of customer retainage are classified as accounts receivable and are comprised of money market funds and municipal bonds, the majority of which are rated Aa3 or better. The fair values of the money market funds are measured using quoted market prices; therefore, they are classified as Level 1 assets. The fair values of municipal bonds are measured using readily available pricing sources for comparable instruments; therefore, they are classified as Level 2 assets.



The Company did not have material transfers between Levels 1 and 2 during the three months ended March 31, 2017 or 2016.



The carrying values of receivables, payables and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, are estimated to approximate fair value. Of the Company’s long-term debt, the fair value of the 2010 Senior Notes as of March 31, 2017 and December 31, 2016 was $304.0 million and $302.6 million, respectively, and the fair value of the Convertible Notes was $249.2 million and $228.4 million as of March 31, 2017 and December 31, 2016, respectively. The fair values were determined using Level 1 inputs, specifically current observable market prices. The reported value of the Company’s remaining long-term debt at March 31, 2017 and December 31, 2016 approximates fair value.  

 

(11)     Business Segments



The Company offers general contracting, pre-construction planning and comprehensive project management services, including planning and scheduling of 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: site work; concrete forming and placement; steel erection; electrical; mechanical; plumbing; and heating, ventilation and air conditioning (HVAC). As described below, our business is conducted through three segments: Civil, Building and Specialty Contractors. These segments are determined based on how the Company’s Chairman and Chief Executive Officer (chief operating decision maker) aggregates business units when evaluating performance and allocating resources.



The Civil segment specializes in public works construction and the replacement and reconstruction of infrastructure. The civil contracting services include construction and rehabilitation of highways, bridges, tunnels, mass-transit systems, and water management and wastewater treatment facilities.



The Building segment has significant experience providing services for private and public works customers in a number of specialized building markets, including: high-rise residential, hospitality and gaming, transportation, health care, commercial and government offices, sports and entertainment, education, correctional facilities, biotech, pharmaceutical, industrial and high-tech.



The Specialty Contractors segment specializes in electrical, mechanical, plumbing, HVAC, fire protection systems and pneumatically placed concrete for a full range of civil and building construction projects in the industrial, commercial, hospitality and gaming, and mass-transit end markets. This segment provides the Company with unique strengths and capabilities that allow the Company to position itself as a full-service contractor with greater control over scheduled work, project delivery and risk management.

17


 

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TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 



The following table sets forth certain reportable segment information relating to the Company’s operations for the three months ended March 31, 2017 and 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Reportable Segments

 

 

 

 

 

 



 

 

 

 

 

 

Specialty

 

 

 

 

 

 

 

Consolidated

(in thousands)

Civil

 

 

Building

 

Contractors

 

Total

 

Corporate

 

Total

Three Months Ended March 31, 2017

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

$

338,108 

 

$

515,251 

 

$

315,696 

 

$

1,169,055 

 

$

 —

 

$

1,169,055 

Elimination of intersegment revenue

 

(33,533)

 

 

(18,161)

 

 

 —

 

 

(51,694)

 

 

 —

 

 

(51,694)

Revenue from external customers

$

304,575 

 

$

497,090 

 

$

315,696 

 

$

1,117,361 

 

$

 —

 

$

1,117,361 

Income from construction operations

$

31,888 

 

$

5,242 

 

$

14,762 

 

$

51,892 

 

$

(14,875)

(a)

$

37,017 

Capital expenditures

$

5,567 

 

$

45 

 

$

 

$

5,618 

 

$

54 

 

$

5,672 

Depreciation and amortization (b)

$

16,318 

 

$

518 

 

$

1,192 

 

$

18,028 

 

$

2,968 

 

$

20,996 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue

$

367,501 

 

$

487,994 

 

$

281,773 

 

$

1,137,268 

 

$

 —

 

$

1,137,268 

Elimination of intersegment revenue

 

(31,643)

 

 

(20,256)

 

 

 —

 

 

(51,899)

 

 

 —

 

 

(51,899)

Revenue from external customers

$

335,858 

 

$

467,738 

 

$

281,773 

 

$

1,085,369 

 

$

 —

 

$

1,085,369 

Income from construction operations

$

33,665 

 

$

12,450 

 

$

9,413 

 

$

55,528 

 

$

(15,406)

(a)

$

40,122 

Capital expenditures

$

3,612 

 

$

221 

 

$

625 

 

$

4,458 

 

$

354 

 

$

4,812 

Depreciation and amortization (b)

$

8,083 

 

$

557 

 

$

1,305 

 

$

9,945 

 

$

2,864 

 

$

12,809 

____________________________________________________________________________________________________

(a)Consists primarily of corporate general and administrative expenses.

(b)

Depreciation and amortization is included in income from construction operations.



During the first three months of 2016, the Company recorded net favorable adjustments totaling $3.0 million in income from construction operations  ($0.04 per diluted share) for various Five Star Electric projects in New York in the Specialty Contractors segment. The net impact included material adjustments related to two electrical subcontract projects: a favorable adjustment of $14.0 million for a completed project ($0.17 per diluted share) and an unfavorable adjustment of $13.8 million for a project that was nearly complete ($0.17 per diluted share). These were the only changes in estimates considered material to the Company’s results of operations during the periods presented herein.



A reconciliation of segment results to the consolidated income before income taxes is as follows:





 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,

(in thousands)

2017

 

2016

Income from construction operations

$

37,017 

 

$

40,122 

Other income, net

 

417 

 

 

682 

Interest expense

 

(15,564)

 

 

(14,080)

Income before income taxes

$

21,870 

 

$

26,724 



Total assets by segment are as follows:





 

 

 

 

 



 

 

 

 

 

(in thousands)

March 31, 2017

 

December 31, 2016

Civil

$

2,102,432 

 

$

2,152,123 

Building

 

896,442 

 

 

917,317 

Specialty Contractors

 

793,507 

 

 

813,851 

Corporate and other (a)

 

206,102 

 

 

155,329 

Total Assets

$

3,998,483 

 

$

4,038,620 

____________________________________________________________________________________________________

(a)

Consists principally of cash, equipment, tax-related assets and insurance-related assets, offset by the elimination of assets related to intersegment revenue.

 



18


 

Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(12)     Employee Pension Plans



The Company has a defined benefit pension plan and an unfunded supplemental retirement plan. Effective September 1, 2004, all benefit accruals under these plans were frozen; however, the current vested benefit was preserved. The pension disclosure presented below includes aggregated amounts for both of the Company’s plans.



The following table sets forth the net periodic benefit cost for the three months ended March 31, 2017 and 2016:





 

 

 

 

 



 

 

 

 

 



Three Months Ended March 31,

(in thousands)

2017

 

2016

Interest cost

$

975 

 

$

1,053 

Expected return on plan assets

 

(1,088)

 

 

(1,203)

Amortization of net loss

 

456 

 

 

427 

Other

 

213 

 

 

150 

Net periodic benefit cost

$

556 

 

$

427 



The Company contributed $0.8 million and $0.3 million to its defined benefit pension plan during the three months ended March 31, 2017 and 2016, respectively, and expects to contribute an additional $1.8 million later in 2017.

 



 

(13)     Separate Financial Information of Subsidiary Guarantors of Indebtedness



The Company’s obligations on its 2010 Senior Notes are guaranteed by substantially all of the Company’s existing and future subsidiaries that guarantee obligations under the 2014 Credit Facility (the “Guarantors”). The guarantees are full and unconditional as well as joint and several. The Guarantors are wholly owned subsidiaries of the Company.



The following supplemental condensed consolidating financial information reflects the summarized financial information of the Company as the issuer of the senior unsecured notes, the Guarantors and the Company’s non-guarantor subsidiaries on a combined basis. 



19


 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 2017



UNAUDITED











 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

Non-

 

 

 

 

 

 



 

Tutor Perini

 

Guarantor

 

Guarantor

 

 

 

 

Total

(in thousands)

 

Corporation

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

Revenue

 

$

246,011 

 

$

999,356 

 

$

6,756 

 

$

(134,762)

 

$

1,117,361 

Cost of operations

 

 

(223,588)

 

 

(925,815)

 

 

 —

 

 

134,762 

 

 

(1,014,641)

Gross profit

 

 

22,423 

 

 

73,541 

 

 

6,756 

 

 

 —

 

 

102,720 

General and administrative expenses

 

 

(22,238)

 

 

(42,998)

 

 

(467)

 

 

 —

 

 

(65,703)

Income from construction operations

 

 

185 

 

 

30,543 

 

 

6,289 

 

 

 —

 

 

37,017 

Equity in earnings of subsidiaries

 

 

23,529 

 

 

 —

 

 

 —

 

 

(23,529)

 

 

 —

Other income (expense), net

 

 

(252)

 

 

707 

 

 

307 

 

 

(345)

 

 

417 

Interest expense

 

 

(15,451)