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EX-95 - EX-95 - TUTOR PERINI CORPtpc-20170630xex95.htm
EX-32.2 - EX-32.2 - TUTOR PERINI CORPtpc-20170630xex32_2.htm
EX-32.1 - EX-32.1 - TUTOR PERINI CORPtpc-20170630xex32_1.htm
EX-31.2 - EX-31.2 - TUTOR PERINI CORPtpc-20170630xex31_2.htm
EX-31.1 - EX-31.1 - TUTOR PERINI CORPtpc-20170630xex31_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 June 30, 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 August 3, 2017 was 49,781,010.









 


 

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 and Six Months Ended June 30, 2017 and 2016 (Unaudited)



 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2017 and 2016 (Unaudited)



 

Condensed Consolidated Balance Sheets as of June 30, 2017 and December 31, 2016 (Unaudited)



 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2017 and 2016 (Unaudited)



 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7-23 



Item 2.

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

24-30 



Item 3.

Quantitative and Qualitative Disclosures About Market Risk

30 



Item 4.

Controls and Procedures

30 

Part II.

Other Information:

 



Item 1.

Legal Proceedings

30 



Item 1A.

Risk Factors

30 



Item 4.

Mine Safety Disclosures

30 



Item 5.

Other Information

31 



Item 6.

Exhibits

31 



Signature

 

32 





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 common share amounts)

2017

 

2016

 

2017

 

2016

REVENUE

$

1,247,274 

 

$

1,308,130 

 

$

2,364,635 

 

$

2,393,499 

COST OF OPERATIONS

 

(1,144,436)

 

 

(1,198,360)

 

 

(2,159,078)

 

 

(2,178,637)

GROSS PROFIT

 

102,838 

 

 

109,770 

 

 

205,557 

 

 

214,862 

General and administrative expenses

 

(68,793)

 

 

(60,941)

 

 

(134,495)

 

 

(125,911)

INCOME FROM CONSTRUCTION OPERATIONS

 

34,045 

 

 

48,829 

 

 

71,062 

 

 

88,951 

Other income, net

 

40,990 

 

 

2,485 

 

 

41,406 

 

 

3,166 

Interest expense

 

(22,519)

 

 

(15,534)

 

 

(38,083)

 

 

(29,614)

INCOME BEFORE INCOME TAXES

 

52,516 

 

 

35,780 

 

 

74,385 

 

 

62,503 

Provision for income taxes

 

(19,883)

 

 

(14,419)

 

 

(27,988)

 

 

(25,743)

NET INCOME

 

32,633 

 

 

21,361 

 

 

46,397 

 

 

36,760 

LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

(2,537)

 

 

 —

 

 

(2,537)

 

 

 —

NET INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION

$

30,096 

 

$

21,361 

 

$

43,860 

 

$

36,760 

BASIC EARNINGS PER COMMON SHARE

$

0.61 

 

$

0.43 

 

$

0.89 

 

$

0.75 

DILUTED EARNINGS PER COMMON SHARE

$

0.59 

 

$

0.43 

 

$

0.86 

 

$

0.74 

WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

 

 

 

 

 

 

BASIC

 

49,735 

 

 

49,131 

 

 

49,510 

 

 

49,105 

DILUTED

 

50,755 

 

 

49,561 

 

 

50,853 

 

 

49,423 





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)

2017

 

2016

 

2017

 

2016

NET INCOME

$

32,633 

 

$

21,361 

 

$

46,397 

 

$

36,760 



 

 

 

 

 

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

 

269 

 

 

324 

 

 

537 

 

 

571 

Foreign currency translation adjustments

 

649 

 

 

(258)

 

 

595 

 

 

672 

Unrealized loss in fair value of investments

 

(3)

 

 

(153)

 

 

(24)

 

 

(145)

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

 

 —

 

 

11 

 

 

 —

 

 

(24)

TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX

 

915 

 

 

(76)

 

 

1,108 

 

 

1,074 



 

 

 

 

 

 

 

 

 

 

 

COMPREHENSIVE INCOME

 

33,548 

 

 

21,285 

 

 

47,505 

 

 

37,834 

LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS

 

(2,537)

 

 

 —

 

 

(2,537)

 

 

 —

COMPREHENSIVE INCOME ATTRIBUTABLE TO TUTOR PERINI CORPORATION

$

31,011 

 

$

21,285 

 

$

44,968 

 

$

37,834 





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 June 30,

 

As of December 31,

(in thousands, except share and per share amounts)

2017

 

2016

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents ($37,445 and $0 related to variable interest entities ("VIEs"))

$

172,927 

 

$

146,103 

Restricted cash

 

52,051 

 

 

50,504 

Accounts receivable ("AR") including retainage of $602,581 and $569,391 (AR of $56,912 and $0 related to VIEs)

 

1,838,359 

 

 

1,743,300 

Costs and estimated earnings in excess of billings

 

850,634 

 

 

831,826 

Other current assets

 

77,736 

 

 

66,023 

Total current assets

 

2,991,707 

 

 

2,837,756 

PROPERTY AND EQUIPMENT, net of accumulated depreciation

of $339,045 and $313,783

 

456,001 

 

 

477,626 

GOODWILL

 

585,006 

 

 

585,006 

INTANGIBLE ASSETS, NET

 

91,226 

 

 

92,997 

OTHER ASSETS

 

40,926 

 

 

45,235 

TOTAL ASSETS

$

4,164,866 

 

$

4,038,620 



 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

$

30,333 

 

$

85,890 

Accounts payable ("AP") including retainage of $274,045 and $258,294 (AP of $57,888 and $0 related to VIEs)

 

899,284 

 

 

994,016 

Billings in excess of costs and estimated earnings ($30,293 and $0 related to VIEs)

 

339,808 

 

 

331,112 

Accrued expenses and other current liabilities

 

176,148 

 

 

107,925 

Total current liabilities

 

1,445,573 

 

 

1,518,943 

LONG-TERM DEBT, less current maturities, net of unamortized
discounts and debt issuance costs totaling $57,434 and $56,072

 

832,327 

 

 

673,629 

DEFERRED INCOME TAXES

 

131,292 

 

 

131,007 

OTHER LONG-TERM LIABILITIES

 

155,810 

 

 

162,018 

TOTAL LIABILITIES

 

2,565,002 

 

 

2,485,597 



 

 

 

 

 

CONTINGENCIES AND COMMITMENTS (NOTE 7)

 

 

 

 

 



 

 

 

 

 

EQUITY

 

 

 

 

 

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 49,760,256 and 49,211,353 shares

 

49,760 

 

 

49,211 

Additional paid-in capital

 

1,075,637 

 

 

1,075,600 

Retained earnings

 

517,485 

 

 

473,625 

Accumulated other comprehensive loss

 

(44,305)

 

 

(45,413)

Total Stockholders' Equity

 

1,598,577 

 

 

1,553,023 

Noncontrolling interests

 

1,287 

 

 

 —

TOTAL EQUITY

 

1,599,864 

 

 

1,553,023 



 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

$

4,164,866 

 

$

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









 

 

 

 

 



 

 

 

 

 



Six Months Ended June 30,

(in thousands)

2017

 

2016

Cash Flows from Operating Activities:

 

 

 

 

 

Net income

$

46,397 

 

$

36,760 

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

 

 

 

 

 

Depreciation

 

28,987 

 

 

28,185 

Amortization of intangible assets

 

1,771 

 

 

1,771 

Share-based compensation expense

 

10,420 

 

 

6,959 

Change in debt discounts and deferred debt issuance costs

 

11,950 

 

 

3,348 

Deferred income taxes

 

(1)

 

 

(371)

(Gain) loss on sale of property and equipment

 

(349)

 

 

204 

Other long-term liabilities

 

(2,801)

 

 

(3,811)

Other non-cash items

 

1,785 

 

 

1,200 

Changes in other components of working capital 

 

(132,779)

 

 

(69,669)

NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES

 

(34,620)

 

 

4,576 



 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisition of property and equipment excluding financed purchases

 

(8,183)

 

 

(8,681)

Proceeds from sale of property and equipment

 

1,336 

 

 

1,092 

Investments in securities restricted in use

 

(9,297)

 

 

 —

Change in restricted cash

 

(1,547)

 

 

(3,599)

NET CASH USED IN INVESTING ACTIVITIES

 

(17,691)

 

 

(11,188)



 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from issuance of convertible notes

 

 —

 

 

200,000 

Proceeds from debt

 

1,276,457 

 

 

711,092 

Repayment of debt

 

(1,171,954)

 

 

(871,654)

Issuance of common stock and effect of cashless exercise

 

(10,809)

 

 

 —

Distributions paid to noncontrolling interests

 

(2,500)

 

 

 —

Contributions from noncontrolling interests

 

1,250 

 

 

 —

Debt issuance costs

 

(13,309)

 

 

(14,656)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

79,135 

 

 

24,782 



 

 

 

 

 

Net increase in cash and cash equivalents

 

26,824 

 

 

18,170 

Cash and cash equivalents at beginning of period

 

146,103 

 

 

75,452 

Cash and cash equivalents at end of period

$

172,927 

 

$

93,622 





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 and six months ended June 30, 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 June 30, 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 expects to adopt this new standard using the modified retrospective method. The Company is currently reviewing contracts in order to determine the impact, if any, that the adoption of ASU 2014-09 will have on its consolidated financial statements. The Company is also identifying and implementing changes to the Company’s business processes, systems and internal controls to support the adoption of this new standard and the related disclosure requirements. 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 will continue its evaluation of ASU 2014-09 (including how it may impact future contracts, as well as any new or emerging interpretations of the standard) through the date of adoption.



In May 2017, the FASB issued ASU 2017-09, Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting. This ASU clarifies the scope of modification accounting under Topic 718 with respect to changes to the terms or conditions of a share-based payments award. Under this new guidance, modification accounting would not apply if a change to an award does not affect the total current fair value, vesting conditions or the classification of the award. This guidance will be effective for the Company as of January 1, 2018, with early adoption permitted. The Company does not expect the adoption of this ASU to have a material impact 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 attributable to Tutor Perini Corporation 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, which for the Company can include restricted stock units, unexercised stock options and the Convertible Notes, as defined in Note 6. The Company calculates the effect of these potentially dilutive securities using the treasury stock method.





 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,

(in thousands, except per common share amounts)

2017

 

2016

 

2017

 

2016

Net income attributable to Tutor Perini Corporation

$

30,096 

 

$

21,361 

 

$

43,860 

 

$

36,760 



 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding, basic

 

49,735 

 

 

49,131 

 

 

49,510 

 

 

49,105 

Effect of dilutive restricted stock units and stock options

 

1,020 

 

 

430 

 

 

1,343 

 

 

318 

Weighted-average common shares outstanding, diluted

 

50,755 

 

 

49,561 

 

 

50,853 

 

 

49,423 



 

 

 

 

 

 

 

 

 

 

 

Earnings per common share:

 

 

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

0.61 

 

$

0.43 

 

$

0.89 

 

$

0.75 

Diluted earnings per common share

$

0.59 

 

$

0.43 

 

$

0.86 

 

$

0.74 



 

 

 

 

 

 

 

 

 

 

 

Anti-dilutive shares not included above

 

353 

 

 

1,704 

 

 

672 

 

 

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.

  

(4)     Income Taxes



The Company’s effective income tax rate for the three and six months ended June 30, 2017 was 37.9% and 37.6%, respectively, compared to 40.3% and 41.2% for the three and six months ended June 30, 2016, respectively. The effective tax rate for the three months ended June 30, 2017 was favorably impacted by earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company. The effective tax rate for the six months ended June 30, 2017 was favorably impacted by earnings attributable to noncontrolling interests, reductions in estimated non-deductible expenses and tax benefits associated with share-based compensation. During the first quarter of 2017, the Company recognized tax benefits associated with share-based compensation under the provisions of ASU 2016-09, as discussed in Note 9. This tax benefit is the result of a greater tax deduction for share-based compensation expense for awards that vested in the first quarter of 2017 relative to the share-based compensation expense recognized under GAAP for these same awards. The effective tax rate for the second quarter of 2016 was favorably impacted by adjustments related to uncertain tax benefits. The effective rate for the first half of 2016 reflects the favorable impact of the uncertain tax benefit adjustments, as well as the unfavorable impact of various discrete items, including certain state tax rate changes on deferred taxes.



(5)     Costs and Estimated Earnings in Excess of Billings



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







 

 

 

 

 



 

 

 

 

 



As of June 30,

 

As of December 31,

(in thousands)

2017

 

2016

Claims

$

486,067 

 

$

477,425 

Unapproved change orders

 

263,130 

 

 

207,475 

Other unbilled costs and profits

 

101,437 

 

 

146,926 

Total costs and estimated earnings in excess of billings

$

850,634 

 

$

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

8


 

Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

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.



(6)     Financial Commitments



Long-Term Debt



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







 

 

 

 

 



 

 

 

 

 



As of June 30,

 

As of December 31,

(in thousands)

2017

 

2016

2017 Senior Notes

$

492,360 

 

$

 —

2017 Credit Facility

 

118,160 

 

 

 —

2010 Senior Notes

 

 —

 

 

298,120 

2014 Revolver

 

 —

 

 

147,990 

Term Loan

 

 —

 

 

54,650 

Convertible Notes

 

157,046 

 

 

152,668 

Equipment financing, mortgages and acquisition-related notes

 

89,311 

 

 

101,558 

Other indebtedness

 

5,783 

 

 

4,533 

Total debt

 

862,660 

 

 

759,519 

Less – current maturities

 

(30,333)

 

 

(85,890)

Long-term debt, net

$

832,327 

 

$

673,629 



The following table reconciles the outstanding debt balance to the reported debt balances as of June 30, 2017 and December 31, 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



As of June 30, 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

2017 Senior Notes

$

500,000 

 

$

(7,640)

 

$

492,360 

 

$

 —

 

$

 —

 

$

 —

2017 Credit Facility

 

125,000 

 

 

(6,840)

 

 

118,160 

 

 

 —

 

 

 —

 

 

 —

2010 Senior Notes

 

 —

 

 

 —

 

 

 —

 

 

300,000 

 

 

(1,880)

 

 

298,120 

2014 Revolver

 

 —

 

 

 —

 

 

 —

 

 

152,500 

 

 

(4,510)

 

 

147,990 

Term Loan

 

 —

 

 

 —

 

 

 —

 

 

57,000 

 

 

(2,350)

 

 

54,650 

Convertible Notes

 

200,000 

 

 

(42,954)

 

 

157,046 

 

 

200,000 

 

 

(47,332)

 

 

152,668 



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.

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UNAUDITED

 



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 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 Facility). 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. For the three months ended June 30, 2017 the weighted-average annual interest rate on borrowings under the 2017 Revolver was approximately 3.7%.  



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.



As of June 30, 2017, there was $225 million available under the 2017 Revolver and the Company had not utilized the 2017 Credit Facility for letters of credit. The Company was in compliance with the financial covenants under the 2017 Credit Facility for the period ended June 30, 2017.



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.



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

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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 discussed above, on April 20, 2017, the Company repaid all borrowings under the 2014 Credit Facility and concurrently terminated the facility.



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 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 June 30, 2017, none of the conversion provisions of the Convertible Notes has been triggered.



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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)

2017

 

2016

 

2017

 

2016

Cash interest expense:

 

 

 

 

 

 

 

 

 

 

 

Interest on 2017 Senior Notes

$

6,780 

 

$

 —

 

$

6,780 

 

$

 —

Interest on 2017 Credit Facility

 

1,491 

 

 

 —

 

 

1,491 

 

 

 —

Interest on 2010 Senior Notes

 

1,207 

 

 

5,719 

 

 

6,926 

 

 

11,438 

Interest on 2014 Credit Facility

 

746 

 

 

7,051 

 

 

4,455 

 

 

12,389 

Interest on Convertible Notes

 

1,437 

 

 

240 

 

 

2,875 

 

 

240 

Other interest

 

831 

 

 

863 

 

 

1,693 

 

 

2,199 

Cash portion of loss on extinguishment

 

1,913 

 

 

 —

 

 

1,913 

 

 

 —

Total cash interest expense

 

14,405 

 

 

13,873 

 

 

26,133 

 

 

26,266 



 

 

 

 

 

 

 

 

 

 

 

Non-cash interest expense:(a)

 

 

 

 

 

 

 

 

 

 

 

Amortization of debt issuance costs on 2017 Senior Notes

 

141 

 

 

 —

 

 

141 

 

 

 —

Amortization of debt issuance costs on 2017 Credit Facility

 

281 

 

 

 —

 

 

281 

 

 

 —

Amortization of discount and debt issuance costs on 2010 Senior Notes

 

54 

 

 

250 

 

 

308 

 

 

498 

Amortization of debt issuance costs on 2014 Credit Facility

 

285 

 

 

1,071 

 

 

1,703 

 

 

2,510 

Amortization of discount and debt issuance costs on Convertible Notes

 

2,214 

 

 

340 

 

 

4,378 

 

 

340 

Non-cash portion of loss on extinguishment

 

5,139 

 

 

 —

 

 

5,139 

 

 

 —

Total non-cash interest expense

 

8,114 

 

 

1,661 

 

 

11,950 

 

 

3,348 



 

 

 

 

 

 

 

 

 

 

 

Total cash and non-cash interest expense

$

22,519 

 

$

15,534 

 

$

38,083 

 

$

29,614 

____________________________________________________________________________________________________

(a)The combination of cash and non-cash interest expense produces effective interest rates that are higher than contractual rates. Accordingly, the effective interest rates for the period ended June 30, 2017 were 7.13%; and 9.39% for the 2017 Senior Notes and the Convertible Notes, respectively.

 

(7)     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.



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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 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.



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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. 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. In May 2017, the Nevada Supreme Court issued its ruling on the appeal by WPH and its Sureties. With only minor adjustments, the Nevada Supreme Court affirmed the lower district court’s judgment, and following further proceedings in the lower district court, the anticipated final recovery to the Company is estimated to exceed $20 million, including interest and recovery of certain attorneys’ fees and costs. A hearing to account for the offset of the defect award is scheduled to be held in the third quarter of 2017.



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 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”).



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. In July 2017, the government approved the settlement and payment is pending.



Management has made an estimate of the total anticipated recovery for the Claims, and such estimate is included in revenue recorded to date. The settlement did not have a material impact on the Company’s financial results for the three and six months ended June 30, 2017. To the extent new facts become known or the final recovery varies from the estimate, the impact of the change will be reflected in the consolidated financial statements at that time.

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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.



As of June 30, 2017, the Company cannot predict the ultimate outcome of the investigation and cannot reasonably estimate the potential loss or range of loss 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.



As of June 30, 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 and the potential loss or range of loss is not reasonably estimable. 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.

  

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(8)     Other Income, Net



On May 31, 2017, the Company entered into a settlement agreement with Merrill Lynch, Pierce, Fenner & Smith Incorporated (“Merrill Lynch”), as successor in interest to Banc of America Securities LLC and Bank of America, N.A. (collectively “BofA”), to resolve the pending litigation between the Company and Merrill Lynch. The litigation, which was filed by the Company in 2011, related to the purchase by the Company of certain auction-rate securities from BofA.



On June 6, 2017, the Company received the $37.0 million cash settlement payment agreed to in the settlement agreement, and the pending litigation was dismissed with prejudice. Neither party made any admission of liability or wrongdoing, and the settlement agreement includes mutual releases of all claims and liabilities related to the subject matter of the pending litigation.



The Company recognized the settlement as a gain during the second quarter of 2017 and reported it as a component of other income, net in its Condensed Consolidated Statement of Operations.



(9)     Share-Based Compensation



On April 3, 2017, the Company adopted the Tutor Perini Corporation Incentive Compensation Plan (“Compensation Plan”), which was approved by the Company’s shareholders on May 24, 2017. The Compensation Plan provides for various types of share-based grants, including restricted and unrestricted stock units and stock options. Restricted and unrestricted stock units give the holder the right to exchange their stock units for shares of the Company’s common stock on a one-for-one basis. Stock options give the holder the right to purchase shares of the Company’s common stock at an exercise price equal to the fair value of the Company’s common stock on the date of the stock option’s award. Restricted stock units and stock options are usually subject to certain service and performance conditions and may not be sold or otherwise transferred until those restrictions have been satisfied; however, unrestricted stock units have no such restrictions. The term for stock options is limited to 10 years from the date of grant. The Compensation Plan allows for 2,335,000 shares of the Company’s common stock to be issued. As of June 30, 2017 there were 2,237,201 shares available to be granted under this plan.



The Company’s Amended and Restated Tutor Perini Corporation Long-Term Incentive Plan (“Incentive Plan”) is still active. The Incentive 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. As of June 30, 2017, there were 405,529 shares authorized to be issued under the Incentive Plan; however, as discussed in the Company’s Definitive Proxy Statement (Schedule 14A) filed on April 13, 2017, the Company will not issue these shares. As of June 30, 2017, the Incentive Plan had an aggregate of 3,665,018 of restricted stock units and stock options from outstanding, historical awards that either have not vested or have vested but have not been exercised.



During the first six months of 2017 and 2016, the Company issued, in total from both the Compensation Plan and the Incentive Plan, 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; (2) stock options of 265,000 and 274,000 at weighted-average per share exercise prices of $23.47 and $16.20, respectively; (3) unrestricted stock units of 99,155 and 64,603 at weighted-average per share prices of $26.26 and $21.67, 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. During the six months ended June 30, 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 during this period 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.



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

(10)     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 and six months ended June 30, 2017 and 2016:







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30,

 

Six Months Ended June 30,

(in thousands)

2017

 

2016

 

2017

 

2016

Interest cost

$

975 

 

$

1,053 

 

$

1,950 

 

$

2,106 

Expected return on plan assets

 

(1,088)

 

 

(1,203)

 

 

(2,176)

 

 

(2,406)

Amortization of net loss

 

456 

 

 

427 

 

 

912 

 

 

854 

Other

 

213 

 

 

150 

 

 

426 

 

 

300 

Net periodic benefit cost

$

556 

 

$

427 

 

$

1,112 

 

$

854 



The Company contributed $1.4 million and $0.8 million to its defined benefit pension plan during the six months ended June 30, 2017 and 2016, respectively, and expects to contribute an additional $1.2 million later in 2017.

 

(11)     Fair Value Measurements



The fair value hierarchy established by ASC 820, Fair Value Measurement, 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 June 30, 2017 and December 31, 2016:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

As of June 30, 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)

 

$

172,927 

 

$

172,927 

 

$

 —

 

$

 —

 

$

146,103 

 

$

146,103 

 

$

 —

 

$

 —

Restricted cash (a)

 

 

52,051 

 

 

52,051 

 

 

 —

 

 

 —

 

 

50,504 

 

 

50,504 

 

 

 —

 

 

 —

Investments in lieu of retainage (b)

 

 

56,024 

 

 

52,992 

 

 

3,032 

 

 

 —

 

 

51,266 

 

 

46,855 

 

 

4,411 

 

 

 —

Restricted investments (c)

 

 

9,281 

 

 

 —

 

 

9,281 

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

Total

 

$

290,283 

 

$

277,970 

 

$

12,313 

 

$

 —

 

$

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 included in accounts receivable and are comprised of money market funds and municipal bonds, the majority of which are rated A3 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.

(c)Restricted investments are held as collateral to secure our insurance related contingent obligations. The balances of these investments are held to maturity and are carried at their amortized cost of $9.3 million, which are included in other current assets. These restricted investments are comprised of various corporate bonds and bank notes which are rated A2 or better. The fair values of the corporate bonds and bank notes are measured using readily available 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 six months ended June 30, 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 2017 Senior Notes as of June 30, 2017 was $526.3 million. The fair value of the 2010 Senior Notes as of December 31, 2016 was

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

$302.6 million; the 2010 Senior Notes were redeemed in the second quarter of 2017, as discussed in Note 6. The fair value of the Convertible Notes was $238.4 million and $228.4 million as of June 30, 2017 and December 31, 2016, respectively. The fair values of the 2017 Senior Notes, 2010 Senior Notes and Convertible Notes were determined using Level 1 inputs, specifically current observable market prices. The reported value of the Company’s remaining long-term debt at June 30, 2017 and December 31, 2016 approximates fair value.  

 

(12)     Variable Interest Entities



From time to time the Company may form joint ventures or partnerships with third parties for the execution of single contracts or projects. In accordance with ASC 810, Consolidation, the Company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a variable interest entity (“VIE”). ASC 810 also requires the Company to determine whether it is the primary beneficiary of the VIE. The Company concludes that it is the primary beneficiary and consolidates the VIE if the Company has both (a) the power to direct the economically significant activities of the entity and (b) the obligation to absorb losses of, or the right to receive benefits from, the entity that could potentially be significant to the VIE as part of its evaluation methodology. The Company considers the contractual agreements that define the ownership structure, distribution of profits and losses, risks, responsibilities, indebtedness, voting rights and board representation of the respective parties in determining if the Company is the primary beneficiary. The Company also considers all parties that have direct or implicit variable interests when determining whether it is the primary beneficiary. As required by ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is continuously performed.



As of June 30, 2017, the Company had consolidated VIE-related assets of $94.4 million and liabilities of $88.2 million, all of which are classified as current and are included in the Company’s Condensed Consolidated Balance Sheet.



One large joint venture that the Company is consolidating was established to construct the Purple Line Segment 2 Expansion project, a $1.4 billion mass-transit project in Los Angeles, California. The Company has a 75% interest in the joint venture with the remaining 25% held by O&G Industries, Inc. The joint venture was initially financed with contributions from the partners and, per the term of the joint venture agreement, the partners may be required to provide additional capital contributions in the future.



(13)     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 June 30, 2017 and 2016 are as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Three Months Ended

 

Three Months Ended



June 30, 2017

 

June 30, 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 (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

$

456 

 

$

(187)

 

$

269 

 

$

427 

 

$

(103)

 

$

324 

Foreign currency translation adjustments

 

1,101 

 

 

(452)

 

 

649 

 

 

(396)

 

 

138 

 

 

(258)

Unrealized loss in fair value of investments

 

(6)

 

 

 

 

(3)

 

 

(271)

 

 

118 

 

 

(153)

Unrealized gain in fair value of interest rate swap

 

 —

 

 

 —

 

 

 —

 

 

17 

 

 

(6)

 

 

11 

Total other comprehensive income (loss)

 

1,551 

 

 

(636)

 

 

915 

 

 

(223)

 

 

147 

 

 

(76)

Other comprehensive income (loss) attributable to Tutor Perini Corporation

$

1,551 

 

$

(636)

 

$

915 

 

$

(223)

 

$

147 

 

$

(76)



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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

 

UNAUDITED

 

The tax effects of the components of other comprehensive income (loss) for the six months ended June 30, 2017 and 2016 are as follows:







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



Six Months Ended

 

Six Months Ended



June 30, 2017

 

June 30, 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 (loss):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Defined benefit pension plan adjustments

$

912 

 

$

(375)

 

$

537 

 

$

853 

 

$

(282)

 

$

571 

Foreign currency translation adjustment

 

1,009 

 

 

(414)

 

 

595 

 

 

1,208 

 

 

(536)

 

 

672 

Unrealized loss in fair value of investments

 

(42)

 

 

18 

 

 

(24)

 

 

(258)

 

 

113 

 

 

(145)

Unrealized loss in fair value of interest rate swap

 

 —

 

 

 —

 

 

 —

 

 

(45)

 

 

21 

 

 

(24)

Total other comprehensive income (loss)

 

1,879 

 

 

(771)

 

 

1,108 

 

 

1,758 

 

 

(684)

 

 

1,074 

Other comprehensive income (loss) attributable to Tutor Perini Corporation

$

1,879 

 

$

(771)

 

$

1,108 

 

$

1,758 

 

$

(684)

 

$

1,074 



The changes in AOCI balances by component (after tax) during the three and six months ended June 30, 2017 are as follows:







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Three Months Ended June 30, 2017



Defined

 

 

 

Unrealized

 

Accumulated



Benefit

 

Foreign

 

Gain (Loss) in

 

Other



Pension

 

Currency

 

Fair Value of

 

Comprehensive

(in thousands)

Plan

 

Translation

 

Investments, Net

 

Loss

Balance as of March 31, 2017

$

(40,597)

 

$

(4,918)

 

$

295 

 

$

(45,220)

Other comprehensive gain (loss) before reclassifications

 

 —

 

 

649 

 

 

(3)

 

 

646 

Amounts reclassified from AOCI

 

269 

 

 

 —

 

 

 —

 

 

269 

Total other comprehensive income (loss)

 

269 

 

 

649 

 

 

(3)

 

 

915 

Balance as of June 30, 2017

$

(40,328)

 

$

(4,269)

 

$

292 

 

$

(44,305)







 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 



Six Months Ended June 30, 2017



Defined

 

 

 

Unrealized

 

Accumulated