UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q



(Mark One)

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

For the quarterly period ended March 31, 2019

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)



(818) 362-8391

Registrant’s Telephone Number, Including Area Code



None

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 every Interactive Data File required to be submitted 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 such files). Yes  ☒  No  ☐



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth 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.



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  ☒

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, $1.00 par value	TPC	The New York Stock Exchange



The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at May 2, 2019 was 50,180,225.

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TUTOR PERINI CORPORATION AND SUBSIDIARIES



TABLE O F CONTENTS



 

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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 common share amounts)	2019			2018
REVENUE	$	958,487		$	1,028,156
COST OF OPERATIONS		(870,017)			(961,088)
GROSS PROFIT		88,470			67,068
General and administrative expenses		(65,557)			(67,993)
INCOME (LOSS) FROM CONSTRUCTION OPERATIONS		22,913			(925)
Other income, net		422			780
Interest expense		(16,425)			(15,065)
INCOME (LOSS) BEFORE INCOME TAXES		6,910			(15,210)
Income tax (expense) benefit		(2,188)			4,268
NET INCOME (LOSS)		4,722			(10,942)
LESS: NET INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		5,078			1,182
NET LOSS ATTRIBUTABLE TO TUTOR PERINI CORPORATION	$	(356)		$	(12,124)
BASIC LOSS PER COMMON SHARE	$	(0.01)		$	(0.24)
DILUTED LOSS PER COMMON SHARE	$	(0.01)		$	(0.24)
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING:
BASIC		50,098			49,814
DILUTED		50,098			49,814





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

 

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Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)



UNAUDITED











	Three Months Ended
	March 31,
(in thousands)	2019			2018
NET INCOME (LOSS)	$	4,722		$	(10,942)

OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX:
Defined benefit pension plan adjustments		330			381
Foreign currency translation adjustments		348			(1,174)
Unrealized gain (loss) in fair value of investments		673			(85)
TOTAL OTHER COMPREHENSIVE INCOME (LOSS), NET OF TAX		1,351			(878)

COMPREHENSIVE INCOME (LOSS)		6,073			(11,820)
LESS: COMPREHENSIVE INCOME ATTRIBUTABLE TO NONCONTROLLING INTERESTS		5,180			1,182
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO TUTOR PERINI CORPORATION	$	893		$	(13,002)





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

 

 



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Table of Contents

 

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)	2019			2018
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ($38,485 and $43,131 related to VIEs)	$	101,482		$	116,075
Restricted cash		5,095			3,788
Restricted investments		63,937			58,142
Accounts receivable ($54,791 and $62,482 related to VIEs)		1,347,881			1,261,072
Retainage receivable ($45,618 and $36,724 related to VIEs)		490,132			478,744
Costs and estimated earnings in excess of billings		1,168,675			1,142,295
Other current assets ($33,666 and $30,185 related to VIEs)		124,303			115,527
Total current assets		3,301,505			3,175,643
PROPERTY AND EQUIPMENT (P&E) , net of accumulated depreciation of $355,939 and $343,735 (net P&E of $51,128 and $51,508 related to VIEs)		492,929			490,669
GOODWILL		585,006			585,006
INTANGIBLE ASSETS, NET		85,026			85,911
OTHER ASSETS		91,804			50,523
TOTAL ASSETS	$	4,556,270		$	4,387,752
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt	$	11,921		$	16,767
Accounts payable ($29,210 and $18,070 related to VIEs)		597,498			621,728
Retainage payable		221,028			211,956
Billings in excess of costs and estimated earnings ($244,617 and $263,764 related to VIEs)		579,000			573,190
Accrued expenses and other current liabilities ($35,851 and $34,828 related to VIEs)		173,827			174,325
Total current liabilities		1,583,274			1,597,966
LONG-TERM DEBT , less current maturities, net of unamortized discounts and debt issuance costs totaling $32,185 and $34,998		886,705			744,737
DEFERRED INCOME TAXES		106,113			105,521
OTHER LONG-TERM LIABILITIES		184,999			151,639
TOTAL LIABILITIES		2,761,091			2,599,863
COMMITMENTS AND CONTINGENCIES (NOTE 10)
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 50,180,225 and 50,025,996 shares		50,180			50,026
Additional paid-in capital		1,105,184			1,102,919
Retained earnings		701,325			701,681
Accumulated other comprehensive loss		(44,200)			(45,449)
Total stockholders' equity		1,812,489			1,809,177
Noncontrolling interests		(17,310)			(21,288)
TOTAL EQUITY		1,795,179			1,787,889
TOTAL LIABILITIES AND EQUITY	$	4,556,270		$	4,387,752



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

 

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Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS



UNAUDITED











	Three Months Ended March 31,
(in thousands)	2019			2018
Cash Flows from Operating Activities:
Net income (loss)	$	4,722		$	(10,942)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Depreciation		12,831			9,301
Amortization of intangible assets		886			886
Share-based compensation expense		5,506			6,081
Change in debt discounts and deferred debt issuance costs		3,174			2,927
Deferred income taxes		142			186
(Gain) loss on sale of property and equipment		(107)			1,471
Changes in other components of working capital		(154,192)			(84,272)
Other long-term liabilities		2,177			1,139
Other, net		76			(180)
NET CASH USED IN OPERATING ACTIVITIES		(124,785)			(73,403)

Cash Flows from Investing Activities:
Acquisition of property and equipment		(14,412)			(19,970)
Proceeds from sale of property and equipment		201			3,303
Investment in securities		(8,357)			(3,288)
Proceeds from maturities and sales of investments in securities		3,324			3,007
NET CASH USED IN INVESTING ACTIVITIES		(19,244)			(16,948)

Cash Flows from Financing Activities:
Proceeds from debt		394,000			665,000
Repayment of debt		(259,691)			(586,559)
Cash payments related to share-based compensation		(2,364)			(2,308)
Distributions paid to noncontrolling interests		(4,000)			(5,000)
Contributions from noncontrolling interests		2,798			—
NET CASH PROVIDED BY FINANCING ACTIVITIES		130,743			71,133

Net decrease in cash, cash equivalents and restricted cash		(13,286)			(19,218)
Cash, cash equivalents and restricted cash at beginning of period		119,863			197,648
Cash, cash equivalents and restricted cash at end of period	$	106,577		$	178,430



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

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(1)      Basis of Presentation



The Condensed Consolidated Financial Statements do not include footnotes and certain financial information normally presented annually under generally accepted accounting principles in the United States (“GAAP”). Therefore, they should be read in conjunction with the audited consolidated financial statements and the related notes included in Tutor Perini Corporation’s (the “Company”) Annual Report on Form 10-K for the year ended December 31, 2018. The results of operations for the three months ended March 31, 2019 may not be indicative of the results that will be achieved for the full year ending December 31, 2019 .



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, 2019 and its consolidated statements of operations and cash flows for the interim periods presented. Intercompany balances and transactions have been eliminated.

 

(2)      Recent Accounting Pronouncements



New accounting pronouncements adopted by the Company during the three months ended March 31, 2019 are discussed below.



In August 2018, the Securities and Exchange Commission (“SEC”) adopted the final rule under SEC Release No. 33-10532, “Disclosure Update and Simplification,” adopting amendments to certain disclosure rules that were redundant, duplicative, overlapping, outdated, or superseded, in light of other SEC disclosure requirements, GAAP or changes in the information environment. The amendments expanded the disclosure requirements relating to the analysis of equity for interim financial statements. Under the amendments, an analysis of the changes in each caption of stockholders’ equity and noncontrolling interests presented in the balance sheet must be provided in a note or separate statement. The analysis must present a reconciliation of the beginning balance to the ending balance of each period for which a statement of earnings is required to be filed. The final rule was effective on November 5, 2018. The Company adopted the final rule effective for the first quarter of 2019. The adoption of the final rule did not have an impact on the Company’s consolidated financial position or results of operations. See Note 15, Changes in Equity , for the new required disclosures.



In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-02,  Leases (Topic 842),  as amended and supplemented by subsequent ASUs (collectively, “ASC 842”). ASC 842 amends the existing guidance in Accounting Standards Codification (“ASC”) 840,  Leases . This ASU requires, among other things, the recognition of lease right-of-use (“ROU”) assets and lease liabilities by lessees for those leases currently classified as operating leases. ASC 842 allowed companies to adopt the new standard by applying either a modified retrospective method to the beginning of the earliest period presented in the financial statements or an optional transition method to initially apply the standard on January 1, 2019 and recognize a cumulative-effect adjustment to the opening balance of retained earnings in the period of adoption. The Company adopted the standard using the optional transition method. Under this method, financial results reported in periods prior to 2019 are unchanged. The Company elected the package of practical expedients which provides relief from having to reassess (1) whether any expired or existing contracts contain leases, (2) lease classification (as operating or financing) for any expired or existing leases, and (3) initial direct costs for any existing leases. The Company also elected to separate non-lease components from lease components. Based on the Company’s evaluation of ASC 842, the adoption on January 1, 2019 resulted in an increase of $43.3 million to its assets and liabilities on the Condensed Consolidated Balance Sheets with no impact to its results of operations or cash flows . 



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The effects of the changes made to the Company’s January 1, 2019 consolidated balance sheet for the adoption of ASC 842 were as follows:





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In accordance with the new lease standard requirements, the impacts of adoption on the Condensed Consolidated Balance Sheet were as follows:





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For the three months ended March 31, 2019, the new requirements of ASC 842 did not have an impact on the Company’s results of operations or cash flows . 



(3)      Revenue



Disaggregation of Revenue



The following tables disaggregate revenue by end market, customer type and contract type, which the Company believes best depict how the nature, amount, timing and uncertainty of its revenue and cash flows are affected by economic factors for the three months ended March 31, 2019 and 2018.







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Changes in Contract Estimates that Impact Revenue



Changes to the total estimated contract revenue or cost, either due to unexpected events or revisions to management’s initial estimates, for a given project are recognized in the period in which they are determined. Net revenue recognized during the three month periods ended March 31, 2019 and 2018 related to performance obligations satisfied (or partially satisfied) in prior periods was immaterial.



Remaining Performance Obligations



Remaining performance obligations represent the transaction price of firm orders for which work has not been performed and exclude unexercised contract options. As of March 31, 2019, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $4.5 billion, $2.0 billion and $1.8 billion for the Civil, Building and Specialty Contractors segments, respectively. As of March 31, 2018, the aggregate amounts of the transaction prices allocated to the remaining performance obligations of the Company’s construction contracts were $4.5 billion, $2.2 billion and $1.8 billion for the Civil, Building and Specialty Contractors segments, respectively. The Company typically recognizes revenue on Civil segment projects over a period of three to five years, whereas for projects in the Building and Specialty Contractors segments, the Company typically recognizes revenue over a period of one to three years.



(4)      Contract Assets and Liabilities



The Company classifies contract assets and liabilities that may be settled beyond one year from the balance sheet date as current, consistent with the length of time of the Company’s project operating cycle.



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Contract assets include amounts due under retainage provisions, costs and estimated earnings in excess of billings and capitalized contract costs. The amounts as included on the Condensed Consolidated Balance Sheets consisted of the following:







Retainage receivable represents amounts invoiced to customers where payments have been partially withheld pending the completion of certain milestones, satisfaction of other contractual conditions or the completion of the project. Retainage agreements vary from project to project and balances could be outstanding for several months or years depending on a number of circumstances such as contract-specific terms, project performance and other variables that may arise as the Company makes progress towards completion.



Costs and estimated earnings in excess of billings represent the excess of contract costs and profits (or contract revenue) over the amount of contract billings to date and are classified as a current asset. Costs and estimated earnings in excess of billings result when either: 1) the appropriate contract revenue amount has been recognized over time in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”) , but a portion of the revenue recorded cannot be billed currently due to the billing terms defined in the contract, or 2) costs are incurred related to certain claims and unapproved change orders. Claims occur when there is a dispute regarding both a change in the scope of work and the price associated with that change. Unapproved change orders occur when a change in the scope of work results in additional work being performed before the parties have agreed on the corresponding change in the contract price. The Company routinely estimates recovery related to claims and unapproved change orders as a form of variable consideration at the most likely amount it expects to receive and to the extent it is probable that a significant reversal of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. 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; decreases normally result from resolutions and subsequent billings. As discussed in Note 10, Commitments and Contingencies , the resolution of these claims and unapproved change orders may require litigation or other forms of dispute resolution proceedings. 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 incremental progress toward contractual requirements or milestones.    



Capitalized contract costs primarily represent costs to fulfill a contract that (1) directly relate to an existing or anticipated contract, (2) generate or enhance resources that will be used in satisfying performance obligations in the future and (3) are expected to be recovered through the contract, and are included in other current assets. Capitalized contract costs are generally expensed to the associated   contract over the period of anticipated use on the project.   During the three months ended March 31, 2019 and 2018, $5.7 million and $4.1 million, respectively, of previously capitalized contract costs were amortized and recognized as expense on the related contracts.



Contract liabilities include amounts owed under retainage provisions and billings in excess of costs and estimated earnings. The amount as reported on the Condensed Consolidated Balance Sheets consisted of the following:







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Retainage payable represents amounts invoiced to the Company by subcontractors where payments have been partially withheld pending the completion of certain milestones, other contractual conditions or upon the completion of the project. Generally, retainage payable is not remitted to subcontractors until the associated retainage receivable from customers is collected.



Billings in excess of costs and estimated earnings represent the excess of contract billings to date over the amount of contract costs and profits (or contract revenue) recognized to date. The balance may fluctuate depending on the timing of contract billings and the recognition of contract revenue. Revenue recognized during the three months ended March 31, 2019 and 2018 and included in the opening billings in excess of costs and estimated earnings balances for each period totaled $301.0 million and $222.9 million, respectively.

 

(5)      Cash, Cash Equivalents and Restricted Cash



The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the Condensed Consolidated Balance Sheets to the amounts shown in the Condensed Consolidated Statements of Cash Flows:







Cash equivalents include short-term, highly liquid investments with maturities of three months or less when acquired. Cash and cash equivalents consist of amounts available for the Company’s general purposes, the Company’s proportionate share of cash held by the Company’s unconsolidated joint ventures and 100% of amounts held by the Company’s consolidated joint ventures. In both cases, cash held by joint ventures is available only for joint venture-related uses, including future distributions to joint venture partners.



Amounts included in restricted cash are primarily held as collateral to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.

 

(6)      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 8, Financial Commitments . In accordance with ASC 260, Earnings Per Share (“ASC 260”) , the settlement of the principal amount of the Convertible Notes has no impact on diluted EPS because the Company has the intent and ability to settle the principal amount in cash . The Company calculates the effect of the potentially dilutive restricted stock units and stock options using the treasury stock method.



 

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All restricted stock units and stock options that were outstanding during the three months ended March 31, 2019 and 2018 were excluded from weighted-average diluted shares outstanding for the periods, as the shares would have an anti-dilutive effect on the net losses. Since the Company has the intent and ability to settle the principal amount of the Convertible Notes in cash, per ASC 260, the settlement of the principal amount was excluded from the calculation of diluted EPS.



(7)      Income Taxes  



The Company’s effective income tax rate was 31.7% for the three months ended March 31, 2019 and 28.1% for the three months ended March 31, 2018. The effective tax rate for the 2019 period was impacted by immaterial unfavorable nonrecurring items recognized during the period. In addition, the effective tax rates for both periods primarily reflect increases due to state income taxes and decreases due to impacts of earnings attributable to noncontrolling interests for which income taxes are not the responsibility of the Company.

 

(8)      Financial Commitments



Long-Term Debt



Long-term debt as reported on the Condensed Consolidated Balance Sheets consisted of the following:







The following table reconciles the outstanding debt balance to the reported debt balances as of March 31, 2019 and December 31, 2018:







The unamortized issuance costs related to the 2017 Credit Facility were $4.4 million and $4.8 million as of March 31, 2019 and December 31, 2018, respectively, and are included in other assets in the Condensed Consolidated Balance Sheets.



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 in May and November of each year, beginning in November 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 offering of the Company’s equity. 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

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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 to 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 events of default and restrictions on the payment of dividends and share repurchases.



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) the London Interbank Offered Rate (“LIBOR”) plus a margin of between 1.50% and 3.00% 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%, 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 Facility, 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 weighted-average annual interest rate on borrowings under the 2017 Revolver was approximately 5.28% during the three months ended March 31, 2019.



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. On May 7, 2019, certain provisions of the 2017 Credit Facility were amended, including setting the maximum leverage ratio at 3.50:1.00 for the remainder of its term, thus eliminating the step down from 3.50:1:00 to 3.25:1.00. 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 March 31, 2019, there was $169 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 as of March 31, 2019.



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 the Company’s 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.



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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 with cash, shares of its common stock or a combination thereof. As of March 31, 2019, the conversion provisions of the Convertible Notes have not been triggered.



Interest Expense



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





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(9)      Leases



The Company leases certain office space, construction and office equipment, vehicles and temporary housing generally under non-cancelable operating leases. Leases with an initial term of one year or less are not recorded on the balance sheet, and the Company generally recognizes lease expense for these leases on a straight-line basis over the lease term. As of March 31, 2019, the Company’s operating leases have remaining lease terms ranging from less than one year to 10 years, some of which include options to renew the leases. The exercise of lease renewal options is generally at the Company’s sole discretion. The Company’s leases do not contain any material residual value guarantees or material restrictive covenants.

The Company determines if an arrangement is a lease at inception. Operating lease ROU assets are included in other assets, while current and long-term operating lease liabilities are included in accrued expenses and other current liabilities, and other long-term liabilities, respectively, on the Condensed Consolidated Balance Sheet as of March 31, 2019. ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. ROU assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. The present value of future lease payments are discounted using either the implicit rate in the lease, if known, or the Company’s incremental borrowing rate for the specific lease as of the lease commencement date. The ROU asset is also adjusted for any prepayments made or incentives received. The lease terms include options to extend or terminate the lease only to the extent it is reasonably certain any of those options will be exercised. Lease expense is recognized on a straight-line basis over the lease term. The Company accounts for lease components (e.g., fixed payments) separate from the non-lease components (e.g., common-area maintenance costs).   The Company does not have any material financing leases.

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The following table presents components of lease expense for the three months ended March 31, 2019:





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The following table presents supplemental balance sheet information related to operating leases as of March 31, 2019:







The following table presents supplemental cash flow information and non-cash activity related to operating leases for the three months ended March 31, 2019:









The following table presents maturities of operating lease liabilities on an undiscounted basis as of March 31, 2019:





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As of December 31, 2018, future minimum lease payments under long-term non-cancelable operating leases as classified under ASC 840 were as follows:



  



(10)      Commitments and Contingencies  



The Company and certain of its subsidiaries are involved in litigation and other legal proceedings and forms of dispute resolution in the ordinary course of business, including but not limited to disputes over contract payment and/or performance-related issues (such as disagreements regarding delay or a change in the scope of work of a project and/or the price associated with that change) and other matters incidental to the Company’s business. In accordance with ASC 606, the Company makes assessments of these types of matters on a routine basis and, to the extent permitted by ASC 606, estimates and records recovery related to these matters as a form of variable consideration at the most likely amount the Company expects to receive, as discussed further in Note 4, Contract Assets and Liabilities.   In addition, the Company is contingently liable for litigation, performance guarantees and other commitments arising in the ordinary course of business, which are accounted for in accordance with ASC 450, Contingencies . Management reviews these matters regularly and updates or revises its estimates from time to time as warranted by subsequent information and developments.  These assessments require judgments concerning matters that are inherently uncertain, such as litigation developments and outcomes, the anticipated outcome of negotiations and the estimated cost of resolving disputes.  Consequently, these assessments are estimates, and actual amounts may vary from such estimates. In addition, because such matters are typically resolved over long periods of time, the Company’s assets and liabilities may change over time should the circumstances dictate. 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 effect on the Company’s consolidated financial position.



Long Island Expressway/Cross Island Parkway Matter



The Company reconstructed the Long Island Expressway/Cross Island Parkway Interchange (“LIE Project”) for the New York State Department of Transportation (“NYSDOT”). The $130 million project was substantially completed in January 2004 and was accepted by 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 NYSDOT is responsible.



In March 2011, the Company opened a case with the New York State Court of Claims against NYSDOT related to the LIE Project. In May 2011, 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 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. In March 2012, the Company filed its formal Verified Claim seeking $50.7 million in damages. In May 2012, NYSDOT served its answer and asserted counterclaims in the amount of $151 million alleging fraud in the inducement and punitive damages related to alleged violations of the 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 NYSDOT’s affirmative counterclaims. In June 2018, following additional summary judgment motions, the Court granted the Company’s motion to dismiss NYSDOT’s affirmative defenses, which eliminated the use of NYSDOT’s counterclaims of $151 million as a defense to the claims of the Company. In October 2018, NYSDOT filed a notice of appeal. A trial date for the appeal has not been set.



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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. As of March 31, 2019, the Company has also concluded that the potential for a material adverse financial impact due to NYSDOT’s counterclaims is remote.



Fontainebleau Matter



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



DMI and Fisk recorded mechanic’s liens against the Project totaling approximately $44 million, for unpaid labor, materials and equipment it furnished to the Project. Other unaffiliated contractors, subcontractors and suppliers also recorded mechanic’s liens against the Project, subjecting the property to approximately $550 million in total lien claims by the various lien claimants who furnished labor, materials and equipment to the Project (the “Statutory Lienholders”). In June 2009, DMI filed suit against Turnberry West Construction, Inc., the general contractor, in the Eighth Judicial District Court, Clark County, Nevada, 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 for approximately $150 million. Certain Project lenders (the “Lenders”) who had recorded deeds of trust as security interests in the property which far exceeded the sale proceeds, filed suit against the Statutory Lienholders, including DMI and Fisk, alleging that all mechanic’s liens were subordinate to the Lenders’ deeds of trust against the property. The Nevada Supreme Court ruled in October 2012 that under Nevada Law, the mechanic’s lien claims had priority over a portion of the deeds of trust, but not all of them.



In October 2013, a comprehensive settlement agreement was reached by and among the Statutory Lienholders and the Lenders to divide the Sale Proceeds such that the Statutory Lienholders would receive approximately $85 million of the sale proceeds (the “Net Statutory Lienholder Proceeds”) and the Lenders would receive the balance. The Bankruptcy Court appointed a mediator to facilitate a settlement between the Statutory Lienholders as to how the Net Statutory Lienholder Proceeds would be distributed, but after engaging in numerous mediation sessions spanning several years, the parties were unable to reach a resolution. DMI filed a motion seeking permission from the Bankruptcy Court to file an action in Nevada to enforce its lien rights against the Net Statutory Lienholder Proceeds, and the motion was granted. Pursuant to that order, litigation involving all Statutory Lienholders was commenced at the end of November 2017 (the “Nevada Action”).



On April 25, 2019, DMI and Fisk agreed to a settlement in the Nevada Action with another Statutory Lienholder, who has guaranteed payment on account of their claims. The settlement amount will be paid when the Bankruptcy Court distributes the Net Statutory Lienholder Proceeds to the Statutory Lienholders, which is expected to occur later in 2019. The settlement had no material impact on the consolidated financial statements.



Five Star Electric Matter



In the third quarter of 2015, Five Star Electric Corp. (“Five Star”), a wholly owned subsidiary of the Company that was acquired in 2011, entered into a tolling agreement (which has since expired) related to an ongoing investigation being conducted by the United States Attorney’s Office for the Eastern District of New York (“USAO EDNY”). Five Star has been cooperating with the USAO EDNY since late June 2014, when it was first made aware of the investigation, and has provided information requested by the government related to its use of certain minority-owned, women-owned, small and disadvantaged business enterprises and certain of Five Star’s employee compensation, benefit and tax practices.



As of March 31, 2019, 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.

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The construction of the large diameter bored tunnel required 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 repaired. 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 was 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 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. STP is also asserting extra-contractual and statutory claims against the Insurers. WSDOT is deemed a plaintiff since WSDOT is an insured under the Policy and had filed its own claim for damages. Hitachi Zosen (“Hitachi”), the manufacturer of the TBM, has also joined the case as a plaintiff for costs incurred to repair the damages to the TBM. In September 2018, rulings received on pre-trial motions effectively limited potential recovery under the Policy for STP, WSDOT and Hitachi. However, on December 19, 2018, the Court of Appeal granted the Company’s request for a discretionary appeal of those rulings. The appeal is expected to be heard in the second half of 2019. STP submitted damages to the Insurers in the King County lawsuit in the amount of $532 million. STP is also seeking these damages from WSDOT and Hitachi related to the pipe-strike by the TBM in a related lawsuit in Thurston County (see following paragraph).  



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, seeking $57.2 million in damages and seeking declaratory relief concerning contract interpretation. STP filed its answer to WSDOT’s complaint and filed a counterclaim against WSDOT and Hitachi seeking damages of $667 million. Trial is scheduled for October 2019.



As of March 31, 2019, 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 the Insurers, 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 recoveries vary from the estimate, the impact of the change will be reflected in the financial statements at that time.

 

(11)      Share-Based Compensation



As of March 31, 2019, there were 901,834 shares of common stock available for grant under the Tutor Perini Corporation Omnibus Incentive Plan. During the first three months of 2019 and 2018, the Company issued the following share-based instruments: (1) restricted stock units totaling 175,000 and 514,000 with weighted-average fair values per share of $20.41 and $ 26.49 , respectively; (2) stock options totaling 85,000 and 479,000 with weighted-average fair values per share of $7.57 and $11.82, respectively, and weighted-average per share exercise prices of $25.62 and $24 .53 , respectively. The Company issued 10,000 unrestricted stock units with a weighted-average fair value per share of $25.40 during the three months ended March 31, 2018; no unrestricted stock units were issued in the first quarter of 2019.



The fair value of restricted and unrestricted stock units is based on the closing price of the Company’s common stock on the New York Stock Exchange on the date of the grant and the fair value of stock options is based on the Black-Scholes model. The fair value of stock options granted during the first three months of 2019 was determined using the Black-Scholes model based on the following weighted-average assumptions: (i) expected life of 5.4 years, (ii) expected volatility of 36.63%, (iii) risk-free rate of 2.66%, and (iv) no quarterly dividends. For certain performance-based awards containing market condition components, the fair value on the grant date is determined using a Monte Carlo simulation model.





For the three months ended March 31, 2019 and 2018, the Company recognized, as part of general and administrative expenses, costs for share-based payment arrangements totaling $5.5 million and $6.1 million, respectively. As of March 31, 2019, the balance of unamortized share-based compensation expense was $26.7 million, which is expected to be recognized over a weighted-average period of 2.0 years.

 

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(12)      Employee Pension Plans



The Company has a defined benefit pension plan and an unfunded supplemental retirement plan. Effective June 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 a summary of the net periodic benefit cost for the three months ended March 31, 2019 and 2018 :







The Company contributed $0.7 million and $0.8 million to its defined benefit pension plan during the three-month periods ended March 31, 2019 and 2018, respectively, and expects to contribute an additional $3.9 million by the end of 2019.

 

(13)      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:





The following fair value hierarchy table presents the Company’s assets that are measured at fair value on a recurring basis as of March 31, 2019 and December 31, 2018:



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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 was $501.5 million and $466.8 million as of March 31, 2019 and December 31, 2018, respectively. The fair value of the Convertible Notes was $191.9 million and $184.4 million as of March 31, 2019 and December 31, 2018, respectively. The fair values of the 2017 Senior Notes and Convertible Notes were determined using Level 1 inputs, specifically current observable market prices. The reported value of the Company’s remaining borrowings approximates fair value as of March 31, 2019 and December 31, 2018.

 

(14)      Variable Interest Entities (VIEs)



The Company may form joint ventures or partnerships with third parties for the execution of projects. In accordance with ASC   810, Consolidation (“ASC 810”), the Company assesses its partnerships and joint ventures at inception to determine if any meet the qualifications of a VIE. The Company considers a joint venture a VIE if either (a) the total equity investment is not sufficient to permit the entity to finance its activities without additional subordinated financial support, (b) characteristics of a controlling financial interest are missing (either the ability to make decisions through voting or other rights, the obligation to absorb the expected losses of the entity or the right to receive the expected residual returns of the entity), or (c) the voting rights of the equity holders are not proportional to their obligations to absorb the expected losses of the entity and/or their rights to receive the expected residual returns of the entity, and substantially all of the entity’s activities either involve or are conducted on behalf of an investor that has disproportionately few voting rights. Upon the occurrence of certain events outlined in ASC 810, the Company reassesses its initial determination of whether the joint venture is a 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 VIE and (b) the obligation to absorb losses of, or the right to receive benefits from, the VIE that could potentially be significant to the VIE. 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. In accordance with ASC 810, management’s assessment of whether the Company is the primary beneficiary of a VIE is performed continuously.



As of March 31, 2019, the Company had unconsolidated VIE-related current assets and liabilities of $0.8 million and $0.5 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. As of December 31, 2018, the Company had unconsolidated VIE-related current assets and liabilities of $4.0 million and $3.8 million, respectively, included in the Company’s Condensed Consolidated Balance Sheet. The Company’s maximum exposure to loss as a result of its investments in unconsolidated VIEs is typically limited to the aggregate of the carrying value of the investment and future funding commitments. There were no future funding requirements for the unconsolidated VIEs as of March 31, 2019.



As of March 31, 2019, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $172.6 million and $53.6 million, respectively, as well as current liabilities of $314.3 million related to the operations of its consolidated VIEs. As of December 31, 2018, the Company’s Condensed Consolidated Balance Sheet included current and noncurrent assets of $173.9 million and $51.5 million, respectively, as well as current liabilities of $319.9 million related to the operations of its consolidated VIEs.



Below is a discussion of some of the Company’s more significant or unique VIEs.



The Company established a joint venture to construct the Purple Line Section 2 Extension 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 terms of the joint venture agreement, the partners may be required to provide additional capital contributions in the future. The Company has determined that this joint venture is a VIE for which the Company is the primary beneficiary.



The Company also established a joint venture with Parsons Corporation (“Parsons”) to construct the Newark Liberty International Airport Terminal One project, a $1.4 billion transportation infrastructure project in Newark, New Jersey. The Company has an 80% interest in the joint venture with the remaining 20% held by Parsons. The joint venture was initially financed with contributions from the partners and, per the terms of the joint venture agreement, the partners may be required to provide additional capital contributions in the future. The Company has determined that this joint venture is a VIE for which the Company is the primary beneficiary.

 

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(15)      Changes in Equity



A reconciliation of the changes in equity for the three months ended March 31, 2019 and 2018 is provided below:















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(16)      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 plan assets/liabilities, cumulative foreign currency translation and change in fair value of investments as components of accumulated other comprehensive income (loss) (“AOCI”).



The tax effects of the components of other comprehensive income (loss) for the three months ended March 31, 2019 and 2018 were as follows:







The changes in AOCI balances by component (after tax) attributable to Tutor Perini Corporation during the three months ended March 31, 2019 and 2018 were as follows:













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(17)      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 HVAC (heating, ventilation and air conditioning). As described below, the Company’s 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 contracting services provided by the Civil segment 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 technology.



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 cost and risk management.



To the extent that a contract is co-managed and co-executed among segments, the Company allocates the share of revenues and costs of the contract to each segment to reflect the shared responsibilities in the management and execution of the project.



The following tables set forth certain reportable segment information relating to the Company’s operations for the three months ended March 31, 2019 and 2018:







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







Total assets by segment were as follows:







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