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TUTOR PERINI CORP - Quarter Report: 2013 March (Form 10-Q)

Table of Contents

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.  20549

 

FORM 10-Q

 

x

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

 

For the quarterly period ended March 31, 2013

 

OR

 

o

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 x  No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, 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 x  No o

 

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

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-Accelerated filer o

 

Smaller reporting company o

 

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

 

The number of shares of common stock, $1.00 par value per share, of the registrant outstanding at April 30, 2013 was 47,575,692.

 

 

 



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

 

INDEX

 

 

 

Page Number

Part I.

Financial Information:

 

 

 

 

 

 

Item 1.

Financial Statements (unaudited)

 

 

 

 

 

 

 

Consolidated Condensed Balance Sheets — March 31, 2013 and December 31, 2012

3 – 4

 

 

 

 

 

 

Consolidated Condensed Statements of Operations — Three months ended March 31, 2013 and 2012

5

 

 

 

 

 

 

Consolidated Condensed Statements of Comprehensive Income — Three months ended March 31, 2013 and 2012

6

 

 

 

 

 

 

Consolidated Condensed Statement of Stockholders’ Equity — Three months ended March 31, 2013

7

 

 

 

 

 

 

Consolidated Condensed Statements of Cash Flows — Three months ended March 31, 2013 and 2012

8

 

 

 

 

 

 

Notes to Consolidated Condensed Financial Statements

9 – 36

 

 

 

 

 

Item 2.

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

37 – 48

 

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

48

 

 

 

 

 

Item 4.

Controls and Procedures

48

 

 

 

 

Part II.

Other Information:

 

 

 

 

 

 

Item 1.

Legal Proceedings

48

 

 

 

 

 

Item 1A.

Risk Factors

48

 

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

48

 

 

 

 

 

Item 3.

Defaults Upon Senior Securities

49

 

 

 

 

 

Item 4.

Mine Safety Disclosures

49

 

 

 

 

 

Item 5.

Other Information

49

 

 

 

 

 

Item 6.

Exhibits

50 – 51

 

 

 

 

 

Signatures

 

52

 

2



Table of Contents

 

Part I.  — Financial Information

 

Item 1.  Financial Statements

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS
MARCH 31, 2013 AND DECEMBER 31, 2012

(in thousands, except share data)

 

 

 

March 31, 2013

 

 

 

 

 

(unaudited)

 

December 31, 2012

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

 

$

132,318

 

$

168,056

 

Restricted cash

 

45,231

 

38,717

 

Accounts receivable, including retainage

 

1,331,555

 

1,224,613

 

Costs and estimated earnings in excess of billings

 

479,361

 

465,002

 

Deferred income taxes

 

9,721

 

10,071

 

Other current assets

 

74,500

 

75,388

 

Total current assets

 

2,072,686

 

1,981,847

 

 

 

 

 

 

 

LONG-TERM INVESTMENTS

 

46,283

 

46,283

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT (net of accumulated depreciation of $154,405 in 2013 and $146,553 in 2012)

 

487,385

 

485,095

 

 

 

 

 

 

 

OTHER ASSETS:

 

 

 

 

 

Goodwill

 

570,646

 

570,646

 

Intangible assets, net

 

123,551

 

126,821

 

Other

 

86,887

 

85,718

 

Total assets

 

$

3,387,438

 

$

3,296,410

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

3



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED BALANCE SHEETS (continued)

MARCH 31, 2013 AND DECEMBER 31, 2012

(in thousands, except share data)

 

 

 

March 31, 2013

 

 

 

 

 

(unaudited)

 

December 31, 2012

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Current maturities of long-term debt

 

$

67,330

 

$

67,710

 

Accounts payable, including retainage

 

705,916

 

696,473

 

Billings in excess of costs and estimated earnings

 

295,265

 

301,761

 

Accrued expenses and other current liabilities

 

176,249

 

168,326

 

Total current liabilities

 

1,244,760

 

1,234,270

 

 

 

 

 

 

 

LONG-TERM DEBT, less current maturities

 

737,083

 

669,380

 

 

 

 

 

 

 

DEFERRED INCOME TAXES

 

109,988

 

109,900

 

 

 

 

 

 

 

OTHER LONG-TERM LIABILITIES

 

133,909

 

138,996

 

Total liabilities

 

2,225,740

 

2,152,546

 

 

 

 

 

 

 

CONTINGENCIES AND COMMITMENTS

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY:

 

 

 

 

 

Preferred stock, $1 par value:

 

 

 

 

 

Authorized — 1,000,000 shares

 

 

 

 

 

Issued and outstanding — none

 

 

 

Common stock - $1 par value: 75,000,000 shares authorized;

 

 

 

 

 

Shares issued and outstanding: 47,575,692 shares and 47,556,056 shares

 

47,576

 

47,556

 

Additional paid-in capital

 

1,005,534

 

1,002,603

 

Retained earnings

 

152,079

 

137,279

 

Accumulated other comprehensive loss

 

(43,491

)

(43,574

)

Total stockholders’ equity

 

1,161,698

 

1,143,864

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

3,387,438

 

$

3,296,410

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

4



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)

(in thousands, except per share data)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

Revenues

 

$

992,928

 

$

912,534

 

 

 

 

 

 

 

Cost of operations

 

892,571

 

826,375

 

 

 

 

 

 

 

Gross profit

 

100,357

 

86,159

 

 

 

 

 

 

 

General and administrative expenses

 

64,278

 

69,196

 

 

 

 

 

 

 

INCOME FROM CONSTRUCTION OPERATIONS

 

36,079

 

16,963

 

 

 

 

 

 

 

Other expense, net

 

(827

)

(2,308

)

Interest expense

 

(11,336

)

(11,082

)

 

 

 

 

 

 

Income before income taxes

 

23,916

 

3,573

 

 

 

 

 

 

 

Provision for income taxes

 

(9,116

)

(4,776

)

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

14,800

 

$

(1,203

)

 

 

 

 

 

 

BASIC EARNINGS (LOSS) PER COMMON SHARE

 

$

0.31

 

$

(0.03

)

 

 

 

 

 

 

DILUTED EARNINGS (LOSS) PER COMMON SHARE

 

$

0.31

 

$

(0.03

)

 

 

 

 

 

 

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING:

 

 

 

 

 

BASIC

 

47,559

 

47,330

 

Effect of dilutive stock options and restricted stock units

 

954

 

 

DILUTED

 

48,513

 

47,330

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

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Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

(in thousands)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2013

 

2012

 

 

 

 

 

 

 

NET INCOME (LOSS)

 

$

14,800

 

$

(1,203

)

 

 

 

 

 

 

OTHER COMPREHENSIVE INCOME:

 

 

 

 

 

Foreign currency translation (net of tax of $(149) and $198)

 

(186

)

323

 

Change in fair value of investments (net of tax of $77 and $154)

 

101

 

202

 

Change in fair value of interest rate swap (net of tax of $112 and $(420))

 

168

 

(685

)

Realized loss on sale of investments recorded in net income (loss) (net of tax of $0 and $1,219)

 

 

2,005

 

Total other comprehensive income

 

83

 

1,845

 

 

 

 

 

 

 

TOTAL COMPREHENSIVE INCOME

 

$

14,883

 

$

642

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

6



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENT OF STOCKHOLDERS’ EQUITY (UNAUDITED)

 

FOR THE THREE MONTHS ENDED MARCH 31, 2013

(in thousands)

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

Additional

 

 

 

Other

 

 

 

 

 

Common

 

Paid-in

 

Retained

 

Comprehensive

 

 

 

 

 

Stock

 

Capital

 

Earnings

 

(Loss) Income

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance - December 31, 2012

 

$

47,556

 

$

1,002,603

 

$

137,279

 

$

(43,574

)

$

1,143,864

 

Net income

 

 

 

14,800

 

 

14,800

 

Other comprehensive income

 

 

 

 

 

 

 

83

 

83

 

Total comprehensive income

 

 

 

 

 

 

 

 

 

14,883

 

Tax effect of stock-based compensation

 

 

32

 

 

 

32

 

Stock-based compensation expense

 

 

3,078

 

 

 

3,078

 

Issuance of common stock, net

 

20

 

(179

)

 

 

(159

)

Balance - March 31, 2013

 

$

47,576

 

$

1,005,534

 

$

152,079

 

$

(43,491

)

$

1,161,698

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

7



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(in thousands)

 

 

 

THREE MONTHS ENDED

 

 

 

MARCH 31,

 

 

 

2013

 

2012

 

Cash Flows from Operating Activities:

 

 

 

 

 

Net income (loss)

 

$

14,800

 

$

(1,203

)

Adjustments to reconcile net income (loss) to net cash from operating activities:

 

 

 

 

 

Depreciation and amortization

 

13,793

 

15,790

 

Stock-based compensation expense

 

3,078

 

3,419

 

Deferred income taxes

 

348

 

5,693

 

Adjustment of interest rate swap to fair value

 

 

264

 

Loss on sale of investments

 

 

2,699

 

Gain on sale of property and equipment

 

(76

)

(79

)

Other long-term liabilities

 

1,851

 

214

 

Other non-cash items

 

(197

)

767

 

Changes in other components of working capital

 

(118,052

)

(52,602

)

NET CASH USED IN OPERATING ACTIVITIES

 

(84,455

)

(25,038

)

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

Acquisition of property and equipment

 

(12,179

)

(10,649

)

Proceeds from sale of property and equipment

 

239

 

3,968

 

Investments in available-for-sale securities

 

 

(535

)

Proceeds from sale of available-for-sale securities

 

 

16,553

 

Change in restricted cash

 

(6,514

)

(13

)

NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES

 

(18,454

)

9,324

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

Proceeds from debt

 

293,014

 

98,500

 

Repayment of debt

 

(225,684

)

(95,107

)

Business acquisition related payments

 

 

(1,188

)

Issuance of common stock and effect of cashless exercise

 

(159

)

(307

)

Debt issuance costs

 

 

(10

)

NET CASH PROVIDED BY FINANCING ACTIVITIES

 

67,171

 

1,888

 

 

 

 

 

 

 

Net Decrease in Cash and Cash Equivalents

 

(35,738

)

(13,826

)

Cash and Cash Equivalents at Beginning of Year

 

168,056

 

204,240

 

Cash and Cash Equivalents at End of Period

 

$

132,318

 

$

190,414

 

 

 

 

 

 

 

Supplemental Disclosure of Cash Paid (Received) For:

 

 

 

 

 

Interest

 

$

5,107

 

$

3,320

 

Income taxes

 

$

(2,902

)

$

781

 

Supplemental Disclosure of Non-cash Transactions:

 

 

 

 

 

Property and equipment acquired through financing arrangements

 

$

 

$

2,050

 

Grant date fair value of common stock issued for services

 

$

439

 

$

1,421

 

 

The accompanying notes are an integral part of these consolidated condensed financial statements.

 

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Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

(1)               Basis of Presentation

 

The unaudited consolidated condensed financial statements presented herein include the accounts of Tutor Perini Corporation and its wholly owned subsidiaries (“Tutor Perini” or the “Company”).  The Company’s interests in construction joint ventures are accounted for using the proportionate consolidation method whereby the Company’s proportionate share of each joint venture’s assets, liabilities, revenues and cost of operations are included in the appropriate classifications in the consolidated financial statements.  All intercompany transactions and balances have been eliminated in consolidation.

 

The unaudited consolidated condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by accounting principles generally accepted in the United States (“U.S. GAAP”) as codified in the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification.  These statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

In the opinion of management, the accompanying unaudited consolidated condensed financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2013 and December 31, 2012, results of operations and comprehensive income for the three months ended March 31, 2013 and 2012, and cash flows for the three months ended March 31, 2013 and 2012. The results of operations for the three months ended March 31, 2013 are not indicative of the results that may be expected for the year ending December 31, 2013 because, among other reasons, such results can vary depending on the timing of progress achieved and changes in estimated profitability of projects being reported.

 

Prior to the quarterly reporting period ended June 30, 2012, the Company had presented payments related to the deferred purchase price obligation of previous acquisitions within cash flows used by investing activities in the Consolidated Condensed Statement of Cash Flows. The Company corrected this presentation to appropriately reflect the cash paid to settle the liability recognized at fair value at the conclusion of the measurement period within cash flows used by financing activities, and the remaining cash paid (e.g., changes in fair value of the liability after the conclusion of the measurement period) was reclassified within cash flows used by operating activities. For the three months ended March 31, 2012, this correction resulted in an increase in cash flows provided by investing activities of $1.2 million, and a corresponding decrease in cash flows provided by financing activities of $1.2 million in the Consolidated Condensed Statement of Cash Flows. There was no impact on the Company’s Consolidated Condensed Statements of Operations or Balance Sheets.

 

The Company considers events or transactions that occur after the balance sheet date but before the financial statements are issued to provide additional evidence relative to certain estimates or to identify matters that require additional disclosures.

 

(2)               Significant Accounting Policies

 

The significant accounting policies followed by the Company and its subsidiaries in preparing its consolidated financial statements are set forth in Note 1 to such financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2012.

 

Recently Issued Accounting Pronouncements

 

In July 2012, the FASB issued Accounting Standard Update (“ASU”) 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” a staff position that gives an entity the option to make a qualitative evaluation about the likelihood of indefinite-lived intangible asset impairment. An entity that adopts this option will be required to perform the quantitative test only if it concludes that the fair value of the indefinite-lived intangible asset is more likely than not less than its carrying value. The effective date is for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this update did not have a material effect on the Company’s financial statements.

 

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Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

In January 2013, the FASB issued ASU 2013-01, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11, “Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.”  ASU 2013-01 is effective for the fiscal years beginning on or after January 1, 2013, and interim periods within.  Retrospective application is required for any period presented that begins before the entity’s initial application of the new requirements.  The adoption of this guidance did not have a material impact on the Company’s financial statements.

 

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income,” an amendment to FASB ASC Topic 220, “Comprehensive Income”. The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU is effective prospectively for the Company fiscal years, and interim periods within those years beginning after December 15, 2012.  The adoption of this guidance did not have any impact on the Company’s financial statements.

 

In February 2013, the FASB issued ASU 2013-04, which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This ASU is an update to FASB ASC Topic 405, “Liabilities”. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The Company is currently evaluating the impact of this guidance on its financial statements.

 

Use of and Changes in Estimates

 

The Company’s construction business involves making significant estimates and assumptions in the normal course of business relating to its contracts and its joint venture contracts. Management focuses on evaluating the performance of contracts individually. These estimates can vary in the normal course of business as projects progress, when estimated productivity assumptions change based on experience to date and uncertainties are resolved.  Change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. The Company uses the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. The impact on operating margin in a reporting period and future periods from a change in estimate will depend on the stage of contract completion. There were no significant changes in contract estimates at completion that impacted gross profit for both the three months ended March 31, 2013 and 2012.

 

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Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

(3)                                 Cash and Cash Equivalents and Restricted Cash

 

Cash and cash equivalents include short-term, highly liquid investments with original maturities of three months or less when acquired.

 

Cash and cash equivalents, as reported in the accompanying Consolidated Condensed Balance Sheets, consist of amounts held by the Company that are available for general corporate purposes and the Company’s proportionate share of amounts held by construction joint ventures that are available only for joint venture-related uses, including future distributions to joint venture partners.  Restricted cash is primarily held to secure insurance-related contingent obligations, such as insurance claim deductibles, in lieu of letters of credit.

 

Cash and cash equivalents and restricted cash consisted of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

Corporate cash and cash equivalents (available for general corporate purposes)

 

$

35,107

 

$

70,780

 

Company’s share of joint venture cash and cash equivalents (available only for joint venture purposes, including future distributions)

 

97,211

 

97,276

 

Total Cash and Cash Equivalents

 

$

132,318

 

$

168,056

 

 

 

 

 

 

 

Restricted Cash

 

$

45,231

 

$

38,717

 

 

(4)                                 Costs and estimated earnings in excess of billings

 

Costs and estimated earnings in excess of billings related to the Company’s contracts and joint venture contracts consisted of the following:

 

 

 

March 31,

 

December 31,

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

Unbilled costs and profits incurred to date*

 

$

170,088

 

$

157,119

 

Unapproved change orders

 

133,523

 

141,596

 

Claims

 

175,750

 

166,287

 

 

 

$

479,361

 

$

465,002

 

 


* Represents the excess of contract costs and profits recognized to date on the percentage of completion accounting method over the amount of contract billings to date on certain contracts.

 

Of the balance of “Unapproved change orders” and “Claims” included above in costs and estimated earnings in excess of billings at March 31, 2013 and December 31, 2012, approximately $62.5 million and $62.0 million, respectively, are amounts subject to pending litigation or dispute resolution proceedings as described in Note 7 — Contingencies and Commitments.  These amounts are management’s estimate of the probable cost recovery from the disputed claims considering such factors as evaluation of entitlement, settlements reached to date and experience with the customer.  In the event that future facts and circumstances, including the resolution of disputed claims, cause a reduction in the aggregate amount of the estimated probable cost recovery from the disputed claims, the amount of such reduction will be recorded against earnings in the relevant future period.

 

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TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

The prerequisite for billing “Unbilled costs and profits incurred to date” is provided in the defined billing terms of each of the applicable contracts.  The prerequisite for billing “Unapproved change orders” or “Claims” is the final resolution and agreement between the parties.

 

(5)                                 Fair Value Measurements

 

The Company measures certain financial instruments, including cash and cash equivalents, such as money market funds, at fair value.  The fair values were determined based on a three-tier valuation hierarchy for disclosure of significant inputs.  These hierarchical tiers are defined as follows:

 

Level 1 — inputs are unadjusted quoted prices in active markets for identical assets or liabilities.

 

Level 2 — inputs are other than quoted prices in active markets that are either directly or indirectly observable through market corroboration.

 

Level 3 — inputs are unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions based on the best information available in the circumstances.

 

The carrying amount of cash and cash equivalents approximates fair value due to the short-term nature of these items. The carrying value of receivables, payables and other amounts arising out of normal contract activities, including retainage, which may be settled beyond one year, is estimated to approximate fair value.  Of the Company’s long-term debt, the fair values of the fixed rate senior unsecured notes as of March 31, 2013 and December 31, 2012 were $315.0 million and $309.8 million, respectively, compared to the carrying value of $298.3 million at both March 31, 2013 and December 31, 2012.  The fair value of the senior unsecured notes was estimated using Level 1 inputs based on market quotations including broker quotes or interest rates for the same or similar financial instruments at March 31, 2013 and December 31, 2012.  The carrying values of the remaining balance of the Company’s long-term debt of $506.1 million and $438.8 million at March 31, 2013 and December 31, 2012, respectively, were estimated to approximate their fair values.

 

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

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

 

At March 31, 2013

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted prices

 

other

 

Significant

 

 

 

Total

 

in active

 

observable

 

unobservable

 

 

 

Carrying

 

markets

 

inputs

 

inputs

 

 

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

132,318

 

$

132,318

 

$

 

$

 

Restricted cash (1)

 

45,231

 

45,231

 

 

 

Short-term investments (2)

 

3,028

 

799

 

2,229

 

 

Investments in lieu of retainage (3)

 

21,196

 

8,705

 

12,491

 

 

Long-term investments - auction rate securities (4)

 

46,283

 

 

 

46,283

 

Total

 

$

248,056

 

$

187,053

 

$

14,720

 

$

46,283

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contract (5)

 

$

1,643

 

$

 

$

1,643

 

$

 

Contingent Consideration (6) 

 

44,004

 

 

 

44,004

 

 

 

45,647

 

$

 

$

1,643

 

$

44,004

 

 

At December 31, 2012

 

 

 

 

 

Fair Value Measurements Using

 

 

 

 

 

 

 

Significant

 

 

 

 

 

 

 

Quoted prices

 

other

 

Significant

 

 

 

Total

 

in active

 

observable

 

unobservable

 

 

 

Carrying

 

markets

 

inputs

 

inputs

 

 

 

Value

 

(Level 1)

 

(Level 2)

 

(Level 3)

 

 

 

(in thousands)

 

Assets:

 

 

 

 

 

 

 

 

 

Cash and cash equivalents (1)

 

$

168,056

 

$

168,056

 

$

 

$

 

Restricted cash (1)

 

38,717

 

38,717

 

 

 

Short-term investments (2)

 

2,679

 

 

2,679

 

 

Investments in lieu of retainage (3)

 

21,934

 

10,553

 

11,381

 

 

Long-term investments - auction rate securities (4)

 

46,283

 

 

 

46,283

 

Total

 

$

277,669

 

$

217,326

 

$

14,060

 

$

46,283

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

 

 

 

 

Interest rate swap contract (5)

 

$

1,923

 

$

 

$

1,923

 

$

 

Contingent consideration (6)

 

42,624

 

 

 

42,624

 

 

 

$

44,547

 

$

 

$

1,923

 

$

42,624

 

 

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 


(1)               Cash, cash equivalents and restricted cash consist primarily of money market funds with original maturity dates of three months or less, for which fair value is determined through quoted market prices.

(2)               Short-term investments are classified as other current assets and are comprised of U.S. Treasury Notes and municipal bonds, the majority of which are rated Aa2 or better.  The fair values of the municipal bonds are obtained from readily-available pricing sources for comparable instruments, and as such, the Company has classified these assets as Level 2.

(3)               Investments in lieu of retainage are classified as account receivables, including retainage and are comprised of U.S. Treasury Notes and other municipal bonds, the majority of which are rated Aa3 or better.  The fair values of the U.S. Treasury Notes and municipal bonds are obtained from readily-available pricing sources for comparable instruments, and as such, the Company has classified these assets as Level 2.

(4)               At both March 31, 2013 and December 31, 2012 the Company had $46.3 million invested in auction rate securities (“ARS”) which the Company considers as available-for-sale long-term investments.  The long-term investments in ARS held by the Company at both March 31, 2013 and December 31, 2012 are in securities collateralized by student loan portfolios.  At both March 31, 2013 and December 31, 2012, most of the Company’s ARS were rated AA+.

(5)               As discussed in Note 10 — Financial Commitments, the Company entered into a swap agreement with Bank of America, N.A. to establish a long-term interest rate for its $200 million five-year term loan.  The swap agreement became effective for the term loan principal balance outstanding at January 31, 2012 and will remain effective through the maturity date of the term loan.  The Company values the interest rate swap liability utilizing a discounted cash flow model that takes into consideration forward interest rates observable in the market and the counterparty’s credit risk.  This liability is classified as a component of other long-term liabilities.

(6)               The liabilities listed as of March 31, 2013 and December 31, 2012 above represent the contingent consideration for the Company’s acquisitions in 2011 for which the measurement periods for purchase price analyses for the acquisitions have concluded.

 

The Company did not have any transfers between Levels 1 and 2 of financial assets or liabilities that are fair valued on a recurring basis during the three months ended March 31, 2013 and 2012.

 

The following is a summary of changes in Level 3 assets measured at fair value on a recurring basis during the three months ended March 31, 2013 and 2012:

 

 

 

Auction Rate

 

 

 

Securities

 

 

 

(in thousands)

 

Balance at December 31, 2012

 

$

46,283

 

Purchases

 

 

Settlements

 

 

Realized loss included in other income (expense), net

 

 

Reversal of pretax impairment charges included in accumulated other comprehensive income (loss)

 

 

Balance at March 31, 2013

 

$

46,283

 

 

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TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

 

 

Auction Rate

 

 

 

Securities

 

 

 

(in thousands)

 

Balance at December 31, 2011

 

$

62,311

 

Purchases

 

 

Settlements

 

(16,553

)

Realized loss included in other income (expense), net

 

(2,699

)

Reversal of pretax impairment charges included in accumulated other comprehensive income (loss)

 

3,224

 

Balance at March 31, 2012

 

$

46,283

 

 

At both March 31, 2013 and December 31, 2012, the Company had $46.3 million invested in auction rate securities (“ARS”) classified as available-for-sale.  All of the ARS are securities collateralized by student loan portfolios guaranteed by the United States government.  At both March 31, 2013 and December 31, 2012, most of the Company’s ARS were rated AA+.

 

The Company has classified its ARS investment as long-term investments due to the uncertainty in the timing of future ARS calls and the absence of an active market for government-backed student loans.  The Company expects that it will take in excess of twelve months before the ARS can be refinanced or sold.

 

During the three months ended March 31, 2012, the Company sold one ARS at auction for its full par value and two ARS in a secondary market. The settlement of the three securities resulted in a realized loss included in other income (expense), net of $2.7 million.

 

The Company performs a fair market value assessment of its ARS on a quarterly basis. To estimate fair value, the Company utilizes an income approach valuation model, with consideration given to market-based valuation inputs. The model considers, among other items, the following inputs: (i) the underlying structure of each security; (ii) the present value of future principal and interest payments discounted at rates considered to reflect current market conditions (discount rates range from 3% to 7% for investment grade securities); (iii) consideration of the probabilities of default or repurchase at par for each period (term periods range from 6 to 8 years); (iv) prices from recent comparable transactions; and (v) other third party pricing information.

 

The inputs and the Company’s analysis consider: (i) contractual terms of the ARS instruments; (ii) government-backed guarantees, if any; (iii) credit ratings on the ARS; (iv) current interest rates on the ARS and other market interest rate data; (v) trade data available, including trade data from secondary markets, for the Company’s ARS or similar ARS; (vi) recovery rates for any non-government guaranteed assets; (vii) historical transactions of the Company’s ARS being called at par; (viii) refunding initiatives of ARS; and (ix) risk of downgrade and default. Current market conditions, including repayment status of student loans, credit market risk, market liquidity and macro-economic influences are reflected in these inputs.

 

On a quarterly basis, the Company also assesses the recoverability of the ARS balance by reviewing: (i) the regularity and timely payment of interest on the securities; (ii) the probabilities of default or repurchase at par; (iii) the risk of loss of principal from government-backed versus non-government-backed securities; and (iv) the prioritization of the Company’s tranche of securities within the investment in case of default. The potential impact of any principal loss is included in the valuation model.

 

When the Company’s analysis indicates an impairment of a security, several factors are considered to determine the proper classification of the charge including: (i) any requirement or intent to sell the security; (ii) failure of the issuer to pay interest or principal; (iii) volatility of fair value; (iv) changes to the ratings of the security; (v) adverse conditions specific to the security or market; (vi) expected defaults; and (vii) length of time and extent that fair value has been less than the cost basis. The accumulation of this data is used to conclude if a credit loss exists for the specific security, and then to determine the classification of the impairment charge as temporary or other-than-temporary.

 

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TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

Based on the fair value assessment performed as of March 31, 2013, the Company does not believe that any change to the carrying value of the ARS is appropriate as the carrying value is within the range of fair market values.

 

The following is a summary of changes in Level 3 liabilities measured at fair value on a recurring basis during the three months ended March 31, 2013 and 2012:

 

 

 

Contingent

 

 

 

Consideration

 

 

 

(in thousands)

 

Balance at December 31, 2012

 

$

42,624

 

Fair value adjustments included in other income (expense), net

 

1,380

 

Balance at March 31, 2013

 

$

44,004

 

 

 

 

Contingent

 

 

 

Consideration

 

 

 

(in thousands)

 

Balance at December 31, 2011

 

$

51,555

 

Fair value adjustments included in other income (expense), net

 

142

 

Balance at March 31, 2012

 

$

51,697

 

 

The liabilities listed above represent the contingent consideration for the acquisitions in 2011 for which the measurement periods for purchase price analyses have concluded.

 

The fair values of the contingent consideration were estimated using an income approach based on the cash flows that the acquired entity is expected to generate in the future. This approach requires management to project revenues, operating expenses, working capital investment, capital spending and cash flows for the reporting unit over a multi-year period, as well as determine the weighted-average cost of capital to be used as a discount rate (weighted-average cost of capital inputs have ranged from 14-18%).

 

(6)               Goodwill and Intangible Assets

 

The Company tests goodwill and intangible assets with indefinite lives for impairment by applying a fair value test in the fourth quarter of each year and between annual tests if events occur or circumstances change that suggest a material adverse change to the most recently concluded valuation.  Intangible assets with finite lives are also tested for impairment whenever events or circumstances indicate that the carrying value may not be recoverable. The Company did not observe any changes in facts or circumstances during the three months ended March 31, 2013 that would suggest a material decline in the value of goodwill and intangible assets as concluded in the fourth quarter of the year ended December 31, 2012.  At December 31, 2012, the fair value of the Management Services reporting unit exceeded its carrying value by 4.5%, while the fair values of the Building, Civil and Specialty Contractors reporting units exceeded their carrying values by more than 10%.

 

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TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

The following table presents the carrying amount of goodwill allocated to the Company’s reporting units as of March 31, 2013:

 

 

 

 

 

 

 

Specialty

 

Management

 

 

 

(in thousands)

 

Building

 

Civil

 

Contractors

 

Services

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Goodwill Balance

 

$

420,267

 

$

429,893

 

$

141,833

 

$

 66,638

 

$

1,058,631

 

Accumulated Impairment

 

(409,765

)

(55,740

)

 

(22,480

)

(487,985

)

Balance at December 31, 2012

 

$

10,502

 

$

374,153

 

$

141,833

 

$

44,158

 

$

570,646

 

Impairment charge

 

 

 

 

 

 

Balance at March 31, 2013

 

$

10,502

 

$

374,153

 

$

  141,833

 

$

44,158

 

$

570,646

 

 

Intangible assets consist of the following:

 

 

 

March 31, 2013

 

Weighted

 

 

 

 

 

 

 

Accumulated

 

 

 

Average

 

 

 

 

 

Accumulated

 

Impairment

 

Carrying

 

Amortization

 

 

 

Cost

 

Amortization

 

Charge

 

Value

 

Period

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names (non-amortizable)

 

$

117,600

 

$

 

$

(67,190

)

$

50,410

 

Indefinite

 

Trade names (amortizable)

 

74,350

 

(4,475

)

(23,232

)

46,643

 

20 years

 

Contractor license

 

6,000

 

 

(6,000

)

 

Indefinite

 

Customer relationships

 

39,800

 

(13,351

)

(16,645

)

9,804

 

11.4 years

 

Construction contract backlog

 

73,706

 

(57,012

)

 

16,694

 

3.6 years

 

Total

 

$

311,456

 

$

(74,838

)

$

(113,067

)

$

123,551

 

 

 

 

 

 

December 31, 2012

 

Weighted

 

 

 

 

 

 

 

Accumulated

 

 

 

Average

 

 

 

 

 

Accumulated

 

Impairment

 

Carrying

 

Amortization

 

 

 

Cost

 

Amortization

 

Charge

 

Value

 

Period

 

 

 

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Trade names (non-amortizable)

 

$

117,600

 

$

 

$

(67,190

)

$

50,410

 

Indefinite

 

Trade names (amortizable)

 

74,350

 

(3,854

)

(23,232

)

47,264

 

20 years

 

Contractor license

 

6,000

 

 

(6,000

)

 

Indefinite

 

Customer relationships

 

39,800

 

(13,029

)

(16,645

)

10,126

 

11.4 years

 

Construction contract backlog

 

73,706

 

(54,685

)

 

19,021

 

3.6 years

 

Total

 

$

311,456

 

$

(71,568

)

$

(113,067

)

$

126,821

 

 

 

 

Amortization expense for the three months ended March 31, 2013 and 2012 totaled $3.3 million and $5.0 million, respectively.  As of March 31, 2013, amortization expense is estimated to be $9.8 million for the remainder of 2013, $11.9 million in 2014, $5.3 million in 2015, $3.5 million in 2016, $3.5 million in 2017 and $39.1 million thereafter.

 

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

(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 clients 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, liabilities may change in the future due to various factors.

 

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

 

Tutor-Saliba-Perini Joint Venture vs. Los Angeles MTA Matter

 

During 1995 Tutor-Saliba-Perini (“Joint Venture”) filed a complaint in the Superior Court of the State of California for the County of Los Angeles against the Los Angeles County Metropolitan Transportation Authority (“LAMTA”), seeking to recover costs for extra work required by LAMTA in connection with the construction of certain tunnel and station projects. In 1999, LAMTA countered with civil claims under the California False Claims Act against the Joint Venture, Tutor-Saliba and the Company jointly and severally (together, “TSP”).

 

Between 2005 and 2010, the court granted certain Joint Venture motions and LAMTA capitulated on others, which reduced the number of false claims LAMTA may seek and limited LAMTA’s claims for damages and penalties. In September 2010, LAMTA dismissed its remaining claims and agreed to pay the entire amount of the Joint Venture’s remaining claims plus interest. The Court subsequently entered judgment in favor of TSP and against LAMTA in the amount of $3.0 million after deducting $0.5 million, representing the tunnel handrail verdict plus accrued interest against TSP. The parties filed post-trial motions for costs and fees. The Court ruled that TSP’s sureties could recover costs, LAMTA could recover costs for the tunnel handrail trial, and no party could recover attorneys’ fees. TSP is appealing the false claims jury verdict on the tunnel handrail claim and other issues, including the denial of TSP’s and its sureties’ request for attorneys’ fees. LAMTA subsequently filed its notice of cross-appeal. In March 2012, the Court finalized the preparation of the record for the Court of Appeal; opening briefs were filed in August 2012 for the main appeal and September 2012 for the appeal of the Court’s denial of attorneys’ fees to TSP and its sureties. The appeal of this case is expected to take at least a year.

 

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

 

Perini/Kiewit/Cashman Joint Venture-Central Artery/Tunnel Project Matter

 

Perini/Kiewit/Cashman Joint Venture (“PKC”), a joint venture in which the Company holds a 56% interest and is the managing partner, is currently pursuing a series of claims, instituted at different times since 2000, for additional contract time and/or compensation against the Massachusetts Highway Department (“MHD”) for work performed by PKC on a portion of the Central Artery/Tunnel (“CA/T”) project in Boston, Massachusetts. During construction, MHD ordered PKC to perform changes to the work and issued related direct cost changes with an estimated value, excluding time delay and inefficiency costs, in excess of $100 million. In addition, PKC encountered a number of unforeseen conditions during construction that greatly increased PKC’s cost of performance. MHD has asserted counterclaims for liquidated damages and backcharges.

 

Certain of PKC’s claims have been presented to a Disputes Review Board (“DRB”), which consists of three construction experts chosen by the parties. To date, five DRB panels have issued several awards and interim decisions in favor of PKC’s claims, amounting to total awards to PKC in excess of $128 million plus interest, of which $110 million were binding awards.

 

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

In December 2010, the Suffolk County Superior Court granted MHD’s motion for summary judgment to vacate the Third DRB Panel’s awards to PKC for approximately $56.5 million. The Court granted the motion on the grounds that the arbitrators do not have authority to decide whether particular claims are subject to the arbitration provision of the contract. MHD subsequently moved to vacate approximately $13.7 million of the Fourth DRB Panel’s total awards to PKC on the same arbitrability basis that the Third DRB’s awards were vacated. In October 2011, the Suffolk County Superior Court followed its earlier arbitrability rulings holding that the Fourth DRB exceeded its authority in deciding arbitrability with respect to certain of the Fourth DRB Panel’s awards (approximately $8 million of the $13.7 million discussed above). PKC appealed the Superior Court decisions and in January 2013, the Superior Court decisions were affirmed in MHDs favor.  The Appeals Court remanded the case back to the lower court to determine how and by whom the claims must be decided. PKC filed an application for further appellate review by the Massachusetts Supreme Judicial Court and a motion for reconsideration in the Appeals Court.  The Appeals Court rejected PKC’s petition for rehearing.  The Massachusetts Supreme Judicial Court deferred its decision to a later date.  No trial date has been set in any of the cases or decisions.

 

In February 2012, PKC received a $22 million payment for an interest award associated with the Second DRB panel’s awards to PKC. In January 2013, PKC received a $14.8 million payment for backcharges and interest associated with the Fourth DRB panel’s awards to PKC that were confirmed.

 

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

 

Long Island Expressway/Cross Island Parkway Matter

 

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

 

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

 

Gaylord Hotel and Convention Center Matter

 

In 2005, Gaylord National, LLC (“Gaylord”), as Owner, and Perini Building Company, Inc. / Tompkins Builders, Joint Venture (“PTJV”), as Construction Manager, entered into a contract to construct the Gaylord National Resort and Convention Center project  in Maryland. The project is complete and as part of its settlement with Gaylord reached in November 2008, PTJV agreed to pay all subcontractors and defend all claims and lien actions by them relating to the project. PTJV has closed out most subcontracts. Resolution of the issues with the remaining subcontractors may require mediation, arbitration and/or trial.

 

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NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

PTJV is pursuing an insurance claim for approximately $40 million related to work performed by Banker Steel Company, Inc. (“Banker Steel”), a subcontractor, including $11 million for business interruption costs incurred by Gaylord which have effectively been assigned to PTJV. In November 2009, PTJV filed suit against Factory Mutual Insurance Co. (“FM”) in the Maryland federal district court alleging FM breached the insurance contracts and for declaratory judgment with respect to the insurance coverage. In December 2010, PTJV filed suit against ACE American Insurance Company (“ACE”) in Maryland federal district court alleging ACE breached the general liability insurance contract and acted in bad faith, and PTJV requested a declaratory judgment with respect to the insurance coverage. FM and ACE each brought separate motions for summary judgment. In October, 2012, FM’s motion was denied; ACE’s motion was granted. PTJV is in the process of appealing the ACE decision and exploring a potential mediation or settlement as discussions continue with FM and ACE.  Trial is scheduled for July 23, 2013.

 

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

 

Fontainebleau Matter

 

Desert Mechanical Inc. (“DMI”) and 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. (“Turnberry”), the general contractor, in the 8th Judicial District Court, Clark County, Nevada, and in May 2010, the court entered an order in favor of DMI for approximately $45 million. DMI is uncertain as to Turnberry’s present financial condition.

 

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 is now approximately $125 million set aside from this sale, which is available for distribution to satisfy the creditor claims based on seniority. The total estimated sustainable lien amount is 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. Discovery in the bankruptcy matter is currently stayed until the Bankruptcy Court rules on pending motions to dismiss filed by the lienholders.

 

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

 

MGM CityCenter Matter

 

Tutor Perini Building Corp. (“TPBC”) (formerly Perini Building Company, Inc.), a wholly owned subsidiary of the Company, contracted with MGM MIRAGE Design Group (“MGM”) in March 2005 to construct the CityCenter project in Las Vegas, Nevada. The project, which encompasses nineteen separate contracts, is a 66-acre urban mixed use development consisting of hotels, condominiums, retail space and a casino.

 

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The Company achieved substantial completion of the project in December 2009, and MGM opened the project to the public on the same date. In March 2010, the Company filed suit against MGM and certain other property owners in the Clark County District Court alleging several claims including breach of contract, among other items.

 

In a Current Report on Form 8-K filed by MGM in March 2010, and in subsequent communications issued, MGM has asserted that it believes it owes substantially less than the claimed amount and that it has claims for losses in connection with the construction of the Harmon Tower and is entitled to unspecified offsets for other work on the project. According to MGM, the total of the offsets and the Harmon Tower claims exceed the amount claimed by the Company.

 

In May 2010, MGM filed a counterclaim and third party complaint against the Company and its subsidiary TPBC. The court granted the Company and MGM’s joint motion to consolidate all subcontractor initiated actions into the main CityCenter lawsuit. In July 2012, the Court granted MGM’s motion to demolish the Harmon Tower, one of the CityCenter buildings, as a “business decision.”

 

Evidence had been presented at the Harmon related hearings that the Harmon Tower could be repaired for approximately $21 million, more than $15 million of which is due to design defects that are MGM’s responsibility. In mid-September 2012, MGM filed a request for additional destructive testing in the Harmon Tower. In October 2012, the Court ruled it would allow additional testing but with certain conditions including but not limited to the Court’s withdrawing MGM’s right to demolish the Harmon Tower and severing the Harmon Tower defects issue from the rest of the case. In February 2013, MGM filed third-party complaints against the project designers.  In early April 2013, MGM started additional testing in the Harmon Tower.

 

The Court ordered a settlement conference to be held in August 2013.  Trial has been scheduled for January 2014.

 

With respect to alleged losses at the Harmon Tower, the Company has contractual indemnities from the responsible subcontractor, as well as existing insurance coverage that it expects will be available and sufficient to cover any liability that may be associated with this matter. The Company’s insurance carrier initiated legal proceedings seeking declaratory relief that their insurance policies do not provide for defense or coverage for matters pertaining to the Harmon Towers. Those proceedings are stayed pending the outcome of the underlying dispute in Nevada District Court. The Company is not aware of a basis for other claims that would amount to material offsets against what MGM owes to the Company. The Company does not expect this matter to have any material effect on its consolidated financial statements.

 

As of March 2013, MGM has reached agreements with subcontractors to settle at a discount $302.8 million of amounts previously billed to MGM. The Company has reduced and will continue to reduce amounts included in revenues, cost of construction operations, accounts receivable and accounts payable for the reduction in subcontractor pass-through billings, which the Company would not expect to have an impact on recorded profit. As of March 2013, the Company had approximately $192 million recorded as contract receivables for amounts due and owed to the Company and its subcontractors. In December 2011, a portion of the amounts owed to one of the Company’s subsidiaries, Fisk, was paid for approximately $15 million. Included in the Company’s receivables are pass-through subcontractor billings for contract work and retention, and other requests for equitable adjustment for additional work in the amount of $48 million. As of March 2013, the Company’s mechanic’s lien against the project was $191.3 million.

 

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

 

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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 $8.75 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.  No trial date has been set.

 

The Company does not expect 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 time share 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. Westgate 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. Some or all of the allegations will be defended by counsel appointed by TSC’s insurance carrier. WPH has since revised the amount of their counterclaims to approximately $45 million.

 

Subcontractor claims have settled before trial. Trial on the remaining issues began in October 2012. In late February 2013, the Court ordered judgment in favor of TSC in the amount of $9.0 million plus interest and attorneys’ fees.  The Court also ordered judgment in favor of WPH in the amount of $2.6 million plus interest for defect claims that are anticipated to be paid by the owner-controlled insurance program (“OCIP”) carrier.  Judgment will not be entered until final ruling on the bifurcated OCIP claim, with the OCIP portion of the case now scheduled for trial in May 2013 while the parties continue discussions to resolve the OCIP claim issues.

 

The Company does not expect 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 financial statements at that time.

 

100th Street Bus Depot Matter

 

The Company constructed the 100th Street Bus Depot for the New York City Transit Authority (“NYCTA”) in New York. Prior to receiving notice of final acceptance from the NYCTA, this project experienced a failure of the brick façade on the building due to faulty subcontractor work. The Company has not yet received notice of final acceptance of this project from the NYCTA. The Company contends defective structural installation by the Company’s steel subcontractor caused or was a causal factor of the brick facade failure.

 

The Company has tendered its claim to the NYCTA OCIP and to Chartis Claims, Inc. (“Chartis”), its insurance carrier. Coverage was denied in January 2011. The OCIP and general liability carriers have filed a declaratory relief action in the United States District Court, Southern District of New York against the Company seeking court determination that no coverage is afforded under their policies. In mid-February 2012, the Company filed a third-party action against certain underwriters (“Lloyd’s”).  In mid-November 2012, the Court granted Chartis’s and Lloyd’s respective motions for summary judgment without oral argument. The Company is appealing those orders.

 

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The parties have agreed to discuss settlement and are engaging in Second Circuit Court of Appeals mediation process.

 

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

 

Brightwater Matter

 

In 2006, the Department of Natural Resources and Parks Wastewater Treatment Division of King County (“King County”), as Owner, and Vinci Construction Grands Projects/Parsons RCI/Frontier-Kemper, Joint Venture (“VPFK”), as Contractor, entered into a contract to construct the Brightwater Conveyance System and tunnel sections in Washington State. Frontier-Kemper, a wholly owned subsidiary of the Company, is a 20% minority partner in the joint venture.

 

In April 2010, King County filed a lawsuit alleging damages in the amount of $74 million, plus costs, for VPFK’s failure to complete specified components of the project in the King County Superior Court, State of Washington. Shortly thereafter, VPFK filed a counterclaim in the amount of approximately $75 million, seeking reimbursement for additional costs incurred as a result of differing site conditions, King County’s defective specifications, for damages sustained on VPFK’s tunnel boring machines (“TBM”), and increased costs as a result of hyperbaric interventions. VPFK’s claims related to differing site conditions, defective design specifications, and damages to the TBM were presented to a Dispute Resolution Board (“DRB”). King County amended the amount sought in its lawsuit to approximately $132 million. In August 2011, the DRB generally found that King County was liable to VPFK for VPFK’s claims for encountering differing site conditions, including damages to the TBM, but not on VPFK’s alternative theory of defective specifications. From June through August 2012, each party filed several motions for summary judgment on certain claims and requests in preparation for trial, which were heard and ruled upon by the Court. The Court granted and denied various requests of each party related to evidence and damages.

 

Trial started in early September 2012. In December 2012, a jury verdict was received in favor of King County in the amount of $155.8 million and a verdict in favor of VPFK in the amount of $26.3 million. In late April 2013, the Court ruled on post-trial motions and ordered VPFK’s sureties to pay King County’s attorneys’ fees and costs in the amount of $14.7 million.  All other motions were denied.  VPFK will likely pay the verdict amount and the associated fees in the second quarter of 2013.  VPFK will appeal if the parties are unable to reach a settlement.

 

The ultimate financial impact of King County’s lawsuit is not yet specifically determinable. In the fourth quarter of 2012, management developed a range of possible outcomes and has recorded a charge to income and a contingent liability of $5.0 million in accrued expenses. In developing a range of possible outcomes, management considered the jury verdict, continued litigation and potential settlement strategies. Management determined that there was no estimate within the range of possible outcomes that was more probable than the other and recorded a liability at the low end of the range. Estimating and recording future outcomes of litigation proceedings require significant judgment and assumptions about the future, which are inherently subject to risks and uncertainties. If a final recovery turns out to be materially less favorable than our estimates, this may have a significant impact on the Company’s financial results. 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.

 

156 Stations Matter

 

In December 2003, Five Star Electric Corporation (“FSE”), a wholly owned subsidiary of the Company, entered into an agreement with the Prime Contractor Transit Technologies, L.L.C (“Transit”), a Consortium member of Siemens Transportation Transit Technologies, L.L.C (“Siemens”), to assist in the installation of new public address and customer information screens system for each of the 156 stations for the New York City Transit Authority (“NYCTA”) as the owner. Work on the project commenced in early 2004 and is substantially complete.

 

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In June 2007, FSE submitted a Demand for Arbitration against Transit to terminate FSE’s subcontract due to: the execution of a Cure Agreement between the NYCTA, Siemens and Transit, which amended FSE’s rights under the Prime Contract; Transit’s failure to provide information and equipment to allow work to progress according to the approved schedule, and Transit’s failure to tender payment in excess of a year. In June 2012, the arbitration panel awarded FSE a total of approximately $11.9 million to be paid within 45 days, and Transit’s claims were denied. FSE filed a motion to confirm arbitration award in District Court in July 2012. In late August 2012, Transit Technologies filed a cross petition to vacate the award. In November 2012, the Court granted FSE’s petition to confirm the arbitration award and denied Transit Technologies’ cross-petition to vacate the award. In late February 2013, the Court affirmed FSE’s award and entered judgment in the amount of $12.3 million including award, costs and interest.  FSE will pursue its bond claim to recover judgment. The eventual resolution of this matter is not expected to have a material effect on the Company’s consolidated financial statements.

 

(8)               Income Taxes

 

The Company’s effective tax rates for the three months ended March 31, 2013 and 2012 were 38.1% and 133.7%, respectively.  The current period income tax expense of $9.1 million includes discrete items of $0.4 million, related mainly to a favorable state audit settlement and an adjustment to state tax attributes.

 

For financial statement purposes the Company uses the more-likely-than-not recognition threshold and a tax benefit measurement process for recording changes to unrecognized tax benefits. The Company recognizes interest and penalties on any income tax liabilities as a component of its income tax provision. The total amounts of gross unrecognized tax benefits recorded were approximately $4.1 million and $4.0 million as of March 31, 2013 and December 31, 2012, respectively.

 

The Company’s 2010 U.S. Federal tax return is currently being audited by the Internal Revenue Service.  The Company currently does not expect any material adjustments to arise from this audit.

 

(9)               Stock-Based Compensation

 

The Company is authorized to grant up to 6,900,000 stock-based compensation awards to key executives, employees and directors of the Company under the Tutor Perini Corporation Long-Term Incentive Plan (the “Plan”).  The Plan allows stock-based compensation awards to be granted in a variety of forms, including restricted stock awards and stock options. The terms and conditions of the awards granted are established by the Compensation Committee of the Company’s Board of Directors who also administers the Plan.

 

Restricted Stock Awards

 

Restricted stock awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets.  Upon vesting, each award is exchanged for one share of the Company’s common stock.  The grant date fair values of these awards are determined based on the closing price of the Company’s stock on either the award date (if subject only to service conditions), or the date that the Compensation Committee establishes the applicable performance target (if subject to performance conditions).  The related compensation expense is amortized over the applicable requisite period.  As of March 31, 2013, the Compensation Committee has approved the grant of an aggregate of 4,875,833 restricted stock awards to eligible participants.

 

In March 2013, the Compensation Committee established the 2013 pre-tax income performance targets for 178,335 restricted stock units awarded in 2009 and 2010.  Additionally, there were no restricted stock unit awards forfeited during the three months ended March 31, 2013.

 

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For the three months ended March 31, 2013 and 2012, the Company recognized $2.3 million and $2.5 million, respectively, of compensation expense related to restricted stock awards, and such expense is included in general and administrative expenses in the Consolidated Statements of Operations.  As of March 31, 2013 there was $6.0 million of unrecognized compensation cost related to the unvested awards which, absent significant forfeitures in the future, is expected to be recognized over a weighted average period of approximately 2.3 years.

 

A summary of restricted stock awards activity for the three months ended March 31, 2013 is as follows:

 

 

 

 

 

 

 

Aggregate

 

 

 

 

 

Weighted Average

 

Intrinsic

 

 

 

Number

 

Grant Date

 

Value

 

 

 

of Shares

 

Fair Value

 

(in thousands)

 

Granted and Unvested - January 1, 2013

 

1,141,666

 

$

18.12

 

$

15,641

 

Vested

 

(28,333

)

$

15.49

 

$

521

 

Granted

 

178,335

 

$

19.30

 

$

3,442

 

Forfeited

 

 

 

 

Total Granted and Unvested

 

1,291,668

 

$

18.34

 

$

24,929

 

Approved for grant

 

710,000

 

(a)

 

$

13,703

 

Total Awarded and Unvested - March 31, 2013

 

2,001,668

 

n.a.

 

$

38,632

 

 


(a)                     Grant date fair value cannot be determined currently because the related performance targets for future years have not yet been established by the Compensation Committee.

 

The outstanding unvested awards at March 31, 2013 are scheduled to vest as follows, subject where applicable to the achievement of performance targets.  As described above, certain performance targets are not yet established.

 

 

 

Number

 

Vesting Date

 

of Awards

 

2013

 

868,333

 

2014

 

408,335

 

2015

 

150,000

 

2016

 

165,000

 

2017

 

410,000

 

Total

 

2,001,668

 

 

Approximately 245,000 of the unvested restricted stock awards will vest based on the satisfaction of service requirements and 1,756,668 of the unvested restricted stock units will vest based on the satisfaction of both service requirements and the achievement of performance targets.

 

Stock Options

 

Stock option awards generally vest subject to the satisfaction of service requirements or the satisfaction of both service requirements and achievement of certain performance targets. The grant date fair values of these awards are determined based on the Black-Scholes option price model on either the award date (if subject only to service conditions) or the date that the Compensation Committee establishes the applicable performance target (if subject to

 

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performance conditions).  The related compensation expense is amortized over the applicable requisite service period.  The exercise price of the options is equal to the closing price of the Company’s common stock on the date the awards were approved by the Compensation Committee, and the awards expire ten years from the award date. As of March 31, 2013, the Compensation Committee has approved the award of an aggregate of 2,365,465 stock option awards to eligible participants.

 

In March 2013, the Compensation Committee established the 2013 pre-tax income performance target for 150,000 stock options awarded in 2009.

 

For the three months ended March 31, 2013 and 2012, the Company recognized compensation expense of $0.8 million and $0.9 million, respectively, related to stock option awards, and such expenses are included in general and administrative expenses in the Consolidated Statements of Operations.  As of March 31, 2013, there was $2.4 million of unrecognized compensation expense related to the outstanding options, which, absent significant forfeitures in the future, is expected to be recognized over a weighted average period of approximately 2.3 years.

 

A summary of stock option activity under the plan for the three months ended March 31, 2013 is as follows:

 

 

 

 

 

Weighted Average

 

 

 

Number

 

Grant Date

 

Exercise

 

 

 

of Shares

 

Fair Value

 

Price

 

Total Granted and Outstanding - January 1, 2013

 

1,315,465

 

$

9.72

 

$

18.91

 

Granted

 

150,000

 

$

9.02

 

$

20.33

 

Forfeited

 

 

 

 

Total Granted and Outstanding

 

1,465,465

 

$

9.65

 

$

19.06

 

Approved for grant

 

680,000

 

(a)

 

$

11.14

 

Total Awarded and Outstanding - March 31, 2013

 

2,145,465

 

n.a.

 

$

16.55

 

 


(a)         Grant date fair value cannot be determined currently because the related performance targets for future years have not yet been established by the Compensation Committee.

 

There were 490,465 options that have vested and were exercisable at March 31, 2013 at a weighted average exercise price of $19.79 per share.

 

Of the remaining options outstanding, approximately 592,500 options will vest based on the satisfaction of service requirements and 1,062,500 options will vest based on the satisfaction of both service requirements and the achievement of performance targets.

 

At March 31, 2013, the outstanding options of 1,465,465 had an intrinsic value of $2.9 million and a weighted average remaining contractual life of 6.3 years.

 

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During 2009, the Compensation Committee approved the award of 750,000 stock options that vest in five equal annual tranches from 2010 to 2014 subject to the achievement of pre-tax income performance targets established by the Compensation Committee. In March 2013, the Compensation Committee established the 2013 pre-tax income performance target for the fifth tranche of 150,000 stock options awarded in 2009.  The fair value of this tranche was determined based on the Black Scholes option pricing model using the following key assumptions:

 

Risk-free interest rate

 

0.48%

 

Expected life of options

 

3.6 years

 

Expected volatility of underlying stock

 

51.00%

 

Expected quarterly dividends (per share)

 

$0.00

 

 

(10)        Financial Commitments

 

Amended Credit Agreement

 

On August 2, 2012, the Company entered into a First Amendment (the “First Amendment”) to its Fifth Amended and Restated Credit Agreement (the “Amended Credit Agreement”) with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the “Lender”).  The First Amendment modifies the financial covenants under the Amended Credit Agreement beginning with the period ended September 30, 2012 to allow for more favorable minimum net worth, minimum fixed charge and maximum leverage ratios for the Company and also to add new financial covenants including minimum liquidity and consolidated senior leverage ratio covenants.  The First Amendment also increases the sublimit for letters of credit from $50 million to $150 million.

 

Under the First Amendment, the minimum net worth covenant is modified such that the consolidated net worth of the Company cannot be less than the sum of: (i) 85% of the consolidated net worth as of March 31, 2012 less the actual goodwill and intangible assets impairment charge taken on or before September 30, 2012, not to exceed $450.0 million; (ii) an amount equal to 50% of net income for each fiscal quarter ending after June 30, 2012 (with no deduction for net losses); and (iii) an amount equal to 100% of the aggregate amount of all equity issuances after June 30, 2012 that increase stockholder’s equity.  The minimum fixed charge ratio covenant is modified such that the minimum fixed charge ratio shall not be less than 1.00 to 1.00 for the quarterly periods ending September 30, 2012 and December 31, 2012, 1.10 to 1.00 for the quarterly periods ending March 31, 2013 and June 30, 2013, and 1.25 to 1.00 for the quarterly periods ending September 30, 2013 and thereafter.  The consolidated leverage ratio covenant is modified such that the consolidated leverage ratio shall not be greater than 4.25 to 1.00 for the quarterly periods ending September 30, 2012 through March 31, 2013, 3.75 to 1.00 for the quarterly periods ending June 30, 2013 through December 31, 2013, 3.25 to 1.00 for the quarterly periods ending March 31, 2014 through September 30, 2014 and 2.75 to 1.00 for the quarterly periods ending December 31, 2014 and thereafter.  The First Amendment allows for an add-back to EBITDA of up to $450.0 million for any goodwill and intangible asset impairment charges that impact the ratios for all fiscal quarters through March 31, 2013.

 

The Company was in compliance with the modified financial covenants under the First Amendment for the period ended March 31, 2013.

 

The First Amendment also modifies the applicable interest rates for amounts outstanding such that they bear interest at a rate equal to, at the Company’s option, (a) the adjusted British Bankers Association LIBOR rate, as defined, plus 200 to 400 basis points (floor of 200 basis points) based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA or (b) the higher of the Federal Funds Rate plus 50 basis points, or the prime rate announced by Bank of America, N.A., plus up to 300 basis points based on the ratio of consolidated funded indebtedness of the Company and its subsidiaries to consolidated EBITDA.  In addition, the Company has agreed to pay quarterly facility fees ranging from 0.375% to 0.700% per annum of the unused portion of the credit facility.

 

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The Amended Credit Agreement increases the sublimit for letters of credit from $50 million to $150 million.  Substantially all of the Company’s subsidiaries unconditionally guarantee the obligations of the Company under the Amended Credit Agreement.  The obligations under the Amended Credit Agreement are secured by a lien on all personal property of the Company and its subsidiaries party thereto.  Any outstanding loans under the Revolving Facility mature on August 3, 2016, while the Term Loan includes quarterly installments of principal and interest payable over a five-year period.  The Term Loan balance has been paid down to $143.8 million at March 31, 2013.

 

The Company had $204.0 million of outstanding borrowings under its Revolving Facility as of March 31, 2013 and $120.0 million of outstanding borrowings as of December 31, 2012.  The net increase in borrowings under the Revolving Facility comprises all “Proceeds from debt” and a significant portion of all “Repayment of debt” as presented in the Consolidated Condensed Statements of Cash Flows.  The Company utilized the Revolving Facility for letters of credit in the amount of $0.2 million as of both March 31, 2013 and December 31, 2012.  Accordingly, at March 31, 2013, the Company had $95.8 million available to borrow under the Revolving Facility.

 

(11)        Earnings (Loss) per Common Share

 

Basic earnings (loss) per common share was computed by dividing net income (loss) by the weighted average number of common shares outstanding.  Diluted earnings (loss) per common share was similarly computed after giving consideration to the dilutive effect of stock options and restricted stock unit awards outstanding on the weighted average number of common shares outstanding. The computation of diluted earnings (loss) per common share for the three months ended March 31, 2013 excludes 942,500 stock options because these shares would have an antidilutive effect.  The computation of diluted earnings per common share for the three months ended March 31, 2012 excludes 1,225,465 stock options, and 1,185,832 restricted stock units.

 

(12)        Business Segments

 

The Company’s chief operating decision maker is the Chairman and Chief Executive Officer who decides how to allocate resources and assess performance of the business segments.  Generally, the Company evaluates performance of its operating segments on the basis of income from operations and cash flow.

 

The following table sets forth certain reportable segment information relating to the Company’s operations for the three months ended March 31, 2013 and 2012.

 

 

 

Reportable Segments

 

 

 

 

 

 

 

 

 

 

 

Specialty

 

Management

 

 

 

 

 

Consolidated

 

(in thousands)

 

Building

 

Civil

 

Contractors

 

Services

 

Totals

 

Corporate

 

Total

 

Three Months Ended March 31, 2013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

425,114

 

$

283,975

 

$

301,877

 

$

47,369

 

$

1,058,335

 

$

 

$

1,058,335

 

Elimination of intersegment revenues

 

(11,475

)

(51,288

)

(10

)

(2,634

)

(65,407

)

 

(65,407

)

Revenues from external customers

 

$

413,639

 

$

232,687

 

$

301,867

 

$

44,735

 

$

992,928

 

$

 

$

992,928

 

Income from construction operations

 

$

4,237

 

$

21,554

 

$

19,286

 

$

2,806

 

$

47,883

 

$

(11,804

)*

$

36,079

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended March 31, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Revenues

 

$

343,039

 

$

250,589

 

$

267,736

 

$

68,112

 

$

929,476

 

$

 

$

929,476

 

Elimination of intersegment revenues

 

(2,245

)

(1,216

)

(298

)

(13,183

)

(16,942

)

 

(16,942

)

Revenues from external customers

 

$

340,794

 

$

249,373

 

$

267,438

 

$

54,929

 

$

912,534

 

$

 

$

912,534

 

Income from construction operations

 

$

(8,897

)

$

16,842

 

$

19,748

 

$

1,886

 

$

29,579

 

$

(12,616

)*

$

16,963

 

 


* Consists primarily of corporate general and administrative expenses.

 

28



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

(13)        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 the Company’s pension plan 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 by component for the three months ended March 31, 2013 and 2012:

 

 

 

Three Months Ended March 31,

 

 

 

2013

 

2012

 

 

 

(in thousands)

 

Interest cost

 

$

916

 

$

1,005

 

Expected return on plan assets

 

(1,120

)

(1,186

)

Amortization of net loss

 

1,544

 

1,396

 

Net periodic benefit cost

 

$

1,340

 

$

1,215

 

 

During the first quarter of 2012, the Company contributed $0.8 million. The Company was not required by its pension plan administrator to make a contribution to its defined benefit pension plan during the first quarter of 2013.  The Company expects to contribute an additional $1.7 million to its defined benefit pension plan during the remainder of fiscal year 2013.

 

(14)        Related Party Transactions

 

The Company leases certain facilities from Ronald N. Tutor, the Company’s Chairman and Chief Executive Officer, and an affiliate owned by Mr. Tutor under non-cancelable operating lease agreements with monthly payments of $0.2 million, which increase at 3% per annum beginning August 1, 2009 and expire on July 31, 2016.  Lease expense for these leases, recorded on a straight-line basis, was $0.6 million for both the three months ended March 31, 2013 and 2012.

 

Raymond R. Oneglia, who is the Vice Chairman of O&G Industries, Inc. (“O&G”), is a director of the Company.  O&G occasionally participates in joint ventures with the Company.  The Company’s share of revenues related to these joint ventures amounted to $1.8 million and $1.5 million (or less than 1%) of the Company’s consolidated revenues for the three months ended March 31, 2013 and 2012, respectively.  O&G’s cumulative holdings of the Company’s stock were 600,000 shares, or 1.26% and 1.27 %, respectively, of total common shares outstanding at both March 31, 2013 and 2012.

 

29



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

(15)        Separate Financial Information of Subsidiary Guarantors of Indebtedness

 

The Company’s obligation to pay principal and interest on its 7.625% senior unsecured notes due November 1, 2018, is guaranteed on a joint and several basis by substantially all of the Company’s existing and future subsidiaries that guarantee obligations under the Company’s Amended Credit Agreement (the “Guarantors”).  The guarantees are full and unconditional and the Guarantors are 100%-owned by the Company.

 

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

 

30



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING BALANCE SHEET - MARCH 31, 2013 (UNAUDITED)

(in thousands)

 

 

 

Tutor Perini
Corporation

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Total
Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

64,759

 

$

48,549

 

$

19,010

 

$

 

$

132,318

 

Restricted Cash

 

23,441

 

8,485

 

13,305

 

 

45,231

 

Accounts Receivable

 

228,946

 

1,221,539

 

4,577

 

(123,507

)

1,331,555

 

Costs and Estimated Earnings in Excess of Billings

 

94,935

 

409,959

 

152

 

(25,685

)

479,361

 

Deferred Income Taxes

 

 

15,488

 

 

(5,767

)

9,721

 

Other Current Assets

 

43,674

 

39,572

 

3,947

 

(12,693

)

74,500

 

Total Current Assets

 

455,755

 

1,743,592

 

40,991

 

(167,652

)

2,072,686

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments

 

46,283

 

 

 

 

46,283

 

Property and Equipment, net

 

68,502

 

414,110

 

4,773

 

 

487,385

 

Intercompany Notes and Receivables

 

 

334,261

 

 

(334,261

)

 

Other Assets:

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

570,646

 

 

 

570,646

 

Intangible Assets, net

 

 

123,551

 

 

 

123,551

 

Investment in Subsidiaries

 

2,083,424

 

4

 

50

 

(2,083,478

)

 

Other

 

80,809

 

10,682

 

35,375

 

(39,979

)

86,887

 

 

 

$

2,734,773

 

$

3,196,846

 

$

81,189

 

$

(2,625,370

)

$

3,387,438

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Maturities of Long-term Debt

 

$

42,165

 

$

25,165

 

$

 

$

 

$

67,330

 

Accounts Payable

 

133,630

 

720,808

 

671

 

(149,193

)

705,916

 

Billings in Excess of Costs and Estimated Earnings

 

110,907

 

184,324

 

34

 

 

295,265

 

Accrued Expenses and Other Current Liabilities

 

63,815

 

88,419

 

42,514

 

(18,499

)

176,249

 

Total Current Liabilities

 

350,517

 

1,018,716

 

43,219

 

(167,692

)

1,244,760

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Debt, less current maturities

 

677,244

 

99,818

 

 

(39,979

)

737,083

 

Deferred Income Taxes

 

102,227

 

7,761

 

 

 

109,988

 

Other Long-term Liabilities

 

129,595

 

4,314

 

 

 

133,909

 

Intercompany Notes and Advances Payable

 

313,492

 

 

20,720

 

(334,212

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingencies and Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

1,161,698

 

2,066,237

 

17,250

 

(2,083,487

)

1,161,698

 

 

 

$

2,734,773

 

$

3,196,846

 

$

81,189

 

$

(2,625,370

)

$

3,387,438

 

 

31



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING BALANCE SHEET - DECEMBER 31, 2012

(in thousands)

 

 

 

Tutor Perini
Corporation

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Total
Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash and Cash Equivalents

 

$

64,663

 

$

74,385

 

$

29,008

 

$

 

$

168,056

 

Restricted Cash

 

30,236

 

8,481

 

 

 

38,717

 

Accounts Receivable

 

177,856

 

1,121,098

 

1,088

 

(75,429

)

1,224,613

 

Costs and Estimated Earnings in Excess of Billings

 

111,821

 

377,132

 

152

 

(24,103

)

465,002

 

Deferred Income Taxes

 

 

15,823

 

 

(5,752

)

10,071

 

Other Current Assets

 

26,461

 

49,993

 

2,891

 

(3,957

)

75,388

 

Total Current Assets

 

411,037

 

1,646,912

 

33,139

 

(109,241

)

1,981,847

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Investments

 

46,283

 

 

 

 

46,283

 

Property and Equipment, net

 

64,248

 

416,006

 

4,841

 

 

485,095

 

Intercompany Notes and Receivables

 

 

493,277

 

 

(493,277

)

 

Other Assets:

 

 

 

 

 

 

 

 

 

 

 

Goodwill

 

 

570,646

 

 

 

570,646

 

Intangible Assets, net

 

 

126,821

 

 

 

126,821

 

Investment in Subsidiaries

 

2,122,116

 

134

 

50

 

(2,122,300

)

 

Other

 

81,198

 

9,058

 

35,375

 

(39,913

)

85,718

 

 

 

$

2,724,882

 

$

3,262,854

 

$

73,405

 

$

(2,764,731

)

$

3,296,410

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Current Maturities of Long-term Debt

 

$

42,589

 

$

25,121

 

$

 

$

 

$

67,710

 

Accounts Payable

 

97,834

 

698,015

 

156

 

(99,532

)

696,473

 

Billings in Excess of Costs and Estimated Earnings

 

95,657

 

206,070

 

34

 

 

301,761

 

Accrued Expenses and Other Current Liabilities

 

30,545

 

108,589

 

38,901

 

(9,709

)

168,326

 

Total Current Liabilities

 

266,625

 

1,037,795

 

39,091

 

(109,241

)

1,234,270

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term Debt, less current maturities

 

603,371

 

105,922

 

 

(39,913

)

669,380

 

Deferred Income Taxes

 

102,138

 

7,762

 

 

 

109,900

 

Other Long-term Liabilities

 

134,874

 

4,122

 

 

 

138,996

 

Intercompany Notes and Advances Payable

 

474,010

 

 

19,267

 

(493,277

)

 

 

 

 

 

 

 

 

 

 

 

 

 

Contingencies and Commitments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Stockholders’ Equity

 

1,143,864

 

2,107,253

 

15,047

 

(2,122,300

)

1,143,864

 

 

 

$

2,724,882

 

$

3,262,854

 

$

73,405

 

$

(2,764,731

)

$

3,296,410

 

 

32



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2013

(in thousands)

 

 

 

Tutor Perini
Corporation

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Total
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

139,777

 

$

921,413

 

$

 

$

(68,262

)

$

992,928

 

Cost of Operations

 

125,089

 

839,820

 

(4,076

)

(68,262

)

892,571

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

14,688

 

81,593

 

4,076

 

 

100,357

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative Expenses

 

18,777

 

45,031

 

470

 

 

64,278

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM CONSTRUCTION OPERATIONS

 

(4,089

)

36,562

 

3,606

 

 

36,079

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in Earnings of Subsidiaries

 

24,356

 

 

 

(24,356

)

 

Other Income (Expense), net

 

(809

)

(144

)

126

 

 

(827

)

Interest Expense

 

(10,545

)

(791

)

 

 

(11,336

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before Income Taxes

 

8,913

 

35,627

 

3,732

 

(24,356

)

23,916

 

 

 

 

 

 

 

 

 

 

 

 

 

(Provision) Credit for Income Taxes

 

5,887

 

(13,580

)

(1,423

)

 

(9,116

)

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME

 

$

14,800

 

$

22,047

 

$

2,309

 

$

(24,356

)

$

14,800

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income of Subsidiaries

 

(85

)

 

 

85

 

 

Foreign currency translation

 

 

(186

)

 

 

(186

)

Change in fair value of investments

 

 

101

 

 

 

101

 

Change in fair value of interest rate swap

 

168

 

 

 

 

168

 

Total Other Comprehensive Loss

 

83

 

(85

)

 

85

 

83

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Comprehensive Income

 

$

14,883

 

$

21,962

 

$

2,309

 

$

(24,271

)

$

14,883

 

 

33



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012

(in thousands)

 

 

 

Tutor Perini
Corporation

 

Guarantor
Subsidiaries

 

Non-Guarantor
Subsidiaries

 

Eliminations

 

Total
Consolidated

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

69,125

 

$

861,695

 

$

 

$

(18,286

)

$

912,534

 

Cost of Operations

 

62,694

 

785,894

 

(3,927

)

(18,286

)

826,375

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross Profit

 

6,431

 

75,801

 

3,927

 

 

86,159

 

 

 

 

 

 

 

 

 

 

 

 

 

General and Administrative Expenses

 

18,909

 

49,718

 

569

 

 

69,196

 

 

 

 

 

 

 

 

 

 

 

 

 

INCOME (LOSS) FROM CONSTRUCTION OPERATIONS

 

(12,478

)

26,083

 

3,358

 

 

16,963

 

 

 

 

 

 

 

 

 

 

 

 

 

Equity in Earnings of Subsidiaries

 

17,532

 

 

 

(17,532

)

 

Other Income (Expense), net

 

(2,064

)

(476

)

232

 

 

(2,308

)

Interest Expense

 

(10,071

)

(1,011

)

 

 

(11,082

)

 

 

 

 

 

 

 

 

 

 

 

 

Income (loss) before Income Taxes

 

(7,081

)

24,596

 

3,590

 

(17,532

)

3,573

 

 

 

 

 

 

 

 

 

 

 

 

 

(Provision) Credit for Income Taxes

 

5,878

 

(9,297

)

(1,357

)

 

(4,776

)

 

 

 

 

 

 

 

 

 

 

 

 

NET (LOSS) INCOME

 

$

(1,203

)

$

15,299

 

$

2,233

 

$

(17,532

)

$

(1,203

)

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other Comprehensive Income of Subsidiaries

 

525

 

 

 

(525

)

 

Foreign currency translation

 

 

323

 

 

 

323

 

Change in fair value of investments

 

 

202

 

 

 

202

 

Change in fair value of interest rate swap

 

(685

)

 

 

 

(685

)

Realized loss on sale of investments recorded in net income (loss)

 

2,005

 

 

 

 

2,005

 

Total Other Comprehensive Loss

 

1,845

 

525

 

 

(525

)

1,845

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Comprehensive Income

 

$

642

 

$

15,824

 

$

2,233

 

$

(18,057

)

$

642

 

 

34



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2013

(in thousands)

 

 

 

Tutor Perini
Corporation

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

Total
Consolidated

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

14,800

 

$

22,047

 

$

2,309

 

$

(24,356

)

$

14,800

 

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

1,549

 

12,176

 

68

 

 

13,793

 

Equity in earnings of subsidiaries

 

(24,356

)

 

 

24,356

 

 

Stock-based compensation expense

 

3,078

 

 

 

 

3,078

 

Deferred income taxes

 

33

 

315

 

 

 

348

 

Gain on sale of property and equipment

 

 

(76

)

 

 

(76

)

Other non-cash items

 

1,366

 

(1,563

)

 

 

(197

)

Other long-term liabilities

 

1,803

 

48

 

 

 

1,851

 

Changes in other components of working capital

 

24,353

 

(141,988

)

(417

)

 

(118,052

)

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

 

$

22,626

 

$

(109,041

)

$

1,960

 

$

 

$

(84,455

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

(5,090

)

(7,089

)

 

 

(12,179

)

Proceeds from sale of property and equipment

 

6

 

233

 

 

 

239

 

Change in restricted cash

 

6,795

 

(4

)

(13,305

)

 

(6,514

)

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES

 

$

1,711

 

$

(6,860

)

$

(13,305

)

$

 

$

(18,454

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from debt

 

293,650

 

(636

)

 

 

293,014

 

Repayment of debt

 

(220,262

)

(5,422

)

 

 

(225,684

)

Issuance of common stock and effect of cashless exercise

 

(159

)

 

 

 

(159

)

Increase (decrease) in intercompany advances

 

(97,470

)

96,123

 

1,347

 

 

 

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

 

$

(24,241

)

$

90,065

 

$

1,347

 

$

 

$

67,171

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

96

 

(25,836

)

(9,998

)

 

(35,738

)

Cash and Cash Equivalents at Beginning of Year

 

64,663

 

74,385

 

29,008

 

 

168,056

 

Cash and Cash Equivalents at End of Period

 

$

64,759

 

$

48,549

 

$

19,010

 

$

 

$

132,318

 

 

35



Table of Contents

 

TUTOR PERINI CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

 

CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS (UNAUDITED)

THREE MONTHS ENDED MARCH 31, 2012

(in thousands)

 

 

 

Tutor Perini
Corporation

 

Guarantor
Subsidiaries

 

Non- Guarantor
Subsidiaries

 

Eliminations

 

Total
Consolidated

 

Cash Flows from Operating Activities:

 

 

 

 

 

 

 

 

 

 

 

Net (loss) income

 

$

(1,203

)

$

15,299

 

$

2,233

 

$

(17,532

)

$

(1,203

)

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

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

1,175

 

14,547

 

68

 

 

15,790

 

Equity in earnings of subsidiaries

 

(17,532

)

 

 

17,532

 

 

Stock-based compensation expense

 

3,419

 

 

 

 

3,419

 

Deferred income taxes

 

5,765

 

(72

)

 

 

5,693

 

Adjustment of interest rate swap to fair value

 

264

 

 

 

 

264

 

Loss on sale of investments

 

2,699

 

 

 

 

2,699

 

(Gain) Loss on sale of equipment

 

23

 

(102

)

 

 

(79

)

Other long-term liabilities

 

840

 

(626

)

 

 

214

 

Other non-cash items

 

322

 

445

 

 

 

767

 

Changes in other components of working capital

 

33,476

 

(92,750

)

6,672

 

 

(52,602

)

NET CASH PROVIDED (USED) BY OPERATING ACTIVITIES

 

$

29,248

 

$

(63,259

)

$

8,973

 

$

 

$

(25,038

)

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Investing Activities:

 

 

 

 

 

 

 

 

 

 

 

Acquisition of property and equipment

 

(5,761

)

(4,888

)

 

 

(10,649

)

Proceeds from sale of property and equipment

 

 

3,968

 

 

 

3,968

 

Investments in available-for-sale securities

 

 

(535

)

 

 

(535

)

Proceeds from sale of available-for-sale securities

 

16,553

 

 

 

 

16,553

 

Change in restricted cash

 

(6

)

(7

)

 

 

(13

)

NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES

 

$

10,786

 

$

(1,462

)

$

 

$

 

$

9,324

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash Flows from Financing Activities:

 

 

 

 

 

 

 

 

 

 

 

Proceeds from debt

 

98,500

 

 

 

 

98,500

 

Repayment of debt

 

(89,076

)

(6,031

)

 

 

(95,107

)

Business acquisition related payments

 

(1,188

)

 

 

 

(1,188

)

Issuance of common stock and effect of cashless exercise

 

(307

)

 

 

 

(307

)

Debt issuance costs

 

(10

)

 

 

 

(10

)

Increase (decrease) in intercompany advances

 

(60,606

)

59,340

 

1,266

 

 

 

NET CASH PROVIDED (USED) BY FINANCING ACTIVITIES

 

$

(52,687

)

$

53,309

 

$

1,266

 

$

 

$

1,888

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

 

(12,653

)

(11,412

)

10,239

 

 

(13,826

)

Cash and Cash Equivalents at Beginning of Year

 

134,936

 

52,492

 

16,812

 

 

204,240

 

Cash and Cash Equivalents at End of Period

 

$

122,283

 

$

41,080

 

$

27,051

 

$

 

$

190,414

 

 

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Table of Contents

 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discusses our financial position at March 31, 2013, and the results of our operations for the three months ended March 31, 2013 and should be read in conjunction with: (1) the unaudited consolidated condensed financial statements and notes contained herein, and (2) the audited consolidated financial statements and accompanying notes to our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

 

Overview

 

We were incorporated in 1918 as a successor to businesses that had been engaged in providing construction services since 1894. We provide diversified general contracting, construction management and design-build services to private customers and public agencies throughout the world. Our construction business is conducted through four basic segments or operations: Civil, Building, Specialty Contractors and Management Services. Our Civil segment specializes in public works construction and the repair, replacement and reconstruction of infrastructure, including highways, bridges, mass transit systems and water and wastewater treatment facilities, primarily in the western, northeastern and mid-Atlantic United States. Our Building segment has significant experience providing services to a number of specialized building markets, including the hospitality and gaming, transportation, healthcare, municipal offices, sports and entertainment, educational, correctional facilities, biotech, pharmaceutical and high-tech markets. Our Specialty Contractors segment specializes in plumbing, HVAC, electrical, mechanical, and pneumatically placed concrete for a full range of civil, building and management services construction projects in the industrial, commercial, hospitality and gaming, and transportation end markets, among others. Our Management Services segment provides diversified construction and design-build services to the U.S. military and federal government agencies, as well as surety companies and multi-national corporations in the United States and overseas.

 

The contracting and management services that we provide consist of general contracting, pre-construction planning and comprehensive management services, including planning and scheduling the 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. We also offer self-performed construction services including site work, concrete forming and placement, steel erection, electrical and mechanical, plumbing and HVAC. We provide these services by using traditional general contracting arrangements, such as fixed price, guaranteed maximum price and cost plus fee contracts and, to a lesser extent, construction management or design-build contracting arrangements. In the ordinary course of our business, we enter into arrangements with other contractors, referred to as “joint ventures,” for certain construction projects. Each of the joint venture participants is usually committed to supply a predetermined percentage of capital, as required, and to share in a predetermined percentage of the income or loss of the project. Generally, each joint venture participant is fully liable for the obligations of the joint venture.

 

We believe our leadership position as the contractor of choice for large, complex civil and non-residential building projects will support our long-term backlog growth. We experienced our third quarter of consecutive growth within our Building segment and we continued to experience increased contributions from our Civil and Specialty Contractor segments consistent with our focus on obtaining higher margin public works projects and enhancing our self-performance capabilities. We expect to continue to leverage our increased self-performance and schedule control capabilities to obtain additional large scale Civil and Building awards. We have capitalized on this leadership position and these synergies with recent significant new awards and pending awards, such as two educational building projects in California valued at $234 million; the Hudson Yards South Tower construction project in New York; a $58 million transit signal modernization project for the New York City Transit Authority; a $40 million federal facility in Mississippi;  a $985 million pending award for the joint venture California High-Speed Rail design-build project; and an $840 million pending award for the San Francisco Municipal Transportation Agency (SFMTA) Central Subway project.

 

We continue our strategic focus on growing our business by pursuing and obtaining large complex public works projects.

 

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Table of Contents

 

The following tables set forth our consolidated condensed statement of operations:

 

 

 

% Change

 

 

 

Consolidated Results of Operations

 

Favorable

 

 

 

Three months ended March 31,

 

(Unfavorable)

 

 

 

2013

 

2012

 

2013 vs. 2012

 

 

 

(In thousands)

 

 

 

Revenues

 

$

992,928

 

$

912,534

 

8.8

%

Cost of operations

 

892,571

 

826,375

 

(8.0

)%

Gross profit

 

100,357

 

86,159

 

16.5

%

General and administrative expenses

 

64,278

 

69,196

 

7.1

%

Income from construction operations

 

36,079

 

16,963

 

112.7

%

Other expense, net

 

(827

)

(2,308

)

64.2

%

Interest expense

 

(11,336

)

(11,082

)

(2.3

)%

Income before income taxes

 

23,916

 

3,573

 

569.4

%

Provision for income taxes

 

(9,116

)

(4,776

)

(90.9

)%

Net income (loss)

 

$

14,800

 

$

(1,203

)

 

 

 

 

 

Consolidated Results of Operations

 

 

 

Three months ended March 31,

 

 

 

2013

 

2012

 

 

 

(As a percentage of Revenues)

 

Revenues

 

100.0

%

100.0

%

Cost of operations

 

89.9

%

90.6

%

Gross profit

 

10.1

%

9.4

%

General and administrative expenses

 

6.5

%

7.6

%

Income from construction operations

 

3.6

%

1.8

%

Other expense, net

 

(0.1

)%

(0.2

)%

Interest expense

 

(1.1

)%

(1.2

)%

Income before income taxes

 

2.4

%

0.4

%

Provision for income taxes

 

(0.9

)%

(0.5

)%

Net income (loss)

 

1.5

%

(0.1

)%

 

Revenues were $992.9 million for the three months ended March 31, 2013 compared to $912.5 million for the same quarter of 2012. Income from construction operations was $36.1 million for the three months ended March 31, 2013 compared to $17.0 million for the same quarter of 2012. Net income for the three months ended March 31, 2013 was $14.8 million compared to a net loss of $1.2 million for the same quarter of 2012. Basic and diluted earnings per share were $0.31 for the three months ended March 31, 2013 compared with a basic and diluted loss per share of $0.03 for the same quarter of 2012.  Excluding $3.6 million in discrete tax adjustments and a $2.7 million pre-tax loss on the sale of certain auction rate securities, both of which were recognized in the first quarter of 2012, net income and diluted earnings per share for the first quarter of 2012 were $4.1 million and $0.08, respectively. Net income and diluted earnings per share excluding these adjustments are non-GAAP financial measures, which are discussed below and are reconciled to the most directly comparable GAAP measures.

 

Revenues increased by $80.4 million or 8.8% during the three months ended March 31, 2013 compared to the same quarter last year primarily due to 21.4% and 12.9% growth within the Building and Specialty Contractor Segments, respectively, associated with activity in new hospitality and gaming projects in California, Arizona and Nevada, work performed in New York in connection with damage caused by Hurricane Sandy, and increased activity in a Civil tunnel project in Washington. The increase in net income in the first quarter was primarily due to the increased revenue described above, and a reduction in general and administrative expenses.

 

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Table of Contents

 

At March 31, 2013, working capital was $827.9 million, an increase of $80.3 million from $747.6 million at December 31, 2012.

 

In the first quarter of 2013, we received significant new contract awards as well as additions to existing contracts and ended the quarter with a contract backlog of $5.5 billion, a decrease of $0.1 billion from $5.6 billion as of December 31, 2012. The decrease was due to reduced backlog in our Civil and Management Services segments associated with continued activity on certain tunnel projects on the West Coast and federal government projects in Afghanistan and Guam, partially offset by increased backlog in our Building and Specialty Contractors segments associated with recent project awards.

 

Non-GAAP Measures

 

Our consolidated financial statements are presented based on accounting principles generally accepted in the United States (“U.S. GAAP”). We sometimes use non-GAAP measures of income from operations, net income, earnings per share and other measures that we believe are appropriate to enhance an overall understanding of our historical financial performance and future prospects. We are providing these non-GAAP measures to disclose additional information to facilitate the comparison of past and present operations, and they are among the indicators management uses as a basis for evaluating the Company’s financial performance as well as for forecasting future periods. For these reasons, management believes these non-GAAP measures can be useful operating performance measures to be considered by investors, prospective investors and others. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP, and they may not be comparable to other similarly titled measures of other companies.

 

The following table is a reconciliation of reported income from construction operations, net income (loss), and diluted earnings (loss) per share under GAAP to income from operations, net income and diluted earnings per share during the three months ended March 31, 2012, excluding discrete items. Included in discrete items is the impact of one-time expenses or benefits: (i) the $2.7 million realized loss on the sale of auction rate securities in the first quarter of 2012 less associated tax benefits and (ii) $3.6 million of discrete tax expense items related to an increase in unrecognized tax benefits and an adjustment, both associated with certain stock-based compensation items identified during the first quarter of 2012.

 

 

 

Three months ended March 31,

 

(in thousands, except per share data)

 

2013

 

2012

 

 

 

 

 

 

 

Reported net income (loss)

 

$

14,800

 

$

(1,203

)

Plus: Realized loss on sale of investments

 

 

2,699

 

Less: Tax benefits provided on realized sale of investments

 

 

(1,057

)

Plus: Discrete tax adjustments

 

 

3,649

 

Net income, excluding discrete items

 

$

14,800

 

$

4,088

 

 

 

 

 

 

 

Reported diluted income (loss) per common share

 

$

0.31

 

$

(0.03

)

Plus: Realized loss on sale of investments

 

 

0.03

 

Plus: Discrete tax adjustments

 

 

0.08

 

Diluted earnings per common share, excluding discrete items

 

$

0.31

 

$

0.08

 

 

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Table of Contents

 

Backlog Analysis

 

Our backlog of uncompleted construction work at March 31, 2013 was approximately $5.5 billion compared to $5.6 billion at December 31, 2012.  During the first quarter of 2013, we converted a number of pending awards into backlog across each of our business segments and had significant adjustments to existing contracts.  Significant awards included two educational building projects in California valued at $234 million; the Hudson Yards South Tower construction project in New York; a $58 million transit signal modernization project in New York; and a $40 million federal facility in Mississippi.  In addition, we have pending contract awards, including the $985 million joint venture California High-Speed Rail project, the $840 million SFMTA Central Subway project in California, other low bids on civil bridge and transportation projects, and various specialty contracts that we anticipate will enter into backlog in the near future as the contracts for these projects are executed. We are continuing to track several large scale civil and building prospects for both public and private sector customers as we continue to leverage our self-performance and schedule control capabilities.

 

The following table provides an analysis of our backlog by business segment for the three months ended March 31, 2013.

 

 

 

Backlog at
December 31,
2012

 

New Business
Awarded (1)

 

Revenues
Recognized

 

Backlog at
March 31, 2013

 

 

 

(in millions)

 

Building

 

$

1,964.9

 

$

490.8

 

$

(413.6

)

$

2,042.1

 

Civil

 

1,774.0

 

124.6

 

(232.7

)

1,665.9

 

Specialty Contractors

 

1,507.3

 

289.0

 

(301.9

)

1,494.4

 

Management Services

 

357.4

 

11.2

 

(44.7

)

323.9

 

Total

 

$

5,603.6

 

$

915.6

 

$

(992.9

)

$

5,526.3

 

 


(1)         New business awarded consists of the original contract price of projects added to our backlog plus or minus subsequent changes to the estimated total contract price of existing contracts.

 

Critical Accounting Policies

 

Our significant accounting policies are described in Note 1 — Description of Business and Summary of Significant Accounting Policies of the Notes to Consolidated Financial Statements in Part IV, Item 15. Exhibits and Financial Statement Schedules, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.  Our critical accounting policies are also identified and discussed in Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations of our Annual Report on Form 10-K for the fiscal year ended December 31, 2012.

 

Recently Issued Accounting Pronouncements

 

In July 2012, the FASB issued Accounting Standard Update (“ASU”) 2012-02, “Testing Indefinite-Lived Intangible Assets for Impairment,” a staff position that gives an entity the option to make a qualitative evaluation about the likelihood of indefinite-lived intangible asset impairment. An entity that adopts this option will be required to perform the quantitative test only if it concludes that the fair value of the indefinite-lived intangible asset is more likely than not less than its carrying value. The effective date is for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. The adoption of this update did not have a material effect on our consolidated financial statements.

 

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Table of Contents

 

In January 2013, the FASB issued ASU 2013-01, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements established by ASU 2011-11”Balance Sheet (Topic 210): Disclosures about Offsetting Assets and Liabilities.”.  ASU 2013-01 is effective for the fiscal years beginning on or after January 1, 2013, and interim periods within.  Retrospective application is required for any period presented that begins before the entity’s initial application of the new requirements.  The adoption of this guidance did not have a material impact on the Company’s financial statements.

 

In February 2013, the FASB issued ASU 2013-02, “Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income”, an amendment to FASB ASC Topic 220, “Comprehensive Income.” The update requires disclosure of amounts reclassified out of accumulated other comprehensive income by component. In addition, an entity is required to present, either on the face of the statement of operations or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required to be reclassified to net income in its entirety in the same reporting period. For amounts not reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures that provide additional detail about those amounts. This ASU is effective prospectively for the Company fiscal years, and interim periods within those years beginning after December 15, 2012.  The adoption of this guidance did not have any impact on the Company’s financial statements.

 

In February 2013, the FASB issued ASU 2013-04, which provides guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date. This ASU is an update to FASB ASC Topic 405, “Liabilities”. The amendments in this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2013.  The Company is currently evaluating the impact of this guidance on its financial statements.

 

Use of and changes in estimates

 

The Company’s construction business involves making significant estimates and assumptions in the normal course of business relating to its contracts and its joint venture contracts. Management focuses on evaluating the performance of contracts individually. These estimates can vary in the normal course of business as projects progress, when estimated productivity assumptions change based on experience to date and uncertainties are resolved.  Change orders and claims, as well as changes in related estimates of costs to complete, are considered revisions in estimates. The Company uses the cumulative catch-up method applicable to construction contract accounting to account for revisions in estimates. The impact on operating margin in a reporting period and future periods from a change in estimate will depend on the stage of contract completion. There were no significant changes in contract estimates at completion that impacted gross profit for both the three months ended March 31, 2013 and 2012.

 

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Table of Contents

 

Results of Operations

 

Comparison of the Three Months Ended March 31, 2013 with the Three Months Ended March 31, 2012

 

Revenues were $992.9 million for the three months ended March 31, 2013 compared to $912.5 million for the same quarter of 2012. Income from construction operations was $36.1 million for the three months ended March 31, 2013 compared to $17.0 million for the same quarter of 2012. Net income for the three months ended March 31, 2013 was $14.8 million compared to a net loss of $1.2 million for the same quarter of 2012. Basic and diluted earnings per share were $0.31 for the three months ended March 31, 2013 compared with a basic and diluted loss per share of $0.03 for the same quarter of 2012. Excluding $3.6 million in discrete tax adjustments and a $2.7 million pre-tax loss on the sale of certain auction rate securities, both of which were recognized in the first quarter of 2012, net income and diluted earnings per share for the year-ago quarter were $4.1 million and $0.08, respectively. Net income and diluted earnings per share excluding these adjustments are non-GAAP financial measures, which are discussed above and are reconciled to the most directly comparable GAAP measures.

 

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Table of Contents

 

Revenues

 

The following table summarizes our revenues by business segment:

 

 

 

Revenues for the

 

 

 

 

 

 

 

Three months ended March 31,

 

 

 

 

 

(dollars in millions)

 

2013

 

2012

 

$ Change

 

% Change

 

Building

 

$

413.6

 

$

340.8

 

$

72.8

 

21.4

%

Civil

 

232.7

 

249.4

 

(16.7

)

(6.7

)%

Specialty Contractors

 

301.9

 

267.4

 

34.5

 

12.9

%

Management Services

 

44.7

 

54.9

 

(10.2

)

(18.6

)%

Total

 

$

992.9

 

$

912.5

 

$

80.4

 

8.8

%

 

Building segment revenues increased by $72.8 million (or 21.4%), from $340.8 million in the first quarter of 2012 to $413.6 million in the first quarter of 2013, due primarily to activity in new hospitality and gaming projects in California, Arizona and Nevada.

 

Civil segment revenues decreased by $16.7 million (or 6.7%), from $249.4 million in the first quarter of 2012 to $232.7 million in the first quarter of 2013, due primarily to reduced activity on several mining and civil projects in the Midwest.  Those decreases were partially offset by increased activity in a tunnel project in Washington.

 

Specialty Contractors segment revenues increased by $34.5 million (or 12.9%), from $267.4 million in the first quarter of 2012 to $301.9 million in the first quarter of 2013, due primarily to work performed in connection with damage caused by Hurricane Sandy.

 

Management Services segment revenues decreased by $10.2 million (or 18.6%), from $54.9 million in the first quarter of 2012 to $44.7 million in the first quarter of 2013, due primarily to reduced activity in a containerized housing project in Iraq, as well as in several surety projects.

 

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Table of Contents

 

Income (Loss) from Construction Operations

 

The following table summarizes our income (loss) from construction operations by business segment:

 

 

 

Income (Loss) from Construction Operations

 

 

 

 

 

 

 

 

 

and Operating Margins

 

 

 

 

 

 

 

 

 

Three months ended March 31,

 

Change in

 

 

 

2013

 

2012

 

Amount

 

Margin

 

(dollars in millions)

 

Amount

 

Margin

 

Amount

 

Margin

 

$

 

%

 

%

 

Building

 

$

4.2

 

1.0

%

$

(8.9

)

(2.6

)%

$

13.1

 

147.2

%

3.6

%

Civil

 

21.6

 

9.3

%

16.9

 

6.8

%

4.7

 

27.8

%

2.5

%

Specialty Contractors

 

19.3

 

6.4

%

19.7

 

7.4

%

(0.4

)

(2.0

)%

(1.0

)%

Management Services

 

2.8

 

6.3

%

1.9

 

3.5

%

0.9

 

47.4

%

2.8

%

 

 

47.9

 

4.8

%

29.6

 

3.2

%

18.3

 

61.8

%

1.6

%

Corporate

 

(11.8

)

(1.2

)%

(12.6

)

(1.4

)%

0.8

 

(6.3

)%

0.2

%

Income from construction operations

 

$

36.1

 

3.6

%

$

17.0

 

1.9

%

$

19.1

 

112.4

%

1.7

%

 

Building segment income from construction operations increased $13.1 million (or 147.2%), from a loss of $8.9 million in the first quarter of 2012 to income of $4.2 million in the first quarter of 2013, due primarily to the increase in volume discussed above under Revenues, contributions from Hurricane Sandy-related projects, and a decrease in general and administrative expenses due primarily to staffing reductions. Building segment operating margin increased from (2.6%) in the first quarter of 2012 to 1.0% in the first quarter of 2013 due primarily to the above-mentioned reasons.

 

Civil segment income from construction operations increased $4.7 million (or 27.8%), from $16.9 million in the first quarter of 2012 to $21.6 million in the first quarter of 2013, due primarily to the increase in volume on a tunnel project in Washington as discussed above under Revenues, and increased higher-margin pipeline work in the Midwest, partly offset by unfavorable cost estimate adjustments associated with the execution of certain mining projects.  Civil segment operating margin increased from 6.8% in the first quarter of 2012 to 9.3% in the first quarter of 2013 due primarily to the above-mentioned reasons.

 

Specialty Contractors segment income from construction operations decreased by $0.4 million (or 2.0%), from $19.7 million in the first quarter of 2012 to $19.3 million in the first quarter of 2013, due primarily to reduced activity on numerous smaller electrical subcontracts, partly offset by Hurricane Sandy-related projects and reduced general and administrative expenses.  Specialty Contractors segment operating margin declined from 7.4% in the first quarter of 2012 to 6.4% in the first quarter of 2013 due primarily to reduced activity on several higher-margin electrical subcontracts, as well as several favorable close-out adjustments realized in 2012.

 

Management Services segment income from construction operations increased by $0.9 million (or 47.4%), from $1.9 million in the first quarter of 2012 to $2.8 million in the first quarter of 2013, due primarily to favorable performance on an aircraft parking apron project in Guam and related favorable adjustments to certain project cost estimates and reduced general and administrative expenses. These increases were partially offset by the reduction in volume discussed above under Revenues.  Management Services segment operating margin increased from 3.5% in the first quarter of 2012 to 6.3% in the first quarter of 2013 due primarily to the above-mentioned reasons.

 

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Table of Contents

 

Corporate general and administrative expenses decreased by $0.8 million (or 6.3%), from $12.6 million in the first quarter of 2012 to $11.8 million in the first quarter of 2013 due primarily to timing of work performed by certain service providers.

 

Consolidated Other Income, Interest Expense and Provision for Income Taxes

 

(dollars in millions)

 

March 31, 2013

 

March 31, 2012

 

$ Change

 

% Change

 

Three months ended

 

 

 

 

 

 

 

 

 

Other Income (Expense), net

 

$

(0.8

)

$

(2.3

)

$

1.5

 

(65.2

)%

Interest Expense

 

(11.3

)

(11.1

)

(0.2

)

1.8

%

Provision for Income Taxes

 

(9.1

)

(4.8

)

(4.3

)

89.6

%

 

Other expense, net decreased by $1.5 million from $2.3 million in the first quarter of 2012 to $0.8 million in the first quarter of 2013, due primarily to a loss of $2.7 million on the sale of a portion of our auction rate securities in the first quarter of 2012.

 

Interest expense remained flat at $11.3 million in the first quarter of 2013 compared to $11.1 million in the first quarter of 2012.

 

We recognized income tax expense of $9.1 million in the first quarter of 2013 compared to income tax expense of $4.8 million in the first quarter of 2012. The increase in income tax expense was due to increased income in the first quarter of 2013.  Excluding the unfavorable discrete tax adjustment of $3.6 million in the first quarter of 2012 and the favorable discrete adjustment of $0.4 million in the first quarter of 2013, the effective tax rate increased from 31.6% in the first quarter of 2012 to 39.9 % in the first quarter of 2013.

 

Liquidity and Capital Resources

 

Cash and Working Capital

 

At March 31, 2013 and December 31, 2012, cash held by us and available for general corporate purposes was $35.1 million and $70.8 million, respectively.  Our proportionate share of cash held by joint ventures and available only for joint venture-related uses, including distributions to joint venture partners, was $97.2 million and $97.3 million at March 31, 2013 and December 31, 2012, respectively, and our restricted cash was $45.2 million and $38.7 million at March 31, 2013 and December 31, 2012, respectively.  We do not believe that it is likely we will be called upon to contribute significant additional capital in the event of default by any of our partners.

 

We require each partner in the joint ventures in which we participate to accept joint and several responsibility for all obligations of the joint venture. Prior to forming a joint venture, we conduct a thorough analysis of the prospective partner to determine its capabilities, specifically relating to construction expertise, track record for delivering a quality product on time, reputation in the industry, as well as financial strength and available liquidity. We utilize a number of resources to verify a potential joint venture partner’s financial condition, including credit rating reports and financial information contained in its audited financial statements. We specifically review a potential partner’s available liquidity and bonding capacity. In the event we are concerned with the financial viability of a potential partner, we will require substantial initial cash contributions upon inception of the joint venture to mitigate the risk that we would be required to cover a disproportionate share of the joint venture’s future cash needs.

 

The majority of our joint venture contracts are for various government agencies that typically require the joint venture and/or our partners to complete a thorough pre-qualification process. This pre-qualification process typically includes the verification of each partner’s financial condition and capacity to perform the work, as well as the issuance of performance bonds by surety companies who also independently verify each partner’s financial condition.

 

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A summary of cash flows for each of the three months ended March 31, 2013 and 2012 is set forth below:

 

 

 

Three Months Ended March 31,

 

(dollars in millions)

 

2013

 

2012

 

Cash flows from:

 

 

 

 

 

Operating activities

 

$

(84.4

)

$

(25.0

)

Investing activities

 

(18.5

)

9.3

 

Financing activities

 

67.2

 

1.9

 

Net decrease in cash

 

(35.7

)

(13.8

)

Cash at beginning of year

 

168.0

 

204.2

 

Cash at end of period

 

$

132.3

 

$

190.4

 

 

During the three months ended March 31, 2013, we used $84.4 million in cash to fund operating activities, due primarily to the timing of collections in the Building and Specialty Contractors segments.  We used $18.5 million in cash from investing activities, due primarily to the purchase of construction equipment of $12.2 million and an increase of $6.5 million in restricted cash.  We received $67.2 million in cash from financing activities, due primarily to our outstanding borrowings under our revolving facility offset by cash used for scheduled debt repayments.

 

At March 31, 2013, we had working capital of $827.9 million, a ratio of current assets to current liabilities of 1.67 to 1.00, and a ratio of debt to equity of 0.69 to 1.00 compared to working capital of $747.6 million, a ratio of current assets to current liabilities of 1.61 to 1.00 and a ratio of debt to equity of 0.64 to 1.00 at December 31, 2012.

 

Long-term Investments

 

At March 31, 2013, we had investments in auction rate securities (“ARS”) of $46.3 million, which are reflected at fair value. Our investment policy is to manage our assets to achieve our goals of preserving principal, maintaining adequate liquidity at all times, and maximizing returns subject to our investment guidelines. The current overall liquidity concerns in capital markets have affected our ability to liquidate many of our investments in auction rate securities. As such, we classified our ARS as “available-for-sale” Long-term Investments.  Based on our ability to access our cash equivalent investments and our available revolving facility, we do not expect that the short-term lack of liquidity of our ARS investments will materially affect our overall liquidity position or our ability to execute our current business plan.  For a description of our accounting for our ARS, see Note 5 — Fair Value Measurements to Consolidated Condensed Financial Statements.

 

Long-term Debt

 

Debt was $804.4 million at March 31, 2013, an increase of $67.3 million from $737.1 million at December 31, 2012, due primarily to a net increase in borrowings of $84.0 million on our revolving line of credit partially offset by principal payments of $16.7 million on other long-term debt.  We utilized the revolving facility for outstanding letters of credit in the amount of $0.2 million.  Accordingly, at March 31, 2013, we had $95.8 million available to borrow under our credit agreement.  We believe that our financial position and credit arrangements are sufficient to support our current backlog and anticipated new work.

 

Excluding the outstanding borrowings of $204.0 million on our revolving line of credit, the unsecured senior notes of $298.3 million and our $200 million term loan (which had been paid down to $143.8 million at March 31, 2013 from $152.5 million at December 31, 2012), the remaining balance of $158.3 million of our outstanding debt is generally secured by the underlying assets.  Our debt to equity ratio was 0.69x as of March 31, 2013 compared to 0.64x as of December 31, 2012.

 

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On August 2, 2012, we entered into a First Amendment (the “First Amendment”) to its Fifth Amended and Restated Credit Agreement (the “Credit Agreement”) entered into on August 3, 2011 as Borrower, with Bank of America, N.A., as Administrative Agent, Swing Line Lender and L/C Issuer (the “Lender”). The First Amendment modifies the financial covenants under the Credit Agreement to allow for more favorable minimum net worth, minimum fixed charge and maximum leverage ratios for us and also to add several new financial covenants including minimum liquidity and a consolidated senior leverage ratio. The First Amendment also increases the sublimit for letters of credit from $50 million to $150 million.  The First Amendment also modifies the applicable interest rates for amounts outstanding under the credit facility as well as the quarterly fees per annum for the unused portion of the credit facility. As of the filing date of this Form 10-Q, we are in compliance and expect to continue to be in compliance with the modified financial covenants under the First Amendment.

 

There were no other material changes in our contractual obligations during the three months ended March 31, 2013.

 

Off-Balance Sheet Arrangements

 

We do not have any financial partnerships with unconsolidated entities, such as entities often referred to as structured finance, special purpose entities or variable interest entities which are often established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. Accordingly, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had such relationships.

 

Forward-looking Statements

 

The statements contained in this Management’s Discussion and Analysis of the Consolidated Condensed Financial Statements on Form 10-Q that are not purely historical are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including without limitation, statements regarding our management’s expectations, hopes, beliefs, intentions or strategies regarding the future.  These forward-looking statements are based on our current expectations and beliefs concerning future developments and their potential effects on us.  There can be no assurance that future developments affecting us will be those that we have anticipated.  These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. These risks and uncertainties include, but are not limited to:

 

·                  our ability to win new contracts and convert backlog into revenue;

·                  our ability to successfully and timely complete construction projects;

·                  our ability to realize the anticipated economic and business benefits of our acquisitions and our strategy to assemble and operate a Specialty Contractors business segment;

·                  the potential delay, suspension, termination or reduction in scope of a construction project;

·                  the continuing validity of the underlying assumptions and estimates of total forecasted project revenues, costs and profits and project schedules;

·                  the outcomes of pending or future litigation, arbitration or other dispute resolution proceedings;

·                  the availability of borrowed funds on terms acceptable to us;

·                  the ability to retain certain members of management;

·                  the ability to obtain surety bonds to secure our performance under certain construction contracts;

·                  possible labor disputes or work stoppages within the construction industry;

·                  changes in federal and state appropriations for infrastructure projects and the impact of changing economic conditions on federal, state and local funding for infrastructure projects;

·                  possible changes or developments in international or domestic political, social, economic, business, industry, market and regulatory conditions or circumstances;

·                  actions taken or not taken by third parties including our customers, suppliers, business partners, and competitors and legislative, regulatory, judicial and other governmental authorities and officials; and

·                  other risks and uncertainties discussed under the heading “Risk Factors” in our Annual Report on

Form 10-K for the year ended December 31, 2012 filed with the Securities and Exchange Commission on February 25, 2013.

 

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We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

There has been no material change in our exposure to market risk from that described in Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission on February 25, 2013.

 

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures

 

The Company’s management, including our Chief Executive Officer and Chief Financial Officer, has carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (“Exchange Act”) as of the period covered by this report.  Based upon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (a) were effective to ensure that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms and (b) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls Over Financial Reporting

 

There were no changes in our internal control over financial reporting during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Part II. - Other Information

 

Item 1. Legal Proceedings

 

From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations.  Litigation can be expensive and disruptive to normal business operations.  Moreover, the results of legal proceedings cannot be predicted with any certainty and, in the case of more complex legal proceedings, the results are difficult to predict at all.  We disclosed information about certain of our legal proceedings in Part I, Item 3 of our Annual Report on Form 10-K for the year ended December 31, 2012. For an update to those disclosures, see Note 7 — Contingencies and Commitments to Consolidated Condensed Financial Statements.

 

Item 1A.  Risk Factors

 

Information regarding risk factors affecting our business is discussed in our Annual Report on Form 10-K for the year ended December 31, 2012.  There have been no material changes from those risk factors during the three months ended March 31, 2013.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

There were no repurchases by the Company of its equity securities during the three months ended March 31, 2013.  The Company acquired 8,697 shares from one employee in connection with the settlement of income tax and related benefit withholding obligations arising from vesting in restricted stock units.

 

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Table of Contents

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Section 1503 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) requires domestic mine operators to disclose violations and orders issued under the Federal Mine Safety and Health Act of 1977 (the “Mine Act”) by the federal Mine Safety and Health Administration.  We do not act as the owner of any mines but we may act as a mining operator as defined under the Mine Act where we may be an independent contractor performing services or construction of such mine.

 

Information concerning mine safety violations or other regulatory matters required by Section 1503(a) of the Dodd-Frank Act and Item 104 Regulation S-K is included in Exhibit 95.

 

Item 5. Other Information

 

None.

 

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Table of Contents

 

Item 6. Exhibits

 

Exhibit 3.

 

Articles of Incorporation and By-laws

 

 

 

 

 

 

 

3.1

 

Restated Articles of Organization (incorporated by reference to Exhibit 4 to Form S-2 (File No. 33-28401) filed on April 28, 1989).

 

 

 

 

 

 

 

3.2

 

Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.2 to Form S-1 (File No. 333-111338) filed on December 19, 2003).

 

 

 

 

 

 

 

3.3

 

Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on April 12, 2000.)

 

 

 

 

 

 

 

3.4

 

Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on September 11, 2008.)

 

 

 

 

 

 

 

3.5

 

Articles of Amendment to the Restated Articles of Organization of Tutor Perini Corporation (incorporated by reference to Exhibit 3.5 to Form 10-Q filed on August 10, 2009).

 

 

 

 

 

 

 

3.6

 

Second Amended and Restated By-laws of Tutor Perini Corporation (incorporated by reference to Exhibit 3.1 to Form 8-K filed on November 24, 2009).

 

 

 

 

 

Exhibit 4.

 

Instruments Defining the Rights of Security Holders, Including Indentures

 

 

 

 

 

 

 

4.1

 

Shareholders Agreement, dated April 2, 2008, by and among Tutor Perini Corporation, Ronald N. Tutor and the shareholders of Tutor-Saliba Corporation signatory thereto (incorporated by reference to Exhibit 4.1 to Form 8-K filed on April 7, 2008).

 

 

 

 

 

 

 

4.2

 

Amendment No. 1 to the Shareholders Agreement, dated as of September 17, 2010, by and between Tutor Perini Corporation and Ronald N. Tutor, as shareholder representative (incorporated by reference to Exhibit 4.1 to Form 8-K filed on September 20, 2010).

 

 

 

 

 

 

 

4.3

 

Amendment No. 2 to the Shareholders Agreement, dated as of June 2, 2011, by and between Tutor Perini Corporation and Ronald N. Tutor, as shareholder representative (incorporated by reference to Exhibit 4.1 to Form 8-K filed on June 6, 2011).

 

 

 

 

 

 

 

4.4

 

Amendment No. 3 to the Shareholders Agreement, dated as of September 13, 2011, by and between Tutor Perini Corporation and Ronald N. Tutor, as shareholder representative (incorporated by reference to Exhibit 4.1 to Form 8-K filed on September 16, 2011).

 

 

 

 

 

 

 

4.5

 

Amendment No. 4 to the Shareholders Agreement, dated as of March 20, 2013, by and between Tutor Perini Corporation and Ronald N. Tutor, as shareholder representative (incorporated by reference to Exhibit 4.1 to Form 8-K filed on March 26, 2013).

 

 

 

 

 

 

 

4.6

 

Indenture, dated October 20, 2010, by and among Tutor Perini Corporation, certain subsidiary guarantors named therein and Wilmington Trust FSB, as trustee (incorporated by reference to Exhibit 4.1 to Form 8-K filed on October 21, 2010).

 

 

 

 

 

 

 

4.7

 

Registration Rights Agreement dated October 20, 2010, by and among Tutor Perini Corporation, certain subsidiary guarantors named therein and the initial purchasers named therein (incorporated by reference to Exhibit 4.2 to Form 8-K filed on October 21, 2010).

 

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Exhibit 31.1

 

Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — filed herewith.

 

 

 

Exhibit 31.2

 

Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 — filed herewith.

 

 

 

Exhibit 32.1*

 

Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — filed herewith.

 

 

 

Exhibit 32.2*

 

Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 — filed herewith.

 

 

 

Exhibit 95

 

Mine Safety Disclosure — filed herewith.

 

 

 

Exhibit 101.INS**

 

XBRL Instance Document.

 

 

 

Exhibit 101.SCH**

 

XBRL Taxonomy Extension Schema Document.

 

 

 

Exhibit 101.CAL**

 

XBRL Taxonomy Extension Calculation Linkbase Document.

 

 

 

Exhibit 101.LAB**

 

XBRL Taxonomy Extension Label Linkbase Document.

 

 

 

Exhibit 101.PRE**

 

XBRL Taxonomy Extension Presentation Linkbase Document.

 

 

 

Exhibit 101.DEF**

 

XBRL Taxonomy Extension Definition Linkbase Document.

 


* These certifications are being furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are not being filed as part of this Quarterly Report on Form 10-Q or as a separate disclosure document.

 

** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

Tutor Perini Corporation

 

Registrant

 

 

 

 

Date:  May 2, 2013

/s/Michael J. Kershaw

 

Michael J. Kershaw, Executive Vice President and Chief Financial Officer

 

Duly Authorized Officer and Principal Financial Officer

 

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